Streaming May Topple Music Industry Iceberg

FredWithBriefcaseSmall The IFPI reports that digital sale grew a meager 5.1% last year and that in the U.S., growth was almost flat at 1.2%. These numbers and chart that accompanies them aren't that shocking, but they do illustrate why the major labels are both excited for Google and Spotify to come to the market, yet terrified about what may happen if they really succeed. If and when Spotify does launch in the U.S. and becomes very popular, Peter Kafka writes, "then CD sales – which still make up the majority of the industry's sales – could plummet even faster."

And what happens if CDs plummet and digital downloads go stagnant?

Music royalties will continue to decline too. Yesterday, Hypebot revealed that for the first time, PRS for Music reported a 1% annual fall in total music royalties.

Now, PRS suspects that digital piracy and a fall in high street sales are to blame for this decline, but in the humble opinion of industry thinker George Howard, they are making a glaring omission with respect to why the royalties might be down: "lack of royalties due to streaming." The way Howard sees it, we're seeing a rapid acceleration of streaming. While consumers don't care whether they get a download or stream, it makes a big difference for an artist, as the payouts are greatly reduced. "Thus," he concludes, "streaming – not 'piracy' or 'street sales' – is what's causing the decline in royalties." The 1% decline is only the beginning of what could be a much larger trend: the toppling of the music industry iceberg.

As icebergs, no matter how large, drift towards warmer latitudes, they inexorably dissolve. "The progression is barely visible but, at some point, as the exposed part liquefies under the sun, the iceberg's center of gravity moves upward and it suddenly capsizes without warning," Frédéric Filloux writes. In other words, if streaming does boom in popularity, and artists and labels aren't prepared for "the days when their margins from downloads are obliterated," Howard says, the iceberg, i.e. industry profits, could become unstable and topple over suddenly.

In fear of this future, the major labels are backing plans from Apple and Google to create music lockers that add value to digital downloads. However, this business model is still based on the notion of fans buying music, "a track at a time," Kafka explains further. "I'm not sure how that pushes the digital sales curve up again."


Howard concludes with this question: Are artists and content holders bracing themselves for the days when they are only getting revenue from streams? "I hope so," he says, trying to maintain his usual optimism about the future of music. "But," he forewarns, "I wouldn't be building on the iceberg right now."

It's a catastrophe waiting to happen. Sometimes, when an iceberg melts, the resulting change in shape causes it to list slowly, like the record industry right now. However, icebergs can also become unstable and topple over suddenly.

Like what could happen to the record industry if streaming booms too early.

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  1. Here’s a thought: let’s recalibrate the prices.
    The CD-digital switchover was a bust because transactional prices went down by a factor of magnitude without a corresponding increase in quantity sold (does it really take a genius to guess that if people can cherry-pick tracks, they will buy less than the album equivalent?)
    The purchase-stream switchover threatens to be even worse because the transactional income is negligible. If you start essentially giving your product away, don’t be surprised when you go out of business.
    What of the “free alternative”, do you ask? Well, it looks like it’s way past the time that we should do something about it. Otherwise, the artificial market deflation will ensure the whole party will get chucked out the window.

  2. There is only one way streaming can work: build the subscriber base quickly, then raise the price for subscriptions, then raise the royalties paid to artists/labels for streams. Lastly, piracy must be continue to decline.
    If all of the above happens, we see a bright future for the music industry.

  3. If streaming is proven to be detrimental to recorded music sales, the simple option is to withdraw or withold music from streaming sites.
    The jury is still out on the value of streaming as a promotional tool, skewed by the fact that the major labels own a chunk of Spotify’s equity (stakes in the company were the payoff for the use of their catalogue).
    At BlancoMusic (an independent label), we’re not convinced by streaming as a promotional tool. seems far too similar to the legitimate download experience to us, so we don’t stream our music any more. We did with our first two releases, and have since found it near-impossible to have the material removed from the sites (separate lawyers demanded for each territory covered, claims that the music was duly removed, but was subsequently re-posted by fans, etc – all kinds of slippery excuses to continue profiting from a resource that we created, but are not being compensated adequately for). Some labels consider streaming to be, at least, a way of promoting their music, getting a nominal fee for the use, but at least preferable to having their music fileshared. To us, that’s irrelevant. The promotional value is negligible, because many of the people who use streaming sites have already paid a monthly fee for the privilege, and are damned if they’re going to shell out again for the record. Most of them don’t realise that their fee is going almost entirely to the streaming service, not to the artist, nor do many of them care. Make no mistake though, once the major labels decide that filesharing is sufficiently marginalised that a healthy record sales market exists again – they’ll pull everything off the streaming sites, which will start looking like the ravaged wasteland of wannabees and hasbeens that populates MySpace these days.

  4. in the states there are compulsory license laws that enable non-interactive streaming sites (e.g. pandora) to use music without getting consent so long as they pay, etc.
    in other words, for non-interactive streaming in the us at least – you can’t hold back content.
    of course, for interactive streams, and for many countries outside the US, you can.

  5. As a consumer of music with a very eclectic variety in music taste, I take full advantage of streaming sites to broaden my exposure to new music. I don’t rely on streaming sites for my fill of listening though, but more as a “try it before you buy it” showroom. I get excited over new finds and I duly go out and either purchase the CD or buy the tune online. This is because I don’t want to lug around a music device to stream the music, I do that in my leisure time of internet browsing. I like the portability of a cd or Mp3 player to take with me in the car and to the office where streaming is blocked. I share my music finds with friends, the “oh you’ve got to hear this” scenario comes up often at my house. I understand that artists deserve compensation for their efforts and royalties for my purchases but I can tell you one thing straight, if there was not streaming, I would not be purchasing. I love finding the sounds of emerging artists online, I’ll buy the album before it’s thrown to the public as a background track in an upcoming movie and I get satisfaction in saying to my friend at the theater, “I already have this album”. I like the idea that when I purchase it is truly “Mine”, and I have not yet gone to a subscription service like Rhapsody for that reason. I can mix artists on a cd or mp3 player and make up favorites lists to match my sunny disposition or my sultry seductive moods and I don’t pirate, I participate in supporting artists who shared the first sounds of their tracks with me via streaming audio. I have in the past heard a popular song and went out and bought the album only to find I hated every other song on the album except that one hit wonder. Streaming exposes me to variety in sound and allows me to be a “informed consumer” and I do spread the word when the music is good. Just my two cents on streaming, I use it as a tool, not as my sole source of melody.
    Glo from Ft. Worth

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