Article : Understanding the music business in 2020
Updated: Dec 4, 2019
The music business is an ever-changing landscape at the moment, so much so that even if you went to college, university or music school in the last 5-10 years, many of the things you once thought to be gospel have either been proven to be obsolete or just untrue. This is not to discount all of what anybody has taken time to learn on their journey in the music business. It is to say that there are changes in technology, consumer habits/patterns, investment strategies and the business models of record labels themselves that have shift the music industry to a new set of "norms" (granted; to different extremes).
"But what if... the Golden Age that you remember... never existed."
Far too often we have conversations with highly talented and gifted individuals who have built up mental brick walls which make them resistant to change. We find most often that such people live with a sense nostalgia about a "Golden Age" that didn't really exist for active artists of the past, there were just different sets of business norms they had to adhere to in order to sustain .
We could easily quote multiple 2000s and 1990s stars who have expressed their views on how things have changed and their positions on it.
But for the most part, it's very apparent that in the 1960s, 1970s, 1980s, 1990s and 2000s, the Music industry was disprortionately oriented towards the area of music sales, tours as well as Record labels seeking strategic control of physical distribution. Essentially record labels had a economic and social monopoly on the production and distribution areas of the music industry.
Market Disrupters :
Of course there are the dinosaurs who didn't age well with time; but for the most part, everyone who was someone once has begun making a shift towards digital consumption and accepting the basis that there are "new norms" to how people consume music.
When we say new terms, it isn't "what" people consume that has changed; people are still consuming music heavily, more specifically we are referring to "how", people consume. In practicality, the factor of how people consume music has huge impacts on how Music professionals and artists earn a living.
This shift in "how" people consume music means everything to someone who has a business model in the music industry because much like the film industry's day of reckoning with online consumption (also streaming, think Netflix, LoveFilm, Amazon Prime etc), the implications for those that don't adapt fast enough can be fatal (think; Blockbuster Video).
A radical change in distribution has been proven in recent years to have stimulated a radical change/surge in production. In practical terms this has been translated as going from physical DVDs and CDs being distributed to Retailers nationally/internationally; to digital streaming platforms such as Netflix, Spotify, Apple Music, YouTube, YouTube Music, Amazon music and Amazon Prime etc.
Now more specifically, he tech industrys disruption of how labels distribute music can be directly correlated to the surge in the number of artists that are successfully launching careers independently. The last 10 years have been record breaking in terms of how many independent artists are charting and doing mainstream numbers through digital sales and, more significantly growing; streams.
This new independent success can be directly connected to the rise and growth of music streaming services.
"New Business Model(s)"
What we want to be clear with here, is that we speak firstly as passionate creators and secondly from a marketing perspective. Whilst being a creator of music can be valuable in many instances, we tend to find many of us creatives to be almost "religiously" at odds with the business element of things Vs what "feels good" personally.
To an extent, that's ok, we can completely respect that perspective, but only for someone who treats music as a hobby. As we produce our content to support people actively trying to sustain careers / grow themselves in the music industry, simply expressing our personalised, subjective feelings would unhelpful, we are obliged to give you the value and facts you seek so you can plot your moves and navigate the music with confidence.
So what we would like to do is share some insight from a marketing angle which could aid independent record labels and artists to understand how "returns" can be made in the 21st century.
"The old traditional labels business model"
In the traditional model of Record Labels, Radio (and later TV) were used to market an artist to their target audiences and use selling physical hard copies, merchandise and touring as means to get their "return" on investment.
There were only a handful of major outlets and it was somewhat necessary to go through a (Major) Record Label to have the music distributed to the public due to the industrial monoply we mentioned above.
Both in major stores and outlets for sales and to access the "mainstream" audience, it required you to go through a Record Label wiyh the resources and connections to get you on exclusive platforms which were often next to impossible to access without one of the big four major record labels (now; the big three). As you could imagine for decades this gave major record labels and media outlets a disproportionate amount of leverage over artists and creatives who sought to get their music heard or promote their new music to the public.
What this meant in practically is that this disproportionate leverage was expressed in the contracts offered to artists in which they would recieve anything between 1% - 20% of the royalty's from a product they created and would often lose chunks of their Publishing Rights and/or Mastering rights altogether. So in a nutshell artists tended to own fractions of things that tgey created.
