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The Great Escape kicks off with CMU’s Where We’re At keynote

By | Published on Thursday 14 May 2015

Chris Cooke

CMU Business Editor Chris Cooke kicked off CMU Insights @ The Great Escape this morning with his traditional Where We’re At keynote, identifying the five key trends occurring in the music industry today.

Beginning with the rapidly growing and fast evolving streaming music sector – and pre-empting a stats report due to be presented at the conference by IFPI’s Alex Jacob later this morning – he told the TGE audience: “We all know that streaming music boomed in 2014 while CD sales continued to slide and download sales peaked, but it is still early days for the streaming market at large. It may be the fastest-growing revenue stream for the record companies, but in many markets it is some
way off surpassing CD and download income levels”.

While some services are gaining traction, he continued, most remain loss-making, prioritising growth over profitability. This, mainly, is down to business models that require multi-territory operations and mass-market consumption to work out long term. Plus, scale boosts perceived value when a sale or IPO comes around, which is where early investors will see a return on their investment.

The streaming market is already pretty crowded, he added, though a few services have all ready fallen by the wayside this year. Nevertheless, with Apple, Google and Amazon all busy plotting their next moves in streaming music, competition will remain strong this year. “But arguably all players face the same challenge”, Cooke mused. “Ten pounds a month premium is too much for mainstream consumers, we have freemium and premium – now we need medium. But what does the middle market look like when the freemium services are so good?”

Meanwhile, within the music industry, Cooke noted, debate is not just focused on how digital services will evolve. There’s also plenty of debate on what happens to the money already coming in from the streaming platforms – and how it is split between artist and label, and between the recording and song copyrights. When it comes to the latter divide, royalties have traditionally been split 50/50 (more or less) when sound recordings are playing on radio or in public spaces, but when CDs are sold labels take a bigger cut because they are the ones taking the risk on investing in new artists.

“The latter approach has been more or less adopted in the streaming space”, Cooke explained, plugging a later talk where he’ll explain exactly how streaming services are licensed. “The record companies argue that they continue to be the primary risk-taker with new talent, and actually pump content into the streaming platforms, and do all the marketing around new releases. Most of which is true”.

But are the risks as high when labels are pushing content to streaming services, rather than pressing and distributing CDs? And is it not true that in the streaming age, a flurry of listening is just as likely to be caused by an artist’s live activity, or television bookings, or a cleverly placed sync, all of which might happen without the label’s active involvement? And further, with labels now securing their investments against a number of artist revenue streams, beyond just copyright, should they not relinquish some of the hold on their traditional revenue stream? Big questions to answer then – and the spotlight will be put on both the digital pie debate, and what, exactly, is driving streams, during this year’s CMU Insights strands at TGE.

Cooke’s third trend in the spotlight was the Google problem – the problem with search blocking, and the problem with safe harbours. With the record industry having now asked for 200 million piracy links to be deleted from the Google search engine, the labels want the web giant to do more, mainly delisting all links from known piracy operations. That, Cooke reckoned, was “the single biggest thing Google could do to placate the copyright industries”. Well, that and not exploiting safe harbours with YouTube.

Moving on to the live industry, Cooke noted the increasingly vocal grassroots community in this domain. Initiatives like Independent Music Week, the Music Venue Trust and Venues Day have created a forum for promoters and venue operators to share there common frustrations: licensing issues especially around noise levels, small venues being priced out of town centres, gig-focused venues facing competition from pubs using music as a sideline, and the ongoing challenge of making any money whatsoever out of promoting new bands despite all the talk of a ‘booming’ live sector.

“It’s no secret that making money out of promoting grassroots gigs, where brand new bands will likely play to an audience well under a hundred, is really hard to do, unless you own the bar selling the drinks”, said Cooke. “And yet we all know that for most artists, however sophisticated your online presence, those early gigs are key for honing your sound and capturing an initial fanbase, most of which now happens long before a label, publisher or agent become involved”.

The people promoting those gigs, therefore, feel that they are providing a vital service for the wider industry, but rarely benefit when they see the bands they help on their way up get big. “But what is the solution? Should government or the wider industry be helping, both by removing hurdles and, possibly, providing funding to grassroots promoters? Or should bands be using direct-to-fan channels to self-promote, so fewer people requirement payment?”

Mention of direct-to-fan brought Cooke to his final point, the continued increase in both D2F and multi revenue stream deals. The latter “reflects the often unspoken acceptance that recorded music will never again generate the same level of income it did at the peak of the CD business. Only in 2012 did rising download revenues compensate for declining CD sales, resulting in a tiny growth for the global record industry at large. But now booming streaming monies – themselves heavily subsidised by start-up capital and tech company subsidy – need to overcome declines in both CD and download sales”.

Featured artists have always had various revenue streams open to them, living off publishing, live, merch and more while they waited for a time when they might make income from those records. However, says Cooke, “The real problem for the wider music industry when the CD bubble burst wasn’t so much declining record sales as it was the fact the industry’s primary investors in new talent – the labels – had too often secured their investments entirely on one single revenue stream: the one that’s now in decline”.

Most labels now insist on a cut of other revenue streams when negotiating a record contract with a new artist. And while managers and lawyer initially advised against such deals, they have now become the norm.

“But a more holistic partnership between artist and label can actually work for both parties
if managed correctly”, Cooke said. “In particular, multi-revenue stream deals can incentivise labels to get involved in the generally under-tapped domain of direct-to-fan, better servicing and therefore capitalising on core fanbase”. This, again, is a topic set to be explored at CMU Insights @ TGE this year, with the Friday strand ‘What’s The Point Of A Record Label Anyway?’

Debates and discussions are now well underway in Brighton, look out for reports on the special CMU@TGE microsite, plus later this month a series of podcasts, including highlights of Cooke’s Where We’re At keynote.