Saturday, April 4, 2015

Taylor Swift, Jay-Z take music business into own hands as Apple looms

Written by Kevin Chupka -- According to the Recording Industry Association of America, 2014 marked the first year that streaming music revenue beat out CD sales and the options for streaming are growing. Spotify and Pandora (P) already have significant market share. Apple is rumored to be building out its offering too.

One criticism about existing streaming platforms centers around artist pay. Spotify, for instance, uses a complicated system to calculate artist payouts that averages somewhere between $0.006 and $0.0084 per stream.

Time magazine crunched the numbers last fall and the top grossing song on Spotify from January - October of 2014 was “Summer” by Calvin Harris. Users streamed the song 203 million times, and the payout fell somewhere between $1.2 million and $1.7 million.

Those numbers are controversial however. Taylor Swift famously removed her catalogue from Spotify last fall saying:

I'm not willing to contribute my life's work to an experiment that I don't feel fairly compensates the writers, producers, artists and creators of this music. And I just don't agree with perpetuating the perception that music has no value and should be free.

The aforementioned Time article, citing a Spotify spokesperson, claimed Taylor Swift made $2 million off global Spotify streams. Swift’s Big Machine recording label says the payout was significantly less: $496,044.

“The Spotify argument has always been that the more people that come onboard, the more money will be generated, the more money that’s generated, the happier the artists and the labels and the talent suppliers will be,” says Dave DiMartino, Executive Editor of Yahoo Music.

In an effort to combat the Spotify-like pay discrepancies, Jay-Z and a bevy of his fellow artists (Swift included) announced a new streaming service called Tidal that promises to fairly compensate artists for their work.

A changing musical landscape

It’s not surprising that these musicians have banded together in this way because it’s not just recording revenue that is being impacted by a changing consumer. For decades, artists made their real nest egg out on the road. As the cost of putting on a major tour has ballooned so too have ticket prices.

Tastemaking teens don’t have the $150 it costs to go see many big acts live. Teens “get their music for the most part for free. They go to shows where there’s 150 bands all at once over a three day play,” DiMartino observes. “The days of the superstar that can fill stadiums - those days are going quicker than ever.”
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So if artists instead double down on streaming services, where does that leave the consumer, sifting through all those options? And which service can ultimately come out on top?

“First and foremost to set themselves apart, exclusive content is a big deal,” DiMartino believes. Higher quality may also be a factor (Tidal offers such bells and whistles in a premium package), but only for the true audiophile, a niche group to be sure.

It will all lead to competition in things like price, but that change won’t really come until the user base grows enough to warrant it. Still, DiMartino says that as we get into 2016 and 2017, streaming will, more and more, become the only way to consume much of the new music being made.

What about Tim Cook?

The elephant in the room in all of this is Apple (AAPL). With close to $180 billion in cash, the company can afford to do just about anything and rumors suggest one of those things is a beefed up music service under the Beats name it acquired last year.

“If they have access to iTunes and everyone’s iTune player,” DiMartino notes, “they know who listens to what. They know that fans of band A like band B. They instantly have a step up on virtually everybody because they have an already existing database that they can utilize and really win big with.”
Exactly what Apple has planned remains a mystery and so it may not be fair to predict much more about the future of music until the company that changed it all with the release of iTunes in 2001 weighs in again. Still the likes of Jay-Z, Beyonce and Taylor Swift seem to have had enough. Will striking out on their own be the answer or will Tim Cook and company intervene?

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