To sum it up, iconic Producer Timbalands very own words about his greatest hits in the 1990s articulate the point most simply
; "It's my music; but it's not my catalogue".
This essentially sums up what we are saying; the old business model of the music industry was structured around the disproportionate leverage and monopoly that major corporations had gained using aggressive growth strategies such as "verticle integration" to essentially create an artificial vacuum between being a musician and accessing the public without a record label. On one side that meant disprotionate leverage for record labels, but it also meant the saturation (number) of artists was more controlled, if you were released under a major record label there was a much stronger chance you would become a household name because "everyone" had to watch/listen to the same few outlets to be exposed to new music.
"The 21st century music business model"
Now straight away; we are going to emphasize that whilst things have changed and in many ways for the better; we are in no way singing the praises of "now", we will simply do the same as we have done above and highlight the strengths and weaknesses of what is new so that you may make the best informed decisions around how to manuever and navigate the music business The key thing we want to highlight that is different in the current era is that MTV as a cultural phenomena is all but dead, there is no longer a One size fits all TV/Radio distribution package that will instantly make you an internationally recognisable name.
But there are numerous practical business models in which you can earn either under a record label or independently at disproportionately higher margins than what most indie artists could have previously experienced. The key matters here are traction and ownership. If one can make a brand (or project) gain traction independently, if one can build that momentum without a label in this era, the margins for profit are dramatically higher (but arguably less stable) than traditional routes of music. But there is also more to this than simply earning more; by gaining traction to begin with, you build brand equity (value), which can now be leveraged against every single person you conduct business with; be it record labels, managers, booking agents, producers, promoters, studios and so forth.
So by building that traction and actually owning the foundations of your brand, you gain a dramatic level of flexibility that simply wasn't available to artists on a mainstream level before the last 10 years. One may ask, what are these margins and how does one profit ? Well the answer is simple, in the previous model of operating Record labels had a relatively simple model of using Radio plugging and eventually TV to generate interest for an artist to sell both their music in physical copies as well as Merchandise and Touring. As a result of the record label having heavy input in creating this business formula and investing in it, labels would also take a disproportionate amount of leverage in Record Deals in which essentially artists 'needed' the label to progress. Now, that model still exists, but has had to be revised, as of now record labels do not generally make A&R decisions on signing artists based off talent alone, now that very independent leverage we mentioned above is actually a preferable investment to labels.
Look at it this way, even though they often take home less in these contexts, there is far less work for the label to do when the artist has already laid the groundwork for themselves. From a logistical standpoint as a business, that is a WIN/WIN situation for a business model in which its highest factors of risk are closely associated with the development of the artists themselves. By approaching things this way, it means record labels are far more likely to sign an artist that is actively demonstrating their results independently because they already come with brand equity (value) that can be amplified. How this model translates practically is that whilst "making sales" is still a business priority. The formula and consumption format of how this is achieved has been changed in huge ways by the changes mentioned in the 'Big Tech' section of this article. Big Tech (Apple, YouTube/Google, Facebook, Spotify etc) essentially disrupted the "sales funnel" of the old model of the music business in which labels saw significant returns off of the immediate consumption of their music via record sales.
The prime way of consuming music at the time was physical copies but now that consumption has evolved and digital streaming is presently the dominant format of consumption; it has caused the whole business model to adjust in necessary (and clever) ways which mean artists and labels will not make grand returns simply from people consuming their music.
That is not to say they will not make returns, but at least for some time those returns are not at all close or relative to the hard income that sales from CDs/Records could produce.
But theres more;
"The Age of the BRAND"
So traditionally an artist would release an album/song and attempt to sell that song to make a return, whether independent or signed, while the resources and tactics available varied, the objective was somewhat similar; sell music, book shows.
Now we have entered an age where consumption habits have adapted to technology (internet, smart phones etc) and the most savvy artists and labels have found intricate ways of infusing the old with the new. Now, having people consume the music is equally as important, but making a "sale" from that consumption is not at all the same level of priority, and the reason is simple; branding. The more consumption of a brand, the stronger it becomes and this where Streaming has become a power player. Not necessarily for the rates that are paid out from streaming (although their are significant gains to be made there; it is estimated now that 1/3rd of all income generated in the music industry is coming through Spotify alone.
