Highlights: Music Industry's 2016 Mid-Year Review

NOTE - This post is not legal advice and does not create an attorney-client relationship.  Call (435) 200-5291 if you would like to schedule a consultation with an attorney at Kennedy Art Law, P.C.

I. Introduction

If you're trying to make it in the music industry, then you should be aware of some major industry trends that are responding to how fans consume music in the digital age.  The rules of the game are rapidly changing, and you have an opportunity to dive in.  

II. Highlights of the RIAA's Mid-Year Review

On September 20, 2016, the Recording Industry Association of America (RIAA) published its mid-year review.  It's a BFD. In summary, the RIAA noted:  

  • The music industry is growing for the first time since 1999 (!!!) because subscription streaming services are finally off-setting the losses from the decline in physical CD sales.  Looking at the pie-chart below, it looks like streaming is here to stay by bringing in 47% of the industry's revenue.
     
  • Paid subscription service revenue surged in 2016 because of new streaming services like Apple Music, Tidal, Spotify Premium, and the like.  The first half of the year's streaming service revenue surpassed $1.01 billion for the first time, at an increase of 112%.
     
  • The RIAA believes that YouTube's ad-monetization model - while legal - is unfair because YouTube pays drastically less in music licensing fees compared to competitors like Spotify (and Pandora), who pay full mechanical royalty rates.  
Provided by the RIAA 2016 Mid-year review.
 

III. Throwing Shade at Ad-Supported Streaming

On September 19, 2016, RIAA's CEO, Cary Sherman (right) published a scathing analysis of ad-supported music streaming models (cough-cough YouTube) compared to its competitors (like Spotify).  Sherman claims:

  • YouTube is taking advantage of the "failing 1998 Digital Millennium Copyright Act (DMCA)."  This is because YouTube allows copyright holders to request their songs be removed from YouTube (per the DMCA), or to directly share in ad-supported revenue.  
     
  • Despite being the world's largest music provider, YouTube is a small contributor to music industry revenue.  Ad-supported streaming models like YouTube only produce 12% of all streaming revenue, and only 6% of all music industry revenue.
RIAA's CEO, Cary Sherman

RIAA's CEO, Cary Sherman

 

IV. The Music Industry Should Embrace Change

In my opinion, the RIAA should change its tune. Here's why:

#1 - The music industry needs to adapt to new technology, and should share its wealth with independent artists.

Kennedy-Spotify

The recording industry is making record profits from legal streaming, but it is also making these legal subscription streaming business models unsustainable.  The RIAA praises Spotify for paying full mechanical royalty rates; however, Spotify lost $200 million in 2015 to paying royalties to (mostly) major labels.  

The current royalty rates are based on out-dated technology and sales strategies where albums were priced to offset their physical production and distribution costs.  Moreover, major labels receive most of the streaming revenue, and they do not share it with the millions of independent artists being played on the digital airwaves.  This needs to change in the next chapter of the music industry.

Artists should be actively involved with negotiating fair royalty and payment rates for subscription and ad-supported streaming services.  The new rates should be adjusted to reward consumer's legal consumption of music through legal streaming, and to reflect the fact that music is cheaper to produce and distribute as digital files instead of hardcopy CDs. 

 

#2 - Ad-supported and subscription streaming business models have rescued the music industry.  

Physical album sales peaked in 1999, and that era is never coming back.  The recording industry couldn't figure out how to successfully monetize music with the advent of new technology, and it now seeks to punish the very companies who found a solution and made music profitable again.  

Subscription streaming services evolved out of YouTube's proven success with ad-supported streaming.  By enhancing consumer's access to music, streaming made a permanent mark on the music industry.

As a reminder, streaming generated 47% of the music industry's revenue in 2016.  The music industry recognizes that consumer's consumption of music has permanently shifted away from sales of physical releases.  In fact, in February 2016, the RIAA officially recognized streaming in its award of Gold and Platinum status to music releases.  The change in criteria has already had an impact on the music industry.  Drake's album Views went platinum immediately, with 250 million streams in the first 10 days of its release.

 

#3 - Digital media and streaming services can benefit all musicians.

YouTube music

YouTube music

By allowing artists to share in ad-supported revenue, YouTube created an opportunity for artists (i) to recoup revenue otherwise lost to pirating, (ii) to monetize beyond a one-time 99-cent (or $1.29) download fee on iTunes, and (iii) to freely and directly distribute content to fans.

If a fan downloads a song, that artist's revenue is limited to a one-time download fee.  If a fan streams a song on an ad-supported platform, that artist has more opportunities to generate income.  Under present rates, the RIAA is right in saying that the ad-supported stream will not generate as much revenue as a single song download on iTunes.  But ad-supported streaming is setting the stage for a shift in how the masses consume music, and how artists can profit from their craft.

Independent artists should take advantage of the way that social media, digital media, and new technologies have leveled the playing field in the music industry.  It is cheaper than ever before for independent artists to record and distribute their music online.  Instead of trying to make money off of a finite single sale of a song or album, I challenge artists to think bigger.  Cultivate your brand on social media and new media platforms, and cross-promote your influence to sell tickets, merchandise, and endorsements.  Now is the time to blaze your own path to success.

Call Kennedy Art & Entertainment Law if you need legal help with protecting and profiting from your music. (435) 200-5291.