The music industry: to be social, or anti-social?

7 November 2013

Nick Carter

Nick Carter

Consultant

The rise of social-music platforms such as ‘SoundCloud’ and ‘The Hype Machine’ are making it even more difficult for artists to stand out from the crowd.

This presents new challenges to both the musicians and their record labels.

Music industry trends

Musicians have a number of key revenue streams, including royalties through the sale of CDs (physical sales through HMV, Supermarkets, etc.), selling downloads / streams (digital sales such as iTunes Music Store, Amazon and Spotify), live concerts, merchandise and license income (such as film soundtracks and remixes).

Music labels have tried to quickly adapt their business models to include new pricing mechanisms for audio streaming through third party websites like YouTube, or applications like Spotify. “Payment per stream” agreements ensure the artists receive income when you Spotify-stream your favourite Jay-Z album whilst on the Tube to work. These are in the region of $0.003 to $0.009 per stream, meaning you’ll need to stream a track over 1,300 times until sales are equivalent to the purchasing a $12 CD.

How do social-music platforms work?

Whether you’re search for undiscovered music, or want to avoid the same playlist being played over and over, it’s likely your friends will share similar music tastes to yours.

Social-music allows you to stream music your friends have ‘liked’, and allow you to befriend the tracks you enjoy too. A host of attractive mobile apps make this process of finding new music enjoyable and super easy, without a CD or download in sight.

There are a number of business risks with the changing behaviour of consumers:

Ownership of music reduces

Shifting consumption to streaming, as opposed to purchasing, reveals that current business models built around selling CDs are suddenly inadequate – and require a quick review by music labels. Depending on how much cannibalization impacts CD sales, pricing models may need to increase to sustain current revenue levels.

Consumers listen track-by-track, not by album

Paying by individual tracks is likely to support artists who have “one hit wonders”, especially if they are supported by a video that becomes viral on YouTube. If fewer albums are purchased, this could seriously impact an artist’s income. The digital music spaces move so quickly that what’s big one minute could be page 25 of “what’s popular” the next. This is a sign of increasing fickleness.

Competition just got a lot stiffer

Launching tracks through social music platforms are often significantly cheaper than getting your CDs in high street stores. This increases competition by independent labels, making it much harder to stand

How can an artist or label keep their head above water?

A few suggestions:

  • Embrace shifts in the consumption of music, and work out who your market is. Every artist or producer has groups that like underlying trends, and knowing yours both in the club, and on the web is critical;
  • Identifying similar music and streaming trends can set you up to work into the golden circle of a social group;
  • Labels to invest in your own advert-funded platform to distribute music and music videos, such as Vevo. It’ll cut out middle men and increase profits;
  • Work with social-music providers to perform analytics, trending and research. This informs your online advertising spend to ensure you’re marketing the right music to the right people; and,
  • Ensure that licensing and copyright protection teams monitor remixes and streaming agreements between third parties so you get what you’re owed.

A proactive, innovative approach to dealing with the changing trends in music consumption is surely going to be the only way to keep ahead of the trend.

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