The industry is flawed. Both Apple / iTunes and Spotify have sincerely tried to changed the industry and both have had great impact on the industry, but we still have some major hurdles to battle before we get our creative and artistic industry back.

Now what has happened to the music industry since ABBA, Bruce Springsteen, Bob Dylan, Jimi Hendrix, Janis Joplin, Beatles etc?

Two things I would say.

  1. The first is that the record labels got greedy and wanted too much power. They started to create their own products like Britney Spears and Backstreet Boys (yes, Swedes are to blame, I know). They are products and completely lack the ART in the term ARTIST (from a music perspective). They are performers, entertainers and commercial successes, they are not artist in the original term.
  2. The second thing that have happened is that when the record industry started its free fall and made it even harder for artist, as well as products, to succeed commercially they tried even harder to lock artists with contracts that only favoured the labels and not the artists. Labels are still trying to cannibalise on the artists contracts to squeeze revenue and not update artists agreements to reflect the evolution the industry have been going through. This is the reason artists are upset with Spotify.

I have been thinking about this post for a long time and finally took the time to write it down. I believe that there is a lot of misunderstanding of how the industry works and what is actually wrong with it. There are good things and bad things, but to put it blund (and generalising).

All the bad things in the music industry the record labels deserve to be blamed for.

I was almost born into the record industry, only two years old my mother started to work at CBS Record that later became Sony Music, I grew up in music studios and have a lot of great memories from growing up in the music industry (except when Nicko McBrains drumming blew my ear-drums in the Polar Studio in the early eighties, that hurt. On the other side it was compensated with that I got to play on Jeff Porcaros drums when Toto was in Stockholm). I later started to work in a record store in Stockholm (Skivakademien in Sturegallerian that actually was owned by Sony Music) for many years prior to joining the military. I have seen the industry at its peak and was still in when the downfall started.

This post is mainly written off the top of my head, so have patience, but these are my reflections on the state of the music industry today and the components involved in the process.

Record labels

Let’s start with the real evil. The term you have heard so many times and the ones many thinks actually are there to help the artists. If the industry would restart itself, record labels as is today would not exist. The record label does a few things in its core, they market, sell and distribute the media. Yes, the only have rights to the actual compilation of songs (aka an album or a single etc). In the good old days this was a cumbersome thing and they provided real value to the artists. They often also did advance payments and financed record studios and producers etc. On top of that the plastic was needed to physically be shipped to he consumers. This via stores, post order or other ways.

I will not go into details about who these things are today, just look at how you consume your music and go figure.

Labels are trying to re-invent themselves today by transform into A&R powerhouses, but still with the same business model.

Labels today compete with both Youtube and Live Nation as platforms for aspiring artist as well as the biggest ones, both Madonna and Jay Z have Live Nation as their “record label” as an example. Live Nation hijacks the role as record label, but mainly act as a promotor. Other artists that have signed with Live Nation is U2, Shakira and Nickelback.

I am just waiting for a new type of music company that innovates this model completely. I know there are some innovation in this segment, so I am hopeful. I also know that the labels are trying themselves, but it is like turning an oil-tanker or thinking a bank as an agile startup, it will take time. We all love music and that won’t stop, so it is inevitable that it will happen.

Important partners to artists

  1. Publishers. Artists are artists, they want as many as possible to like their music, they want to perform, they want as many as possible to love their music. It is a hard task to keep up with where and when your music is played. The composers (yes, the ones who actually writes the music and lyrics) partner with a publisher to keep track of this. The publisher have in no way played out its role, they are probably more important then ever since music now is played in so many new channels.
  2. Management. As with all talent industries it is important to have someone that helps you benefit the most, not all music live forever. Management usually takes percentage of the deals the bring in to the artists.
  3. Promotors. As the revenue streams in the industry is coming more and more from non-recorded products, the promotors have a more and more important role. Live Nation is naturally a leader in this segment. Live Nation usually does not fund future recordings, but focuses on the live part (Jay Z got future recordings in his deal) also the artists usually keeps the ownership over their back catalogue.

Why are artist upset with Spotify?

In general, they shouldn’t, they should be angry with their record label.

Since artists have signed agreements with record labels to produce compilations of songs aka a record, they are bound to follow these agreements. An artist is compensated very little per record sold. iTunes came along and the agreements between artists and record labels where sometimes updated, but not always, many became a piggyback agreement on the already existing agreement the artist had with the record labels.

Spotify is another thing since it does not sell songs or full albums but subscriptions. Therefore Spotify is classified as a kind of radio, which means that they pay royalty to the labels, please note that it is the labels that get payed and then the labels should pay the artist (see more on this below). This is based on actual amount of times a song is played, or in reality this is through a very complex formula. So why are artists upset with Spotify? For the same reason as with iTunes 10 years ago. Spotify needed to get access to the catalogue or as many artists as possible, so they had to negotiate with the labels. Spotify took it even further and gave away 17% of their company to the labels (that is now diluted to a less stake, but the labels are still one of the largest equity owners in Spotify) to make the labels share both the potential success as well as the vision (I guess).

Naturally this creates controversy since artist might have bad agreements with their label and the labels might also hide payouts from Spotify that the artists never gets a part of (see next section in this post). As an example, my belief is that the reason Metallica first appeared on Spotify was after taking back the control of their entire back catalogue. This since (I assume) they could negotiate a deal directly with Spotify and now did not have to share their revenue with their previous record label but kept everything for themselves with their label Blackened.

Spotify vs artists should be Artist vs Record Label?

Just yesterday the contract between Sony Music and Spotify was leaked and that confirms that it is actually not Spotify that is the bad part in this, but the record labels. Spotify is paying 70% of all its revenue to the labels according to the simple formula, but the small print states that there are many other paragraphs in play which creates payouts that the artists most probably do not get part of.

And we do not even know how much of the “standard” record label payout from Spotify that actually goes to the artists.

Sony Music is likely getting considerable payouts from Spotify each year, but what it does when it gets that money — and how much of those payments actually make it down to the artists — is still unknown. Some artists have clauses in their contracts to get a larger share of the streaming revenue, and some artists are still operating under CD-era contracts that only give them 15–20 percent of their streaming revenues.

The above quote is from the extensive post on The Verge that in detail walk through the Sony Music / Spotify agreement.

If you find doubt in what I write above and feel that some actual data is needed, do read the actual contract that is embedded in the article over at The Verge.

UPDATE: On the Spotify event the 20th of May Daniel Ek shared that Spotify represents 54% of the music industry revenue from streamed music.

Why do so many artists still want a deal with a record label?

Vanity and appreciation. It is a way to be recongnized as doing something good. Outside of that I would say that the labels are obsolete.

Many artists today have their own labels and control their work and only uses the label for distribution. That is an interim hack I would say, but still understandable since the labels have all channels for distribution in place. Many artist do it this way, big ones are mentioned Metallica, but also Swedish Robyn with her brilliant Konichiwa Records and many others.

Today you can record almost everything in your living room, you can put it on Soundcloud, YouTube etc and then use social media etc to market yourself. Use a publisher to keep track of your rights and when things take off sign a promotor and a management company.

For statistics the IFPI statistics page is a good place. Also their Digital Music Report 2015 might be of interest.

Photo from Flickr: Amodiovalerio Verde