The Real Problem With Streaming
Much of the debate around the sustainability of streaming has understandably focused on artist and songwriter income and transparency. It is a debate that I have contributed to frequently. But the more fundamental structural issues are whether the business models are commercially sustainable and if they are, what the implications are. Music consumption is inarguably moving towards access based models so the question is not whether streaming should happen or not, but how to make it work as well as it possibly can for all parties. As unfair as it might seem, the baseline issues regarding creator income could go unchanged without streaming business models falling apart. But, as I will explain, if broader commercial sustainability issues are not fixed then many streaming businesses will collapse leaving just a couple of companies standing. And that scenario would almost certainly be worse for creators than the current one.
The Steve Jobs Revenue Share Legacy
As I revealed in my book ‘Awakening’, when Steve Jobs struck the original iTunes Music Store deal he walked away a happy man despite having given the major labels the big revenue percentages they wanted. Why? Because it meant that it was really hard for anyone without ulterior business aims like Apple had, to make money from selling tracks as a standalone business. The revenue shares negotiated back then set the reference point for all digital deals since. The fact that streaming services pay out more than 70% of revenues to rights holders can be traced back to that deal.
The Great Role Reversal And The De Facto Label Monopoly
In the digital era the record labels undisputedly hold the whip hand, and some. In the analogue era the roles were reversed. Retailers were the dominant partners and they knew it. Record labels actually paid retailers for placement to promote new releases. Compare and contrast that with labels contractually compelling services to provide placement. Both models are wrong and both engender corrosive behaviour. Because the major labels account for the majority of music sales it is nigh on impossible for a non-niche music service to operate without all three on board. This gives each label the effective power of veto. So even though no major label is a monopoly in its own right each has an effective monopoly power in licensing. These factors give labels them the strength and confidence to demand terms that would not take place in an openly competitive market. This, for example, is very different to how digital deals are done in the much more fragmented TV rights landscape.
Loading The Risk Onto Music Services
Why all this matters for the sustainability of streaming services is because of how it manifests in commercial terms. Recent contract leaks have revealed to everyone the details of what insiders long knew, that labels and publishers front-load deals. Services both have to pay large amounts up front and agree to guaranteed payments to rights owners regardless of how well the service performs. (Some labels proudly state they don’t charge advances but instead charge a ‘set up fee’ for every track in their catalogue. Call it what you like, making a music service pay money up front is an advance payment.) Even without considering the entirely intentional complexity of details such as minimas, floors and ceilings, the underlying principle is simple: a record label secures a fixed level of revenue regardless, while a music service assumes a fixed level of cost regardless. …
… read on at musicindustryblog.wordpress.com
Originally posted by Mark Mulligan on his Music Industry Blog
25th August, 2015