With music streaming business models popping up left and right, tech pundits have touted these online music models as everything from “industry saviors” to “playing field leveler for the independent artist.” Sadly, many “experts” and artists have bought into the idea that uploading their singles to various networks is going to bring them acclaim and riches. Even sadder, the companies and executives peddling these free or cheap streaming models actually believe their own bullshit. These companies, actually buy into the idea that they have viable business models that can legitimately compete with the failing record label industry in both connecting fans to music and selling/serving recorded music. But here’s the rub; the average artist would have to have their singles downloaded 849,817 times on Rhapsody, 1.5 million times on Last.fm and over 4.5 million times on Spotify to make $1,160/month AKA, minimum wage. Does anyone really think the average independent artist could really make that happen without a publicity team, label or support staff? Compare all that effort to the artists that self presses their own CD and sells it for $9.99 – this artist only has to sell 143 CDs to make that same $1160 (an $8 profit on each sale).
Resource: How much do music artists earn online
Basically, what I’m trying to say here is that the streaming/download music model isn’t going to just put the final nail in the coffin labels are climbing into, but it’s going put starving artists even further in the hole. The model, in it’s various incarnations, from Spotify to Rhapsody, just doesn’t have the legs to benefit artists in any meaningful way, promote the music effectively to increase downloads or reduce the cost of producing music.
Most people forget that the bulk of the money a label spends on an artist is production and promotion (studio time and radio air-play ain’t cheap). We also forget that it is HARD for artists to produce hit after hit in a single album (unless you are a freak of Hit Factory freak of nature like Lady GaGa). Once the consumption model changed from album sales to single sales, artists and labels took a huge hit. Where before the artists and labels hedged their bets by producing a selection of music at a premium cost and price, now they still spend large dollars on production and promotion of albums but must bet on each single to sell at a maximum volume for a minimum price to recoup that investment. Artists are held more accountable for producing hits rather than compendiums and labels are stuck holding the bag when an album fails to produce multiple hits.
From a consumer standpoint, the streaming music model is easy and cheap, sometimes even free. And as the technology for recommendation engines like iTunes’ Genius and Pandora improves, we are able to discover more music we might like and consume it at lower and lower prices. Makes sense, right? But, our own need to consume more at less is exactly what is crushing labels like EMI which will likely face a bank takeover at the end of this month. Labels are losing money hand over fist to streaming, download and piracy sites while big artists that can fill arena’s are raking in more money from events and sponsorships. Unless something drastically changes in the ways labels produce and sell music and listeners consume it, the music industry will collapse. It is a certainty. And more importantly, once that happens, new and independent artists will have a far more difficult time getting their music to the public and we as consumers will suffer the consequences with a far more limited selection of music.
Resource: Michael Robertson: Digital music’s bad boy was right
Record labels need to take the streaming music model by the horns to either push out the competitors or partner with them and impose greater strictures on the streaming and consumption model. They must use the streaming model to serve their end of crowd sourcing new singles to better identify their artist and single investments, create value adds for fans and artists and sell more ancillary merchandise and tickets to capitalize better on 360 deals.
Is there a solution? If the free music model is not going to go away, a label has to consider the consumer their partner and use them in a way that brings value to the label. For example, if the iTunes store represents 70% of worldwide online digital music sales, produces a raosnable profit for labels of around $6.29 per album download and has served over 10 billion songs and iTunes has one of the most robust recommendation engines out there in their Genius application, then it should make sense that labels and artists should focus more attention on developing more value adds for iTunes consumers. With the launch of Vevo, the industry should negotiate relationships and development projects that allow for the richer integration of video media and ticket and merchandise sales. The labels also need to take more direct control of fan management and promotion through geo-location and mobile applications. If a label sees revenue from tours, sponsorships and merchandising, then they need to be harvesting more rich data on their artists fans to remarket based on location and interest. For example, if they negotiated the right deal with iTunes that allowed for opt-in access to their user data, they could use recent purchase history, location, genre likes and monthly spend metrics on users to remarket and reward fans with concert tickets, event invitations, and special offers on downloads and merchandise. For consumers, the robust nature of Genius new media discovery, device portability, song download availability and special artist related offers with rich media value adds from labels, iTunes would offer an overwhelming value proposition that could make using less robust streaming services like Pandora and Last.fm irrelevant. Basically, the labels and artists need to become more involved in remarketing their fans by collecting more information on them and promoting their music, events and other revenue generating products and services to them in a more direct way through common tools like iTunes and opt in email campaigns.
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