The End Of Record Labels

Artists are starting to realize that the real enemy isn’t streaming companies,
it’s record labels.
By Mike Montgomery, Executive Director CALinnovates

When Taylor Swift won her brief battle against Apple Music in June, she was hailed as the savior of music. Thanks to Swift, artists will now be paid royalties during Apple’s three-month trial period of its new streaming music service.
But that will hardly save music. Artists are increasingly up in arms about the paltry paydays they are collecting from streaming music. Back in the day, a band could earn $2 for every CD sold. Today, artists are lucky to get a fraction of a cent for each stream.
Most of the music world’s anger has so far been directed at streaming companies. From the outside, it’s easy to see why. It looks like tech companies are bringing in millions and handing very little of it over to the people who create the music that makes these companies possible in the first place.
But a closer look shows that’s not exactly the case. Streaming companies hand out (on average) 70% of all revenue to rights holders. Spotify has distributed more than $2 billion in royalties. According to Spotify, as of June 2013 it was paying out $425,000 per month for an average global hit album and $145,000 per month for a Spotify Top 10 album. And while Apple, which won’t have a free option after the trial period, will pay $7 of every $10 monthly subscription fee to the music industry, it’s an open question as to how much of that revenue the artists will actually see.
It’s starting to become clear that the money isn’t getting log jammed at the streaming sites; it’s getting log jammed at the record companies. The recent massive Sony hack revealed that the record labels are receiving tens, if not hundreds, of millions from Spotify. A leaked version of Sony’s contract shows that Spotify paid Sony $42.5 million in advances for the rights to Sony’s music catalogue, and a ‘most favored nation’ clause gives Sony the opportunity to earn millions more. Spotify also gave Sony an additional $9 million in ad inventory that it could use or sell at a profit. But how much of those millions make it to the artists?
The labels have been incredibly opaque about how they distribute streaming money. An artist might collect 20% of streaming royalties — but the artist has no way of knowing what those royalties were in the first place. Musicians are relying on the labels to be honest about their income, but anyone who has spent any time in the entertainment industry knows that there are all kind of accounting tricks that keep money from going to the people who deserve it most.
But now artists are starting to get wise and many are finding ways to work around the traditional system.
Linkin Park set up its own distribution company and worked with Harvard Business School to come up with new models for making money including merchandising and venture capital. The band’s company, Machine Shop, views creating and selling music as a “supporting role” in the company’s overall business.
Slash (one of the founders of Guns & Roses) recently released a live album on BitTorrent Bundle. The web site, best known for pirated content, lets artists sell directly to their fans. Slash’s album costs $16 and the band will collect 90% of each sale.
Expect to see more artists going their own ways in the future. It used to make sense for record labels to collect most of the money; after all, finding great artists and nurturing their careers was hard work. And it used to cost a lot of money to manufacture and distribute albums — and then cassettes — and then CDs. But many of the costs that record companies bill back to artists are no longer relevant in a streaming world, and as it gets easier for musicians to release music on their own and potentially even work directly with the streaming companies, the labels will become less and less important.
The Sony leak showed that its deal with Spotify was the last gasp of a dying empire. Streaming music is good for consumers. We’re listening to more music than ever before. And by eliminating the middleman, it can be good for artists too.