How Did Digital Recording and Distribution Affect the Music Industry?
The rapid popularization of the internet technology, which started at the end of the last century — and the extensive penetration of mobile devices that followed — changed our lives and experience in many different ways. Among the changes was the way people listen to music, which resulted in the change of the music industry.
In fact, music industry is one of the fields that was shaken by the technology. Total revenue of recorded music sales kept declining until 2015, primarily due to illegal file sharing. The structure of the market has also shifted. Record store chain Tower Records closed all of its retail stores in the US in 2006, after nearly five decades in business. Recently, Best Buy announced that they would not sell CDs in their stores anymore starting from July 1st, 2018. It seems that traditional business model and practices built around brick-and-mortar stores have had its day, and now the music industry is being restructured around paid streaming services such as Spotify and Apple Music.
Digital audio revolution that had started earlier was an important factor that contributed to this changed landscape. By the time commercial internet services were available, most music tracks were able to be saved on the hard-drive as an mp3 file less than 5MB, and were ready to be shared on Napster.
Digitalization of both recording and distribution brought some fundamental changes to the nature of the music industry.
First, one bright prospect that digitalization brought is accessibility. In the 2004 BBC News article that quoted user comments on the changes that the internet brought to the way they listen to music, a user named Eric B. mentioned, “downloading songs, specifically rare songs, have been more easier to find on the net, rather than sifting through tons of discs in record stores” (“Has the Internet”). The online music stores like iTunes gained vast catalogs of music over time and platforms like YouTube allows millions of users to upload contents from their own archive. In other words, listeners now have a broader option than they ever had before when they decide what to listen to.
The accessibility that digitalization brought is not confined to the listeners’ accessibility to recorded music catalog. Listeners can easily access the database with their mobile devices as long as they are connected to the internet. The process of recording music also became more accessible with digitalization, as high-quality gear and software became more affordable. Digital audio workstations such as Cakewalk and Pro Tools that were first introduced in the late 1980s have become available to most home recording studios over time. Digitalization of both recording and distribution made it possible that a track recorded in one’s bedroom can become viral and brings one success in the mainstream music market as in the case of Owl City. The channel to distribute music to the global market is practically accessible to everyone, through the services like CD Baby and TuneCore.
Second, as file-sharing technology rapidly became popular in the early 2000s, users quickly got used to the idea that music is free. In the same BBC News article, a user named Tim Rollinson wrote, “I find today’s music productions to be so mediocre and over-priced that I have become very selective and only buy one or two CDs per year.” This widespread reaction is remarkable because, before people started downloading music for free, they had to spend their money in order to judge if the music is mediocre or not. Now in part, people seem to consider a music track as promotional material rather than the final product.
Third, the standard sound quality of the music currently circulating in the market is comparatively lower than the sound quality that we used to get from physical media like CDs. In the digital world, the sound quality is decided by the size of the file and the size of the file is being optimized for quick download and convenient storage. Despite the improvements in the internet speed and storage capacity over decades, general sound quality of the music hasn’t dramatically improved. It actually gets worse in the typical streaming environment, and adding insult to injury, today’s online music distributors have their own internal process that’s an equivalence of what was called ‘mastering’ before, leaving the quality of the final product out of creators’ control.
The changing nature of the music market has been reflected in the strategies of the sound recording industry. One example is the multi-tier strategy of selling recorded music. While the majority of listeners are not big on sound quality as much as they savor vast freedom of choice and ubiquity, some music fans started choosing vinyl to satisfy their needs for better sound quality. In turn, labels have been making high-priced, high-quality products targeting the wallet of the handful of superfans and collectors. In a recent article for The Star, music critic Ben Rayner wrote, “as anyone who’s been buying or selling vinyl over the past few years is aware, $30 and up is increasingly the new normal for new LPs,” complaining about the high price of the new deluxe, limited-edition vinyl record of Queens of the Stone Age.
They have also made effort to delve into revenue streams other than selling recorded music. In a 2011 Billboard article, analyst Glenn Peoples directly stated, “diversification is paramount in the digital music era — labels simply can’t survive on digital music sales alone.” Now record labels, as well as music creators, are seeking revenues in as many ways as possible, including selling merchandise, crowd-funding, touring and licensing music to visual media.
Among the revenue sources, a domain that has shown remarkable growth is the live performance. In a 2017 Variety article, Ray Waddell of Oak View Group said, “It used to be that you toured to help sell the record, . . . Now record helps support the tour” (DiMartino). The same article suggests, the growth of the live music is supported by the global nature of the music business. Joe Berchtold of Live Nation illustrated in the same article, “Now the artist connects with those fans truly on a global basis simultaneously. . . . when Beyonce released ‘Lemonade,’ the girl in Colombia was listening to that album the same minute as the girl in London or in L.A. And you have more followers outside of the U.S. for the major artists than you do in the U.S.”
