The Music Industry Is very, very complex.
It’s 1999. Y2K is in full swing, and a young American man breaks free from the shackles of convention and the music industry. Sean Parker’s creation of Napster would cause an earthquake in the music industry, at a level never before seen on their Richter scale. Napster’s ripple effect is evident today’s streaming services.
Spotify has emerged as the most popular music streaming platform available in western society today. While Sound Cloud has more total users, the number of paid subscribers on Spotify is heading closer towards the 100 million mark, while Sound Cloud users rarely pay for premium services. Streaming music has completely changed how people make money through their music. No longer do you visit Sanity to pick up a compact disk. Vinyl has made a re-emergence, but it is not the main source of profit for musicians. The path towards success and money is now more unclear for a musician due to Napster. So was the service Sean Parker created for the better? And how?
For those unfamiliar with the landscape of music prior to Napster, the system worked like this. Musicians made and recorded music (usually funded by a record label) on CDs, vinyl or tapes (depending on the decade), which were then sold in record stores to the punters. The middle man was literally and figuratively between the makers and the consumers. It’s pretty simple, the punter paid per copy, and the money was divided between band, label/agent, and record store. Napster, however, was a peer-to-peer sharing system. As soon as one person uploaded an MP3 file, anyone else could download it. One person could buy a CD, turn that into a file, and share it with the over 60 million users Napster had in the middle of the year 2000. As you can imagine, this flipped the music world upside down. Flash forward 20 years, and well, it’s still on a tilt.
In a very interesting piece from 1997, Robert Wallis outlines how the music industry was changing. The piece was a few years ahead of its time, describing the globalisation of digital music and deregulation of analog channels. The music industry was drifting, and very, very slowly moving towards “revenue flows from intangible as opposed to tangible sources, with many people predicting the demise of physical carriers such as CD but little evidence so far to show this actually happening.” From this, you could say Sean Parker is a music industry pioneer- even if it meant he got sued by a bunch of people due to breaking heaps of piracy laws. Swings and roundabouts.
Per stream on Spotify, an artist receives $0.004891 on average. At that rate, it takes more than 1 million streams to generate $5000 worth of revenue. An article written by the BBC in 2013 breaks down the earnings per CD. From each sale of an $8 CD, the artists will receive $1.04 (that’s Pounds, so double the figure for an Australian dollar): “About 13% goes to the artists, while 30% goes to the label, with a 17% cut going to the government in the form of VAT (applied at 20% and therefore 1/6 of purchase price). About 17% goes to the retailer, while the rest goes to manufacturers (9%), distributors (8%) and the spend on administering copyright (6%).” Obviously, bands will negotiate different agreements, but these figures are general for most bands. The comparison in revenue from CDs to streams is startling.
Revenue earning from an EDM band.
For young artists, touring is really the only reliable way to source income- however it is exhausting and expensive to tour. Ask any musician, and they’ll tell you that for free.
Wallis certainly turned out to be right, and Parker was responsible for how it actually happened. The pathway to success for musicians is not as simple as what it was before 1999. You can no longer rely on just sales to produce your income. Napster provided a platform which shaped where the industry is today.
How artists will generate income consistently is still developing. With Spotify making profit and ITunes shutting down, the future for young musicians is not clear cut. There have been predictions of some huge profits for the industry in the next 10 years. However, whether or not the artists will see this increase in revenue is as clear as mud at this stage.
