Coexisting Music Ecosystems
By Vickie Nauman, Founder CrossBorderWorks
The music industry careens fast down the highway, stacked high with cargo and shiny objects. Think of the old CD business as the flat bed, the current digital industry as its loosely tethered, bulky freight, and artist-driven initiatives as sparkly crates hitched on top. Failed startups litter the rearview mirror. Yet all are tied together in a zigzag of relationships and common building blocks.
In practical terms, we’ve got three different music industries operating simultaneously.
FIRST -- THE ORIGINAL RECORDED MUSIC SYSTEM. This consisted of plastic disks and tapes that were manufactured and distributed to radio and retailers. A&R teams found and developed artists, labels paid and promoted their acts, and radio stations broadcast hits into cars and homes. People became fans and happily lined up to buy music at record stores, and money sloshed around. Radio disc jockeys were king, with rackjobbers, shipping, endcaps, radio promo and breakage all part of a day’s work. Big artists became cultural icons, and over decades, the industry grew in a lucrative, unrestrained way. I hear the parties were great. In this Music Industry 1.0, labels, PROs, and publishers licensed artists’ IP that was packaged in containers of three-minute singles and albums. Music Industry 1.0 still exists and is driven by particular markets and segments still purchasing high margin physical goods, but its relevance and revenue has declined to just 30% of the pie (IFPI).
NEXT THERE’S OUR CURRENT DIGITAL MUSIC SYSTEM. This consists of digital versions of the same three-minute song and album containers, which are distributed to technology companies. From 1999-2014, we had fear, loathing, big ideas and even bigger crash/burns, steep revenue decline coupled with endless legal and licensing entanglements. This was simultaneously an era in which operating systems of mobile phones, computers and connected homes were in a constant state of flux, leaving the music user experience in perpetual motion. Many of us were early “jukebox in the sky” enthusiasts, but it really wasn’t until 2015 that streaming took hold. Why? Streaming is blossoming not only due to incredible service scale and maturation, but also the establishment of operating systems, devices and networks that can support a better product than piracy. Money flows from consumers to large technology licensees through a twisting and meandering network of deals and service providers back to stakeholders and artists. In this Music Industry 2.0, the same labels, PROs, and publishers license artists’ IP packaged in the same containers of three-minute singles and albums, except in digital form. Music Industry 2.0 is flourishing with 8.1% growth in 2017 and digital now makes up 54% of the pie (IFPI). It is still messy, but will continue to evolve as the large global services differentiate and new entrants come onto the scene. Even though it’s been 19 years since the first Napster burst online, it’s still really (really) early.
AND LASTLY, WE HAVE THE EMERGENCE AN ARTIST-DRIVEN INDUSTRY. Artists are retaining rights and carving out their own paths, labels/publishers are heavily focused on distribution and doing fewer traditional deals, and lines are blurring around artist development, management, rights, data, and finance. This creator-driven world is forcing changes throughout the ecosystem. Containers are no longer just three-minute singles and albums, they are mixtapes, cassette tapes, live streams, AR, AI, VR experiences, samples, stems and podcasts. Technical tools and platforms are creating efficiencies, collecting and distributing micropayments, and providing data and insights. The “rules” are being challenged and artists are blasting music out to fans in ways that uniquely work for them, in a trial and error mentality, experimenting with partners, release cycles, and artistic collaborators.
This Music Industry 3.0 is in its infancy. Artists embrace and understand current technology, demand transparency, and seek to innovate not only in the creative process but also fan engagement. Artists of all stages of career development are opting to do things differently while traditional stakeholders and laws also modernize.
WE NOW HAVE A MULTI-LAYERED INDUSTRY. The global revenues of $17.3B in 2017 (IFPI) are made up of the remaining 1.0 business, a frothy 2.0 digital, as well as a nascent 3.0. The emergence of this creator-led Music Industry 3.0 is particularly interesting to me, and I’m in full swing understanding the dynamics, the gaps, and the opportunities. Game is on.
This layered industry is so interconnected that one change can cause a huge ripple effect. Example: when artists choose to retain or control their own rights and careers, it reverberates across performers, songwriters, producers, labels, publishers, administrators, PROs, societies, DSPs, artist management, investors, promotions, booking, touring and of course lawyers:
Rights – Oh, the thorny reality of rights, metadata and million-line CSV royalty micropayments. Who keeps track of ISRCs, ISWCs, CWR codes, splits, neighboring rights, copyright registrations, and digital licensing? Does this fall to managers (along with touring, merch and wrangling?) Or to distributors and rights tech platforms? We need systems with granularity to efficiently administer and make sense of 10-way writing splits of streaming royalties.
Money – Everything in music requires money, usually more than anticipated. Admin-only deals typically mean no advances or bundled services from labels and publishers, which in turn means the artist needs an alternative flow of money to pay for teams, tours, managers and ala carte services.
Artist Development – Labels and publishers remain highly relevant and the smartest ones are evolving their approach, but they are increasingly acting as distributors and administrators. In an A&R world that is heavily influenced by playlist data, how do artists develop and break? The reliance on playlist placement risks recreating another impossible funnel similar to the 1.0 radio world. Who works on behalf of the artist for career and craft development and ensures a vibrant middle class of artists, this industry’s lifeblood?
Diverse Revenue Streams – I view streaming royalties more akin to terrestrial radio, with higher value revenue opportunities such as synch, brand deals, D2F and touring built on top. But if artists want to experiment with their own catalogs in a digital environment (and actually get paid), they need adequate visibility into their own complex web of rights. It’s not uncommon for an artist to control new releases but have back catalog in hundreds of traditional contracts.
FREEDOM TO INVENT AND REINVENT IS SQUARELY IN THE CREATOR’S COURT. But the creator-led Music Industry 3.0 is forcing another yet evolution in the practices, systems and tools that were created for Music Industry 1.0 and bent to accommodate digital 2.0. All three of these music ecosystems will coexist for the foreseeable future, and some will fare better or worse in each. In order to capture the value of our constantly changing technology landscape, all will need to adapt. The industry has most definitely lit up again and I continue to believe that digital music will be bigger than any other period we’ve known.