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The Music Business - The State of Affairs

Posted October 19, 2014

by R. Feldman

After attending a recent panel on how streaming is impacting music publishers, I was struck by the sense of rage, and disillusionment expressed by panelists representing publishers and attendees alike. The Spotify and Pandora panelists extolled the virtues of their services, touting a new age of democratization and efficiency, while the panelists advocating the artists pointed out the challenges and inequities and attendees warned of “spirals of doom” blaming piracy, Google, and the too much government for the precipitous slide in royalty income.

I’ve been watching the music industry evolve, and devolve for nearly two decades and have some observations that I would like to share that may inspire thought and/or debate.

Music and Humanity

Music and Humanity have been intertwined going back to when the first cave person began knocking two rocks together in rhythm. We are driven to create and enjoy music – it is a part of our DNA. It is a primal need as strong as our need for oxygen, but along the way it has become a commodity that most now expect will, like the oxygen we breathe, be ubiquitous and free of charge. This view will probably not change in the near future.

Troubadours of yore had to sing and play well enough to be rewarded with food and lodging. Today many - probably most - of our troubadours use software like Ableton, Autotune, and Garageband to create their music, which decreases the demands on their talent, time, financing and plain old hard work. Instead of playing in towns and villages, there are now multiple online stages for their talent with YouTube being the biggest. Our modern troubadours may not be making enough money for food and lodging, but they are getting paid, if not in hard cash, then in social currency like popularity and recognition, and this seems to be incentive enough for many. [Using government statistics there are about the same number of musicians today 42,100 as there were in 1999 with 45,000].

Certainly the urge to create music will continue, but will so many people want to artists and musicians? Possibly - It’s very cool to be an artist, but nothing says it will always be. And maybe that’s a good thing! – To make room for the professionals. If there is a change I’d look at trends like the number of Guitar Centers, music software companies, NARM attendance, and ratings for shows like “The Voice” as an indicator.

The other question is one of quality. Will this new world order of music incentivize the next Chuck Berry, Tom Petty or Kurt Cobain? Will an emerging artist stick it out while they hone their craft? I’m afraid again the jury on this is still out.

The good news is there is lots of music already recorded, with estimates as high as 100 million songs to choose from so there’s enough to listen to for 52 years continuously without repeating any song.


Capitalism and democracy are messy, especially in this 21st century world of technological disruption. Today’s Technology is increasingly disruptive and the music industry has been disproportionately affected both from a business model and a legislative perspective. The latest form of disruption, streaming, now eliminates the need to own a paid download or CD. Since ownership means having what you want, when you want it, and where you want, why buy anything? [CD and download sales account for over 75 % of all music sales]

Of all sectors in the industry music publishers have taken the worst hit. Disruptive technology moves at such a fast pace that it outstrips society’s ability to legislate making existing rules and regulations increasingly anarchistic. For publishers the legislative issues include the compulsory license (HR115), and the consent decree governing performing income. Additionally publishers receive a much smaller piece of the pie than the owners of the master recording. While more folks consume music than ever before the pie continues to shrink and rule makers consistently turn a blind eye to piracy, enabling technology companies to thrive (Google and the ISPs for instance).

But legislative relief like modernizing the compulsory licensing (HR115) is challenging. If compulsory licensing were eliminated, as some suggest, would this mean publishers could charge different royalty rates depending on who wants to record a version of their copyright? And what about fair market value? It is not clear that a fair market value negotiated in a free market will yield higher revenue streams than publishers receive today. For example, bargaining outside the consent decree imposed on ASCAP and BMI Sony negotiated a nearly 60% increase with Pandora (from 4.3% to a rumored 7 % of Pandora’s revenues). But the increase was based on a percentage of Pandora’s revenues that are 1/13th what master owners receive, so the net difference of total revenues would have been less than 4%.

This disparity between the master owner’s and publisher’s share is a huge problem. Is it payback for master owners missing out on performance income from radio for so many years? Or is it the inherent difference in value? I will admit I’d rather hear John and Paul performing “The Long and Winding Road” over Wayne Newton’s version, but is it worth 13X more?

Music Makes Money –– Just Not for Artists

Steve Jobs got it, Eric Schmidt and Eric Westerberg get it and certainly advertisers get it - using music to sell products or technology works very well. Even selling hope makes money for the entrepreneurs exploiting the aspirational music market through boutique sync conferences. [Sync placements offer both economic and promotional value but represent less than 3% of recorded music revenue].

The Future

Evergreen copyrights (big hits with consistent long term royalty streams) command high multiples and there is still keen competition to acquire classic copyrights. Why? You'd have to ask the buyers, but I bet they would point to three things: legislative relief, parity with master rights owners, and the promise of streaming. The first two items are unpredictable so let’s look at streaming [up over 40% this year] from both a subscription and advertising-based model.

Advertising rates are based most importantly on, eyeballs over time. Three million views on YouTube does not equal 3 million plays on radio or views on television. Why not? Because reaching lots of people immediately has more value than cumulative streams over an extended period. The value of a niche viewer does not compensate for the impact and actionable opportunity of a time sensitive message. There’s a good reason that advertising rates are so high for the Super Bowl – you can get a message out to more than 100 million viewers at the same time. [A 30 second spot during the Super Bowl costs 4 million and reaches 110 million viewers while 110 million views on YouTube costs an advertiser far less]

Now to examine streaming subscription revenue, let’s use IFPI’s (The International Federation of the Phonographic Industry) latest numbers. Currently they estimate that there are about 24 million subscribers paying an average rate of $4 per year. The IPFI predicts that figure will increase to 200 million by 2018, which is a 733% increase! Today global recorded music sales are about $14 Billion [down from $36.9 Billion in 2000]. To estimate the total revenue in 2018 you could adjust for the current decline of physical and paid downloads and then add in projected streaming revenue. When you adjust again for inflation (at an annual 2%), the number is still about $14 Billion. But sales of downloads and CDs could fall faster and of course, there could be more subscribers at higher rates.

So let’s kick the average subscription fee up to $50 per year. It seems plausible that folks would pay an extra $50 per year on their cable or ISP bill for unlimited music streaming. That would bring streaming revenue alone to around $10 Billion. But there may be little revenue from CDs and downloads by then. And though streaming represents a recurring revenue rather than a onetime CD or download sale that may not help emerging artists selling CDs at their live shows. So my sense is that even if streaming revenue becomes as large as predicted, the mid-level artist or musician will actually see decreased revenue from selling their music.

It’s really a basic case of economics – supply and demand combined with production costs. Now it costs less to create media (music and entertainment), so more folks make it. And even though there are many more distribution channels available today, they are worth less than a major network, so the price for this product will decrease.


I am often asked for advice by parents whose kids want to become musicians or industry professionals. I tell the parents that wanting to become a part of the music business is usually not a rational or economically motivated decision. It is an urge. And I tell the kids that the super-talented and super-lucky will do well - especially the .001% whose talents match the needs of the most commercial sectors of the industry [it takes an average of $500,000 to break a single onto the Billboard charts]. For the rest I say there will always be music and a music business – though the business may look very different. And most importantly that they will always derive joy from being involved with music.

And of course I could be wrong. 

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