Digital tech lets musicians play on
Business Management

Digital tech lets musicians play on

On the surface, it’s not hard to see why there should be consternation about the demise of modern music. It is an established fact for example (click for a chart) that US recorded music revenues are down by almost two thirds since their height at the turn of the millennium of $71, to $21.50 per capita. 

The fault has been squarely placed at the door of digital technology, first in terms of CD ripping, then file sharing and torrenting, and most recently streaming. But just how much of this view is hype, and what is reality?

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Myth 1: Technology is killing music

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Reality 1: Technology is one of many factors changing the music landscape

The impact of filesharing has often been cited as being overstated — “Empirical work suggests that in music, no more than 20% of the recent decline in sales is due to sharing,” says a paper from Felix Oberholzer-Gee and Koleman Strumpf, for example. According to music economist Peter Tschmuck, delve into the figures and a more complex picture emerges, which set the scene for music supply in the 1980s and 1990s.

First came marketing. Music sales were stagnating, wrote Pekka Gronow in 1983: “Perhaps records, as a mass medium, have now reached the saturation point.” Not coincidentally, use of tape recorders was on the rise, first to capture singles from the radio and then to record whole albums. 

In response, as the music biz became better at understanding demand, it increased focus onto a reduced set of genres and indeed, artists. Each label had no more than a half dozen performers that it would put all of its weight behind, and many less profitable bands and musicians were removed from the rosters. 

A second, equally business-smart move was to move production away from singles towards more profitable albums, seeing the selective release of the former as a good way of testing the waters for demand. As a consequence, albums were often seen as being “more filler than killer” and, meanwhile, sales of compilations soared.

A bonus was that technology — in the shape of the CD — helped catalyse a massive upswing in music industry fortunes and cemented the role of the album. “The CD-boom was mainly fueled by the re-release of repertoire still existing on vinyl. The superstar-orientation as well as the CD format ensured that the album became the main source of sales in the industry,” remarks Tschmuck. “The ‘single market’-thesis contributes a much better explanation for the declining sales in the recording industry than the ‘filesharing’ thesis.” 

CDs became a temporary injection of cash into an already broken system. This influx of capital, coupled with controlled restrictions on demand, remained unchallenged until 2004, when digital formats once again enabled consumers to access music they actually wanted to listen to. By 2008 single sales had once again overtaken album sales, and the industry was in freefall. 

So we return to the two-thirds drop in recording industry revenues. Which, of course, would result in a two thirds drop in artist incomes. Wouldn’t it?

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Myth 2: Music had a golden age

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Reality 2: Making music has never been the easy path


Establishing musician incomes is a recognised challenge, due to a lack of industry transparency around what artists actually earn. Says Imogen Heap, “For years I’ve been so frustrated with the deep opacity of the music industry.” What we can do is look to census information, such as that reported in 1996 The Artists in the Work Force study from the US National Endowment for the Arts, comparing earnings across the decades.

Median earnings increased from a paltry $2,958 in 1969, to $5,561 in 1979 and $9,900 in 1989 — still not enough for a mansion, but certainly on the rise. Variations in mean earnings — looking at how earnings distribute across the group — were particularly telling, however. To quote the report:

“Mean earnings were higher than median earnings, which showed some individuals’ earnings were much higher than the rest of their group’s earnings. Musicians’ and composers’ mean earnings were $16,233 in 1989, an increase of 105 percent over their mean earnings of $7,923 in 1979. This growing spread indicates that the earnings of the highest paid members of the professions, perhaps “superstars”, increased faster than earnings of the profession as a whole.”

In other words, a smaller number of artists were pocketing a larger proportion of the income, corroborating industry constraints on supply to the detriment of the larger pool of artists.

And how big was this pool? In 1970, there were 99,533 earning musicians and composers in the USA — equating to 68% of all performing artists. In 1980, the number had jumped to 140,556 but in 1990, it had only increased to 148,020, which was 53% of all performing artists — a drop of 15%. So, while America’s creative economy may have been growing, musicians were being stymied.

In 2000 the figure was 170,015, then a drop in 2005 to 169,647 (based on an updated AWF report) and a subsequent, perhaps significant rise in 2010 to 189,510 according to the more recent US census. In 2005 median income had increased to $22,600, still not much to be writing home about. 

Life was tough for anyone that wanted to make it in music. A 1980 artists employment survey found that, “of those with second jobs in 1980… over a fourth of musicians were in sales, clerical or service jobs — jobs with a history of low pay and benefits.” 

Earnings came from a range of musical sources, only a small proportion of which has ever been recordings. According to a recent Future of Music survey, 5.8% of revenues for musicians as a whole comes from recording - a figure which is decreasing. Meanwhile 28% comes from playing live music. To relate the two sets of figures, in 2005 a musician earning $2,500 from recordings would already be above the average. 

