Home Latest News Streaming Technology Once Accused Of Killing Music Industry Spurs Growth

Streaming Technology Once Accused Of Killing Music Industry Spurs Growth

by Paul
Streaming Technology

A decade ago the traditional music industry dominated by record labels blamed online technology of killing their business. New free and low cost streaming services, and internet-based piracy, saw the value of music ‘content’ plunge over the ‘Noughties’ as physical sales plummeted. Music tech stood accused of destroying the ability of artists, and their labels, to earn a living from their intellectual property.

Source: Bloomberg Businessweek

However, fast forward another decade and royalties are growing again. An average of 7% year-on-year since 2014. And streaming services are the industry’s biggest source of revenue. Despite the fact the labels that own the rights to music content only receiving an average of 3 cents every time one of the tracks they own is streamed, the rise in the number of people listening to music via streaming subscriptions means royalties paid out are mounting.

Streaming royalties paid to labels reached $6.6 billion in 2017 compared to $1.9 billion in 2014. When 2018 data is finalised by the International Association of the Phonographic Industry, it is expected to show another leap. The result is that the biggest music labels are big business again. The proposed sale of a stake in Universal Music Group by parent Vivendi is thought to value the label at more than $25 billion. And that is not putting off investor interest with Apple, SoftBank, Alibaba and Tencent all rumoured to be keen on exploring bids.

High valuations of record labels and the catalogue rights they own is becoming a trend. Last year Sony paid $2.3 billion for the 60% of EMI Music Publishing it didn’t already own. Other notable deals have included the $600 million sale of Imagem, which holds the rights to the back catalogues of artists and groups such as Pink Floyd and Daft Punk and a $150 million sale of Songs Music Publishing, whose roster includes popular New Zealand-born singer Lorde.

Despite the positive trend and streaming partners now the single biggest source of labels’ revenue, they will still be wary of the technology’s future development direction. Most of the big streaming services are still loss making. Spotify recorded a total net loss of $520 million for 2018. Pandora Media lost $310 million over the year’s first three quarters.

Amazon and Apple don’t split out their streaming business results but it is unlikely that their own streaming operations are way out ahead of Spotify. The big music streaming players are all investing in growing their subscriber base with a priority over profits. Spotify grew by 40% over 2018. However, while the focus remains on growth ahead of profit it’s difficult to tell how sustainable the model will prove to be in the long term.

Because the big streaming companies, which typically charge somewhere between £5 and £12 for monthly subscriptions, operate on such tight margins they are starting to push record labels on royalties. A further threat is that the music streaming players are also trying to sign up promising new artists directly so they can cut out the record label middleman. This is still a nascent strategy with the tech companies aware that if they push too hard, too soon on moving aggressively into the territory of record labels they could lose their cooperation. Which they still can’t afford to do. Without access to the catalogues of record labels, streaming companies are ‘empty vessels’.

But as the streaming industry continues to grow, its value is estimated to triple to $21 billion by 2023, it will pose an ever greater existential threat to labels. For now, the tech companies behind streaming services and record labels have struck a mutually beneficial truce in both their interests. The question is how long that peace will last and how it will reshape the music industry if and when it does break down.

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