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NO COUNTRY FOR OLD MUSIC INDUSTRY (Pt 2/2)

Updated: May 7

By Grant Collinsworth 05-MAR-2024

 

No Country For Old Music-Distribution Methods
No Country For Old Music-Distribution Methods

Cont'd: From Part1


Market Segmenting and Niches

In November of 2022; Rolling Stone magazine published an article on-line, which cited fifty (50) of the worst mistakes ever made in the history of the music industry. Number #9 on that list had described how the band: U2 (in year 2014) gave their new album Songs of Innocence away for free to Apple iTunes device users. U2 did this to expand its fan base.


The effort had epically failed. U2 discovered that its own particular market segment was 'tiny' in the grander scheme of all possible markets.


It was concluded that not every iTunes device owner was a fan of U2 or of that brand of pop-music. Alas, U2 took its spanking and moved on.


I brought this up to raise a point about our own assumptions, surrounding "exposure" on the internet. It seems we might be getting it wrong. But, read on...


DMCA and Take-Down Notices Recall when a musician simply had to sign a few contracts; record and deliver some quality work; sit back and let the promotion team take it from there. People got paid all the way around...Easy-peasy...Good times, right? So, what happened?

DMCA Takedown Notice is your friend.
DMCA Takedown Notice is your friend.


This bill was passed and signed into law in 1998. It set out to preserve and protect the mechanical copyrights of artists' works against illicit file-sharing / reproduction across the internet.


However, it also extended protection to internet service providers by reducing the providers' liability against their subscribers' copyright infringements. Some conditions for that protection existed: For example: Anti-Circumvention, by which platform hosts were/are required to provide a reasonable means of access for copyright holder(s) to issue formal take-down notices. Take-down notices are typically issued if the copyright holder of a work believes that an infringement violation has occurred.


The law affords copyright holders the right to demand the immediate removal of their work(s); including any copied instances from other affiliated network platforms. Hosting platforms are also subject to audits and are required to compensate copyright holders for any illicit sales during the period of a cited violation. Cautionary note: To enforce a take-down notice against an offending platform; the copyright holder is typically required to provide formal, credible proof of ownership of the copyright.

If the If the hosting platform believes that a fraudulent claim has been made, the platform can counter the claim, with a full-on lawsuit. It usually doesn't end well for fraudsters. But, it's also an annoying assault on the time, energy and wallet of a legitimate copyright holder.


Internationally speaking; Enforcement of DMCA laws has also proved to be a tough haul. The DMCA was ultimately adopted by two significant international organizations;

In most respects; the laws which emerged from these two organizations are modeled after and parallel the U.S. Intellectual Property and Mechanical Distribution / Performance laws).


While the DMCA bill was said to be a good start toward protecting mechanical copyrights against piracy. However, according to a watchdog organization called Electronic Frontier Foundation ; there were unforeseen consequences from that bill. The consequences got progressively stupid over the span of the next 25 years. (So, the watchdog simply stopped reporting on it.) . SImply put, the DMCA was like a Godzilla; trampling over an innocent city just to engage in combat with King Kong.


Four major concerns were cited; in which DMCA laws negatively impacted legitimate technical; economic arenas of copyright enforcement. Impacts included: Free Speech; Fair Use; Aftermarket Innovation and Competition; and Computer Intrusion. For more detail on these impacts, follow this link: DMCA Unforeseen Consequences 2014.


By now, it should be making more sense as to how the barrier against digitally induced music proliferation and promotion has been exacerbated.


You not only need to be a brilliant creator/innovator, but now you also have to have a brilliant knack for navigating through the implicit bureaucracy. It's the new entertainment landscape; created by lawyers, for lawyers...and it is bittersweet. But wait...its gets even more bittersweet...

Reckless Napster!

Do you remember Napster (aka Rhapsody)? It was the first of many U.S. companies to successfully use and exploit Peer-to-Peer server exchange of digital music.


Napster had arguably decimated the music industry in such a way as to perpetuate a death in the solvency of music revenues for artists. As 9th Circuit Judges would later make their opinion on the matter very clear: "...Napster effectively deprived professional musicians of their rightful royalty and licencing revenues... "

One year after the DCMA bill was enacted; Napster set the stage for open file-sharing. (a.k.a. music uploading, transfer and downloading).