Understanding these figures starts to get us somewhere. Overall, while musicians were never paid that much, people who log their role as a musician are earning more than they did in the past. As we shall see however, this group is only part of the story.

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Myth 3: Musicians have never had it so bad

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Reality 3: The musical genie is out of the bottle, and artist revenues are up

So, the 80’s and 90’s were all about the industry trying to limit access to artists. The model worked very well - by focusing on (literally) half a dozen artists, a label could get more bang for both its recording and marketing bucks. The advent of digital came like a scene from The Dam Busters — now the constraint has been removed we are seeing a massive diversification, an explosion of culture. 

To understand just how massive we can look at YouTube’s international reach, bringing artists as diverse Korea’s Psy and Morocco’s Hala Turk to almost-immediate international attention. Indeed, in this day and age it is difficult to know whether a kid making a song in their apartment is any different in consequence to a professionally recorded song. Perhaps it doesn’t actually matter. 

To appreciate the positive impact of this, we can look at collections societies and Professional Rights Organisations (PROs). Again, figures are not immediately available but the American Society of Composers, Authors and Publishers (ASCAP) has seen its membership increase exponentially, from 45,000 members in 1999 to 172,000 members in 2009, then 460,000 members in 2013.

Today ASCAP has over 540,000 members, and meanwhile, competing PRO Broadcast Music, Inc (BMI) represents 600,000 members. Recalling that the total number of musicians in the US was 189,510, quite clearly the rate of growth of rights holders far surpasses that of ‘professional’ musicians. 

Despite taking a recession-based hit, royalty payments from BMI have been increasing year on year since 2000. In 2014, the organisation distributed some $850 million, up 3.2% on the year before. Meanwhile, ASCAP distributed $883 million in 2014, having collected over a billion dollars in revenues. 

While the pot may be increasing, so is the pool of people drinking from it, creating a challenge for anyone who wants to make money from music. Is this actually a bad thing? The capability to create music, while a great gift, is also an inherent part of humanity — it was Darwin himself that suggested our musical abilities, shared with other animals, came before our linguistic abilities.

As an inevitable consequence, the ‘market’ for music will by its nature be over-supplied; equally the demand side of the equation will set a low satisfaction bar, to the potential disappointment of more talented and better trained musical professionals. We shall return to this point. 

These factors have a direct impact on how musicians can make money, illustrates Barry Dallmann at PlayJazz Blog. “If a band turns up and makes a mess of playing ‘twinkle twinkle little star’ 30 times and they fill the place, they’re going to get booked again. If a band turns up and plays the most incredible jazz set ever performed anywhere in the history of the world and they bring 5 people through the door, they won't be getting a repeat booking.”

The same is now true online. Like it or not, the genie is out of the bottle — the constraint has been removed on who can record and deliver music. But will people pay for it?

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Myth 4: People want music for free

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Reality 4: People are paying for music in all its forms

 
About $109 was spent per capita on music in 2014, 50% of which was on live music. That makes the total US budget for music over $30 billion — interestingly, according to the previous year’s study, 75% of this came from 40% of the population. And there could be more where that came from, the study reports, if the right incentives are there. 

In the US, discretionary spending in 2011 — classed as “purchases of items such as tobacco, alcohol, education, reading, personal care, apparel, dining out, donations, household furniture and numerous forms of entertainment” — was calculated at $12,800. Despite a reported sluggishness of recovery of discretionary spend since the recent recession, it’s fair to suggest that the amount spent on entertainment will remain around 15-17%, just over $2,000. 

The debate around free music has moved from illegal file sharing to the still-growing (and evolving) market for streaming, so what of it? A similar lack of transparency exists on streaming revenues as to musical artists’ overall revenues, so much of what we have to go on are the sometimes hilarious royalty statements coming from Spotify et al., measured in pennies.

A useful comparison is between digital music streaming and the older model it bears most similarities to — terrestrial radio. Comparisons of “spins versus streams” are hard to find, but David Touve, Assistant Professor at the University of Virginia has had a fair stab in the UK and the US. The bottom line is that in the UK, costs per listener by stream are of the same order of magnitude at 0.04 pence per spin and 0.05 pence per stream, though artist Zoe Keating’s figures suggest they are higher per stream, at 0.3 pence.

In the US, the payments per spin are roughly half, while payments per stream are about the same, there’s an added, quite astonishing factor. In the US, while songwriters and publishers are paid, recording artists have never — that’s never been paid for their songs being played on terrestrial radio, due to a long-standing loophole in legislation which sees a play as a ‘performance'.

A bill was introduced in April of this year to change this - unsurprisingly, industry lobbyists have fought against previous attempts to change the situation, arguing that that they would put smaller radio stations out of business, and that “they simply could not afford to pay performers.” In no other industry would this be seen as remotely acceptable. 

