(PART1) The Music Industry Has 99 Problems. And They Are…

Streaming Problems.
1. The leading streaming music companies — YouTube/Google, Spotify, SoundCloud, Apple and others — have been routinely accused of treating artists poorly through
duplicitous contract structures and low payments. Apple seems to be taking serious steps to repair this, and Tidal has emerged as a more artist-friendly platform. But sadly, most artists have no idea what they should be receiving, or what is fair payment for a stream (ad-supported, paid, or in-between).
2. All of that has created a low-trust environment, and confused artists and fans over who to support. Platforms like Spotify are fantastic, but are they screwing artists? Just last summer, Taylor Swift battled Apple in a very public manner over royalty concerns; Apple eventually conceded, though streaming platforms are often painted as anti-artist.
3. Compounding the problem is that streaming services like Spotify offer very little reliable guidance on their payout structures. Everything is opaque, even though Spotify and YouTube point to massive payouts to rights owners. Down on the ground, artists have very little idea of (a) what they’re being paid, and (b) what they should be getting paid.
4. Against that confusion, companies like Spotify have even been accused of
deliberately creating complicated payout structures to hopelessly confuse artists and rights owners. Spotify has attempted to cool the criticism by offering details on its payout structure and pointing to top-level, big royalty payouts. Still, most artists can’t quite figure out the math.
5. Even worse, Spotify is suspected of
over-stating its per-stream payout structure, based on discrepancies with extremely low rates published by actual artists (usually on Digital Music News, here , here, and here , for starters.) This issue has not been roundly addressed by Spotify, which has created an even lower-trust environment with many artists and independent labels.
6. Indies and smaller artists also complain that their rates are lower than bigger, major labels. Some have pointed to different tiers of compensation, though few have a concrete idea on exactly how payouts are structured (see above).

7. Companies like Spotify have pointed to royalty increases with scale and greater user levels, though critics like David Lowery have pointed to

persistent declines in streaming royalty rates. Others, including Audiam cofounder Jeff Price, has calculated that per-stream royalties to artists are actually declining (see above), despite claims to the contrary.

8. Meanwhile, services like Spotify have

refused to abandon their ad-supported tiers, despite strong progress by premium-only services like Apple Music and Tidal. That makes it harder to elevate streaming royalty rates.

9. YouTube, the largest online platform for consuming music, is notorious for low-paying, ad-based royalties , with little signs of improvement. In fact, YouTube has fought aggressively to maintain its free tier, while shunning industry attempts to better control content and pay more to content owners.

10. Compounding the situation are ad-blockers, a major threat to YouTube’s ad-supported revenue stream. Similar add-ons exist for services like Spotify, raising questions over whether ad-supported will soon be eviscerated.

11. Already, this is a big deal at YouTube, that is one motivation for YouTube Red, a premium video offering, but currently, the service doesn’t seem to have many subscribers. The same is true for SoundCloud, whose ‘SoundCloud Go’ doesn’t seem to be converting any paid adherents.

12. Streaming is surging, but its royalty payouts are low and cannibalistic

towards other, more lucrative formats. Which is why artists like Adele and Taylor Swift have opted not to license Spotify. And, why Taylor Swift’s label, Big Machine Records, has indicated that no future, frontline releases will be licensed to Spotify .

13. Many artists feel that the priorities of streaming services like Spotify skew towards acquisitions, IPOs, and other liquidation events , not towards the interests of content holders and artists. Heightening those concerns are the involvement of investors like Goldman Sachs, a major Spotify stakeholder, and recent news that an IPO is being planned for mid-2017 .

14. Even worse, the interests of the major labels are very similar, which explains the

massive percentage shares awarded to major labels by streaming services . These percentages are awarded in exchange for content licensing (just recently, Universal Music Group received

$404 million from the sale of Beats), but many artists have built-in contractual stipulations excluding them from receiving any proceeds from acquisitions, IPOs, or other liquidation events.

15. Even worse than than, major labels have been shown to pay nothing from these cash-out windfalls to their artists. Just recently, Warner Music Group changed course and offered to change that practice, though skeptics pointed to a lack of concrete plans.

16. Streaming is rapidly becoming the dominant form of music consumption, though it is now widely viewed as a cashless loss-leader for artists and songwriters. That said, some artists — including Perrin Lamb — have made sizable payouts from heavy Spotify playlist rotation. But that’s mainly the exception.

17. And despite a continued surge in streaming, it’s not enough to compensate for broader declines in physical CDs and paid downloads, and sadly, per-stream royalty rates are incredibly low.

Vinyl Problems.

18. Vinyl LP sales are surging year-over-year, but still represent a tiny fraction of recordings purchased.

19. The production infrastructure around vinyl continues to ramp up slowly, and producing vinyl can be incredibly difficult and time-consuming for artists and labels. In some cases, artists will wait months to turn around product, and many production facilities aren’t taking on new releases.

20. Most pressing facilities are using decades-old equipment, though investors are fearful of investing in vinyl machines and infrastructure because it might be a fad. All of that is stunting vinyl’s growth (though there are some signs that this is changing).

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Download Plunge Problems.

21. Meanwhile, paid downloads are plunging, with massive declines surfacing this year. In fact, 2016 could be the worst decline ever experienced by paid downloads. That is bad news for artists and labels, given that the payouts on downloads are far higher than streaming (thanks to an upfront payment and more predictable revenue cut). Indie labels, a group that has relied heavily on download revenue, could be most affected.

22. Unfortunately, there’s now a downward technological progression, with vinyl only slightly breaking the chain. With every subsequent format, monetization deteriorates: streaming pays less than downloads; downloads paid less than CDs.