Thus, subscribers engaged freely in the exchange of digitized music files.


The problem with Napster's reckless practice is that it had perpetuated massive violation and infringement of artists' mechanical copyrights and basically hijacked the distribution side of the music industry. It literally brought most music supply chains to their knees.


Before we extend our big, fat middle fingers (rightly so...) into the face of these two apex-predator music pirates; we must remember; if it hadn't been them; it surely would have been somebody else.


In fairness, they did in fact, pay for their sins. A rash of major lawsuits ensued (in which DMCA played a vital role). Napster was charged and accused of numerous counts of "copyright infringement, piracy, racketeering, and unlawful use of digital audio interface devices". These links illustrate the litigation; which arose as a result of Napster's irresponsible practices. Metallica vs.Napster; | RRIA vs Napster; | A & M Records vs Napster | Final Rulings.

Streaming 'Techonomics'

From the ashes of peer-to-peer piracy; there rose a new 'beastenstein. They called it "Streaming"...To be specific; Rhapsody; DistroKid; Apple Itunes; Amazon; Spotify; BandCamp; Soundcloud; Reverbnation; and a crap-load of other geeknocratic platforms; which tapped into and redirected (a.k.a. hijacked) music consumer and artist submission traffic away from label based distributions.


Equally important was the subsequent control over promotion & advertising on the internet. The combination of these factors have produced a redonkulous profit margin (For them...not for you).


In fact, so successful was/is this model (For them...not for you), that it invoked a new movement; where many traditional record labels jumped onto the streaming bandwagon.


Music Optimists will tell you that this is a wonderful thing; because it leads to more "artist exposure" to critical ears. They claim there is probable cause to believe that labels still send their scouts to wade through the pool of young, new artists.


The Streaming Business Model in a Nutshell

(Simplified for sake of brevity and illustration..and because some it is over my head...) Streaming services take in three major revenue streams:

  • Paying Subscribers: Artists can select from and purchase a range of access-packages to download songs and build their playlists.

  • Paying Artists Accounts: Artists can select from and purchase a range of promotion and advertisement packages. They can dictate where they submit their songs/albums for publishment.

  • Advertisement: Marketing Advertisers can select from and purchase consumer lists and campaign slots by which to tout and point their wares toward a bonanza of subscriber market segments.


How Streaming Platforms make their money
How Streaming Platforms make their money

With respect to the model, it becomes very clear that the artists ultimately drive its success... In fact, they are the only part of the model, which offers true value. The rest is speculation and gravy-train for the executives of the platforms. So, why do copyright owners/artists continue to only get paid the sum of a pittance, while platforms take in windfall after windfall?


Let's have a look at the going rate of return (That is...royalties paid to artists for having their submissions "exposed" and streamed) in 2023-2024:)


VENDOR

*AVERAGE RATE PER STREAM

Tidal

$0.013

Apple Music

$0.008

Amazon Music

$0.004

Spotify

$0.0032 to $0.0035

YouTube Music

$0.002

Pandora

$0.00133

Deezer

$0.001

DistroKid

$0.015 *

Most vendors factor in a variety of conditions and trends to produce these numbers. Payouts and associated rates are elastic and adapt accordingly. The most common factors which go into determining payouts include:


  • Consumer Paid-Subscription: Subscription volumes can vary from low to high premiums each fiscal period... (Free subscriptions are not typically counted);

  • Quality of Artist Production: A professionally mixed and packaged song always wins out over a homespun guerrilla recording (Fact..!.) .

  • Location: They pay different amounts In England than they do in Malaysia. Largely due to scale of respective economies.

  • Number of Streams (User Centric) : Engagement trend; generated exclusively by your song; Plus, engagements overall for other songs on the entire platform.

  • Revenue Amount (Pro-Rata): Total revenue generated within the entire platform from user subscriptions, artist subscriptions, advertising revenues, streams and downloads


A numbers crunch:

Using Spotify's (rate of .0032)): Let's say that: To earn (gross) $100.00; your song needs to score 31,250 full streams. ($100 /.0032 = 31250) Note that a full stream is defined as a play-count of one and constitutes 30 seconds or more per play. So, for you to get paid; your listeners need to refrain from scrolling away from your song stream for at least 30 seconds.