Digital distribution also brought a shift in music journalism and music promotion. Now streaming platforms hire people to generate their own editorial contents. According to a 2014 Financial Times article interviewing James Foley who works at Deezer as a ‘music curator’ or ‘tastemaker,’ “Twenty-five per cent of the company’s staff is devoted to editorial, comprising former bloggers, music journalists, and A&R scouts” (Jacobs). In the same article, Foley said that one of his key missions is “enabling subscribers to find new acts or songs — a role once dominated by radio and the music press.” It seems that streaming services successfully took over radio’s role. A 2017 Wall Street Journal article noted, “In the streaming era, a new gatekeeper stands between record labels and listeners: the playlist professional” (Shah). According to the same article, the playlist professionals “now have the power to control music’s hit-making machine.” Streaming services also seem to have an advantage in this game because they have direct access to user behavior data.
The sudden change in the market has created systematic revenue losses of the music industry as a whole, as well as of certain parts of the industry. IFPI’s Global Music Report 2017 contains an article specifically devoted to ‘value gap.’ According to the article, “the value gap describes the growing mismatch between the value that user upload services, such as YouTube, extract from music and the revenue returned to the music community,” and it is the “fundamental flaw in today’s music market.” It illustrated, while Spotify generates $20 dollars per user, YouTube generates less than a dollar per user. In the first place, measuring the value that music generates seems to have been a challenge.
The math gets more complicated when it comes to the indirect values music creates. In 2007, Steve Jobs wrote in his essay, “Thoughts on Music,” that while the most popular iPod at that time held 1,000 songs and users tended to fill up their iPod, only 22 songs were purchased from iTunes for each iPod ever sold. Here, he was using the number to persuade record labels to abolish DRMs, but it could also be the evidence showing the scale of digital music piracy. Even though music was one of the factors that facilitated the massive growth of the mobile hardware industry, music industry lost its revenue rather than benefiting from it. It was not like the previous generation where the CD player sales were accompanied by the growth in CD sales.
Music creators’ share of the revenue shrank as the market shifted from physical media to streaming. When album sales dropped and online music stores such as iTunes allowed their users to purchase individual tracks, songwriters lost a large percentage of their income coming from mechanical royalty. Mechanical royalty coming from streaming services is currently dependent on the monthly gross revenue of each streaming platform, which resulted in the tiny amount of earning per stream for songwriters. In a Digital Music News article, Jeff Price of Audiam broke it down, “one stream on Spotify’s Ad Supported free service generates $0.00017 per stream for ‘Mechanical Royalties.’”
Adjusting to the technological innovation and changed nature of the market doesn’t seem to have been an easy journey for the music industry. In fact, it took countless litigation as well as a fierce negotiation that also engaged music fans some of whom still demonstrate hard feeling against record labels about suing individuals for downloading music from P2P websites. However, it seems that the long-lasting debates between multiple parties are also barely starting to be settled recently, given the unprecedented agreements on Music Modernization Act, the bill that is being made to fix the legal loopholes caused by the changed landscape of the industry. Moreover, as the U.S. music industry is seeing a meaningful growth since 2016 for the first time in nearly two decades, music industry community seems to be hopeful about further innovation based on what they have learned during the years of transformation.
Works Cited
DiMartino, Dave. “Live Nation Leads the Charge in Concert Business’ Booming Revenue.” Variety, 8 Feb. 2017. http://variety.com/2017/music/features/live-nation-concert-business-1201979571/.
Jacobs, Emma. “Streaming Services: Confessions of a Music Curator.” Financial Times, 14 Aug. 2014, www.ft.com/content/18093f00-18a1-11e4-a51a-00144feabdc0.
Jobs, Steve. “Thoughts on Music.” 6 Feb. 2007, www.apple.com/hotnews/thoughtsonmusic/. Internet Archive. web.archive.org/web/20080107121341/http://www.apple.com/hotnews/thoughtsonmusic/.
Peoples, Glenn. “Analysis: Diversity, Not Just Digital Sales, Will Save the Recording Industry.” Billboard, 5 Aug. 2011, www.billboard.com/biz/articles/news/1176765/analysis-diversity-not-just-digital-sales-will-save-the-recording-industry.
Price, Jeff. “The US Government IS Forcing Streaming Services to Pay 43.8% More.” Digital Music News, 28 Jan. 2018, www.digitalmusicnews.com/2018/01/28/us-government-songwriter-royalty/.
Rayner, Ben. “Why Is the Price of Vinyl Albums at a Record High?” The Star, 9 Feb. 2018, www.thestar.com/entertainment/music/2018/02/09/why-is-the-price-of-vinyl-albums-at-a-record-high.html.
Shah, Neil. “Music’s New Gatekeepers.” Wall Street Journal, 16 Nov. 2017, http://online.wsj.com/public/resources/documents/print/WSJ_-A011-20171116.pdf.
“Has the Internet Changed the Way You Listen to Music?” BBC News, 27 Feb. 2004, news.bbc.co.uk/2/hi/talking_point/3495921.stm.
“Rewarding Creativity: Fixing the Value Gap.” Global Music Report 2017: Annual State of the Industry, 25 Apr. 2017, pp. 24–27. www.ifpi.org/downloads/GMR2017.pdf.
