When was the last time you bought a music CD? A month ago? A year maybe? Perhaps never? These questions form the basis of the critical dilemma currently facing artists and producers alike.
The advent of digital distribution platforms such as Spotify and SoundCloud as well as streaming services such as Youtube have been wreaking havoc on traditional business models in the industry, which were heavily reliant on record sales.
As a result, growth has been sluggish in the past few years with an extremely modest Compound Annual Growth Rate (CAGR) of 0.7%. Even as artists attempt to shift their focus to the digital arena, the inherent ease of distribution has been the cause of headaches for more than just a few individuals.
Indeed, big name stars such as Taylor Swift and U2 have been waging a veritable legal war against copyright infringement by sites such as Youtube. Claims by Sony Corp’s Sony Music Entertainment state that it has found 1.5 million instances of copyright infringement through manual searches that went undetected by Youtube’s oft touted Content ID system, thereby preventing an estimated loss of US$7.7 million in revenue.
As the world continues to be swept up in the digital tsunami, it is doubtful that the music industry can continue to survive with this outdated business model.
However, not all is gloom and doom in the industry. It is possible that upon facing extinction, the industry will undergo fundamental changes in their business models.
One interesting side effect of the digital media explosion is the nascent growth in revenues from both performance rights as well as synchronisation. Performance rights are the royalties earned from the use of the artist’s music in public spaces and broadcasting. Synchronisation refers to the revenues gained from the use of music in other media forms such as video games, movies and television.
The sustained growth in these other industries directly complements the growth of the music industry. This is increasingly apparent with bands such as Linkin Park creating works for the likes of the Transformer‘s movie series, while the popular Call of Duty video game franchise frequently makes use of tracks by rapper Eminem in marketing materials.
Another paradoxical trend is the correlation between digitisation and the popularity of live events such as concerts and festivals. As fans gain more avenues through which to connect, share and communicate with their idols and other like-minded individuals, the desire for personal human interactions has driven the demand for more events and tours.
These events also generate an ‘exclusive’ feel for participants, who will gladly share their unique experiences on a plethora of social media platforms. As such, these events are quickly becoming the lifeblood of the industry, with a humongous potential for monetisation and creating a dedicated fan base.
A few artists have begun recognising the opportunity this presents, including Taylor Swift, who released her 1989 World Tour LIVE film on Apple Music, where it is available exclusively to paying Apple Music subscribers.
With these exciting prospects, it is entirely possible that music executives will eventually shift their strategy away from fighting a battle they can’t win. Instead, it is likely that the industry will begin adopting business models heavily reliant on royalties from complementary sources as well as on creating personal experiences.