Imagine 26.1 Billion User Streams:

That's what artist Taylor Swift garnered; world-wide; with Spotify in 2023. Using Spotify rates, she grossed @ $91,350,000. Thirty(30) Percent of that went to Spotify to cover their costs. Also keep in mind...the remaining Seventy (70) percent of revenue actually gets split up and distributed between Swift and all her other vested logistics and admins;


The most common parties (but not limited to) are the copyright holders, publisher(s), performers, and holders of the master copies of the work (Usually a studio) . To offer some perspective about the scale of economy; Taylor Swift's total annual revenue (for all manner of distribution and sales worldwide) broke over $1 Billion in 2023. However, she must pay for the costs associated with her tour(s): This includes: venue leases for her scheduled rehearsals and performances; Payroll for a crew of hundreds; Promotion fees; Merchandising Fees; Equipment and Stage Transportation Fees , Ticket sales fees, and more. According to Forbes; the cost estimation is @ $750,000.00 per touring day. So, in retrospect; streaming revenues are nary a drop in the bucket for high-end, professional artists. Traditional record labels are now injecting themselves into the online streaming service industry. See what Smashing Pumpkins frontman: Billy Corgan has to say about it. Also from across the pond; The Guardian news agency has spoken out about this.


As the payouts seem to diminish, profits for Spotify and similar platforms continue to rise: See RIAA Revenue Statistics


Pro-Rata and User Centric Payout Models:

One way to describe this model is to view it through the lens of basic stockholder's 'principle of investment, equity and return'; where a song's payouts might be construed as 'periodic dividends'. Simply put; Like any other share in a market, If the volume of streams for your song should rise or drop; so too shall the song's corresponding value in equity..


Stream platforms themselves could be likened to that of a brokerage, where a song's exposure can be managed (for a fixed subscription price + up to 30% of the streaming revenues). The goal of these platforms is to garner and expand listener bases. (The more listeners, the more instances of exposure).


The money side of this business
The money side of this business

Marginal Utility-ish the universe of songs for sale ; a high volume of streams does not prove that the song will maintain a lasting shelf-life.

  • The shelf life of a single stream from your song is always just one instance (1);

  • No matter how deeply absorbed it is in the greater revenue pool, It ends there and you must obtain another listener in order to reap another stream.

  • It stands to reason; an infinite number of available streams exist to support an infinite number of listeners. Only a handful of artists have successfully broken the 100k threshold.

  • Once your payout is declared, the total equity of that song (with respect to retained earnings) is vastly reduced. It necessarily suggests that the cycle of 'more streams' must ensue in order to build back that previous equity. However, your next payout amounts will vary, even if you sell the exact same number of streams as in a previous cycle. This is largely due to the overall performance of that specific streaming platform.

Good Song; Bad Song Portfolio effect:  In order for the artist to benefit (optimally) from each cycle...an investment in uploading more than just one song, is paramount... As with other viable financial instruments, the artist fares much better under a 'Portfolio effect', where, given a collection of many songs; one song's bad performance doesn't destroy the overall performance of all the other songs.

To further the success of a portfolio effect; the artist should also have all song collection(s) engaged in multiple streaming services.


Start writing crap-loads of songs...I mean some of them gotta hit, right?

A Very Hard Reality

Im Sooooo like the Beatles
Im Sooooo like the Beatles

Flinging un-vetted songs against the cyber freeway guard-rails; (hoping they will stick) isn't a real solution for musical entertainment success. We can follow through with all industry's due diligence and meet all the hoops and loops... But, none of that can fix songs, which suck.


Back in the old-school record days; artists actually had to present material that not only didn't suck; but also stood out, over and above the rest. That was the standard back then. Today, does that that standard still apply?


Song Smithing isn't something that casually happens; just because we will it to be. It takes a crap load of work to master and innovate. But, If one sticks with it and stay humble and honest about it... that one just might be the next rock star.



Please add your comments ... Would love the feedback!


 

OTHER LINKS OF INTEREST (Drop-down List of Items):

DIGITAL ADVERTISEMENTS FRAUD

STREAMING SERVICE MODELS

TAKEDOWN NOTICES

 

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