So whilst streaming may not provide the immediate income that CD sales offered, and the CD itself is rapidly reaching antique/merchandise status as oposed to it once being the medium for music consumption, Digital Streaming has opened up each artist up to a much wider audience that can potentially be tapped into.
Money will be made from streams when the amount of content/songs released increases and the numbers start to add up, but the money from streaming is not at all the most relevant point to streaming; it's the consumption itself that counts for the next stage. Once an artist has established themselves as a Brand in the minds of their consumers, this now opens the door to forms of consumption and also new streams of revenue to the artist Here are some of the Revenue streams which artists and record labels alike can; Streaming - Income is based on the specific platforms own system of valuing a stream. Digital Sales - Sales from platforms such as iTunes, Deezer and so fourth.
Merchandise - Traditional forms of Merchandise, but a useful fact to add to this is that we at A-Grade predict that in the next 5-10 years both CDs and records will generally by classified as Merchandise for fans. Digital Merchandise - There are other forms of income being created through intelligent marketing, a fine example of this is the Kardashian family's app that netted over a billion dollars. Keep an eye on this one, we predict Apps by artists will become a bigger thing as they grow in complexity and popularity.
Physical Merchandise: This is one traditional source of income for musicians, that interesting enough; isnt going anywhere. T-shirts, keyrings, cups and so fourth seem to be an unshakable constitution within the music industry.
What is interesting to know is that "Big Tech" also disrupted this stream of income, but with opposite effects to record sales. Mass streaming has actually amplified artists reach for selling merch and we predict both through YouTube, Facebook marketplace and Shopify, artists are going to be able to amass fortunes without actually selling "music" just by having products readily available to purchase alongside their music.
Essentially the traditional "marketing and sales funnel" of the internet will reshape the economics of the music business.
Touring - Touring is traditionally organised by labels but we have become familiar with a few independent artists that are also trying to organise their own tours. It can be highly profitable but the key point raised above about branding will be key to this particular category actually being effective. Touring is one of the main ways that labels and artists can recoup on their overall investment. Paid shows - Paid shows are perhaps the key to all artists and labels being able to balance the books outside of sales and streaming. It does two things at once, expose the talent to a new audience and potentially brings a great return per show depending on the equity (value) that you have already built behind your brand Brand deals (social media endorsement)) : Much like how physical merchandise has been amplified by the internet. This particular angle for income/sponsorship has also been amplified to new heights. Brand deals are secretly one of the most lucrative positions on the table for musicians right now, because a brand with deep pockets will invest heavily in making someone with social influence and authority the mouthpiece for their brands. These deals can pay through sponsorship, resources or both. With far less strings than a 360 deal with a record label.
but note; it requires one to buikd a prssence and leverage for their brand first.
"The Rise of Sponsorship deals; New Money"
As a rule of thumb, recognise the purpose of this article was to wake all music professionals up to the truth, we are now in the "era of the Brand". The more you think about yourself / your artists etc as a brand, the more value you will be able to bring home over time. The better you can charge and so fourth. Just try not to get caught up on the whole notion of "selling upfront", the times have changed, there is no MTV for the kids or young adults to consume your work "as a nation" after school, just social media platforms which they use far more regularly and consistent throughout the year. Start considering how you can build leverage for your own brand and from here you will naturally expose yourself to greater odds of career growth and success.
So to summarize what we ave covered...
The key changes in the music Industry we all ned to understand are :
1. Streaming Platforms are dominanting 2. Business models of labels are changing to accomodate techological and industrial changes. I.e how music is consumed. 3. Independent artists can succeed without a label (but not without self funding/outsourcing funding/resources/network) 4. Producers are far more independent... 5. Marketing is now KING (it always was) 6. Personal Branding is an asset that can create a new sense of as an artist being independent.
We hope this article has been useful and informative, we are wishing all independent talent, record labels, managers and all other music professionals the best of luck in 2020 and beyond.