Recording Plunge Problems.

23. Perhaps the bigger problem is that artists can’t depend on selling recordings anymore, thanks to a two-decade plunge in its value. Across the board, artists are experiencing serious problems monetizing their audio releases, which is shifting the emphasis towards touring, in-person experiences, and other activities.

24. Touring is fun, but it can also be extremely demanding and exhausting, especially when its the core revenue generator. Many artists are experiencing difficulties making a sustainable living out of touring, merchandising, or other non-recording activities like ‘experiences’ (see below). In fact, many artists feel that they are being forced into unsustainably long tours , or touring virtually non-stop just to survive.

25. That introduces a number of problems, including artist burnout and an

increased risk of accidents while on the road. According to NYU songwriting professor Mike Errico, the artist injury list is soaring, with Dave Grohl, Sam Smith, Miranda Lambert, Steve Aoki, Little Big Town, Meghan Trainor, Nickelback, the Black Keys and Kelly Clarkson all suffering physical, tour-related setbacks.

26. A decade-long decline in recording revenues has dismantled the label system, once the most reliable form of artist financing . That means a lot more freedom for artists, but also a lot less money to develop big, superstar careers. Both independent and major labels, once the core of the music industry ecosystem, still have serious survival problems.

27. Fan-funding platforms like Kickstarter, Pledgemusic, and

Patreon have admirably filled some of that lost financing, but they haven’t come close to matching the overall funding source. Crowdfunding success stories like Amanda Palmer are sometimes viewed as anomalies but offer lots of hope, with artists slowly figuring out ways to monetize their core followings.

28. Other attempts to make up the lost revenue have fallen short. BandPage, a pioneer in trying to monetize artist ‘experiences’ to help make up for lost recording revenues, was unable to scale that alternate revenue source substantially enough. After many years and considerable investment, BandPage was sold at a heavy loss to YouTube .

29. A big part of the problem is that most consumers now attribute very little value to the recording itself, and most consumption (through YouTube, ad-supported piracy, or BitTorrent) happens at little-to-zero cost to the listener.

30. A massive, decades-long shift towards free (or near-free) music means that entire generations of listeners have

never paid anything for recordings. And, predictably, will continue to resist any requirements to pay for music. Artists are being forced to adapt and invent other revenue-generators on the fly.

31. Strategies to recover recording revenues at labels often backfire. A once-promising shift towards 360-degree models never quite generated enough money for the major labels, even though these labels generally insist on broader rights deals with all new artists.

Problems With Technology Giants.

32. On top of all that, the largest streaming platform in the world, Google-owned YouTube, doesn’t think that music devaluation is even possible . “It’s amazing how often people invoke that word ‘devalue’ as if it means something,” Google executive Tim Quirk said in 2014 . “It doesn’t. You know why? Because you can’t devalue music. It’s impossible. Songs are not worth exactly 99 cents and albums are not worth precisely $9.99.”

33. Even worse, some major label artists are receiving nothing at all from streaming, even with extremely high play counts. That is the case for Lady Gaga, whose manager Troy Carter says Universal Music Group paid the singer nothing despite millions and millions of streams on platforms like Spotify.

34. Worsening the situation is a circular ‘blame game’ between streaming giants and labels, with artists ultimately shorted. Spotify says they pay the labels, though this is often with huge, multi-million dollar advances and/or equity positions attached. But labels frequently don’t pay their artists , either for legitimate (ie, the artist is unrecouped) or illegitimate (ie, they’re screwing an artist) reasons.

Album Problems.

35. The album collapse has caused a massive revenue drop for both labels and artists. The reason is that fans, if they’re even purchasing anything, are no longer ‘buying the bundle,’ or collection of songs. That’s great for cherry-picking consumers, but often leaves artists unable to recoup their costs or make a decent living. It’s a singles world, get used to it!

36. Perhaps more importantly, that bundled product has not been replaced, despite endless attempts to package other items together. Post-album, artists and labels have failed to establish a lucrative, reliable bundle to monetize their recordings.

37. Even success stories like Adele, whose ’25’ is now approaching 10 million albums sold, are viewed as being potentially damaging to artists and the broader industry. The reason is that Adele’s ‘unicorn’ success could cause smaller artists and independent labels to strategize around a format that is largely dying.

38. The homemade, CD-burned album, once a huge revenue-generator for smaller touring artists at merch tables, has now dropped to zero. That has put more pressure on artists to sell other merchandise like t-shirts, while decreasing available cash for touring essentials like gas and food.

39. Many music enthusiasts have argued that the decline of the album has

decreased music appreciation and focus. Gone are the days of dedicated listening, fabulous album artwork, and defined ‘opuses’ that defined a previous musical generation.

Certification and Award Problems.

40. The music industry is currently battling over how to count sales . In a recent episode, the Recording Industry Association of America (RIAA) certified Rihanna’s ‘Anti’ as Platinum after its first week, signifying one million album sales. Yet Billboard and its data-tracking partner, Nielsen, only counted 460 copies during the same period.

41. Separately, a strikingly large number of important artists have never been awarded a Grammy, including Snoop Dogg, Bob Marley, Guns n’ Roses, KISS, and Morrissey. And those are just a few of the artists never handed an award.

DMCA Takedown Problems

42. The DMCA, once considered a reasonable method for flagging and removing infringing content while protecting online companies from liability, has now become an unmanageable and dysfunctional process for most content owners.

43. Google, the most influential company in the music industry, is actively resisting any efforts to reduce piracy across its key platforms, Search and YouTube. Despite millions upon millions of DMCA-ordered takedowns, often of the same content, Google has flatly refused to adopt ‘take down, stay down’ approaches.