While streaming is being seen as the industry’s current nemesis, artists seem to be making less of the streaming issue than corporate players. Comments Zoe Keating, “the dominant story in the press on artist earnings did not reflect my reality, nor that of musical friends I talked to. None of us were concerned about file sharing/piracy, we seemed to sell plenty of music directly to listeners via pay-what-you-want services while at the same time earn very little from streaming.”   

As the figures suggest, there is clearly money to be made from music as a whole. Live music is seen by many as a counterbalance to falling recorded music sales — revenues for the former overtook the latter in 2010 and have increased steadily ever since. 

It’s worth returning to that $2,000 figure, which is the amount of money a US consumer is prepared to spend per year on things that make them feel good. Every month, the American wallet has $166 that could be spent on musical outputs. In other words, music has the opportunity to duke it out with other forms of entertainment — and, as studies indicate, it stands a good chance of winning.

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Myth 5: We are in music’s end of days

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Reality 5: Music has never had it so good

 
Are we facing the demise of music? Quite the opposite, as technology’s power to dis-intermediate is levelling the playing field. 

Over the 1980s and 1990s, the music and media industries worked together to restrict music supply on a massive scale, delivering a series of carefully prepared superstars to specific markets in order to maximise revenues. While not directly corrupt, the creation of an artificial bottleneck essentially removed the oxygen from western musical culture, to the detriment of the broader pool of artists and music as a whole.

Those musicians not selected for stardom have borne the brunt in the form of lost revenues, but the arrival of digital technologies have removed this bottleneck. As a consequence (and to paraphrase Paul McCartney, you’d have to be blindfolded riding a camel backwards across the desert not to have noticed), the recorded music industry is in trouble. 

Of course there’s a lot of people involved in the music industry, and they have been doing a lot of jobs. But that doesn’t mean they are the right jobs today, if they ever were — the fact that artists saw less than 10% of the revenues even in the heyday of the biz is all anyone should need to know. 

More importantly, many previously well-off artists are seeing their revenues fall; at the same time, others are looking for new ways to monetise their art. “While I would love to get paid more for records I long ago gave up chasing that particular ghost and have looked for money elsewhere,” said one rock guitarist.

Many new and aspiring musicians are also fearful of the change, though how much of this is due to the maintained hope of a ‘recording contract’ is difficult to say. Any history of recorded music industry reads like a series of broken promises and scams. Even the artist-friendly BMI was set up in response to ASCAP’s perceived overcharging of artists, and in no other industry group do you need forums such as “Stop Working for Free”.

Making music was never the easy path. Remarked New York jazz drummer, Craig Holiday Haynes, “There’s a joke that asked, ‘What’s a musician without a girlfriend?’ The answer: ‘Homeless.’” For a select few, the recorded music industry offered a golden ticket to fame and fortune but the majority had to soldier on. 

All the same, music artists have a genuine, unprecedented opportunity. Making money from music needs either a contract with someone who will pay, or it needs direct access to the source of income — the consumers and fans. The former model suggests stability and longevity, but the long-term trade-off is a greater sacrifice than many artists realise at the outset. “Like every band, we would have signed for nothing, given the opportunity,” says Pink Floyd’s Nick Mason. 

The latter suggests a harder, but ultimately more sustainable path and, what is more, digital technologies provide the tools for engaging with, and growing a fan base. Notes jazz musician Barry Dallmann, “The internet gives us an unprecedented opportunity to go straight to those potential fans and put the music in front of them.”

Right now, a new industry land grab is putting musicians last — again. We are seeing some new players, and there are some technological and business models which clearly don’t act in the artists’ interests. But others do and innovation will continue: for example the use of bitcoin-based models to create a financial conduit directly from consumers to artists.

Such models offer hope, but they will doubtless be fought against by the industry. As comments George Howard, “Bitcoin can’t save the music industry because, the music industry will resist the transparency it might bring.” Elaborates Ashton Motes at Dropbox, “Even indie labels – it’s not clear that they’d be willing to disclose who makes what, and what people sell. The whole industry is driven on smoke and mirrors.”

While musicians can benefit from financial advances, recording facilities, distribution mechanisms and so on, the music itself was never meant to have middlemen. It is a part of our culture, embedded deep in the most primitive parts of our brain, and profoundly important to our existence — no wonder people worked out that controlling musical supply would yield significant returns. 

With digital technologies however, those days may finally be over. While many are saying that technology is damaging the music business, it may well be the best thing that ever happened to the business of making, delivering and even monetising humanity’s musical talents. 

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Jon Collins

Jon Collins is an analyst and principal advisor at Inter Orbis. He has over 25 years in experience of the tech sector, having worked as an IT manager, software consultant, project manager and training manager among other roles. Jon’s published work covers security, governance, project management but also includes books on music, including works on Rush, Mike Oldfield and Marillion. See More

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