CMU Trends Labels & Publishers

Trends: A recovering record industry?

By | Published on Wednesday 15 January 2014


For the record industry, the big stat of 2013 was a very small stat about 2012: 0.2%. Because that, according to the International Federation Of The Phonographic Industry, was how much the global record industry grew that year, a tiny figure for sure, but the first period of growth in fifteen years. Is the decade and a half of decline in the recorded music market finally over?

It remains to be seen if the IFPI’s 2013 figures, to be released in the spring, continue that trend. Subsequent reports on the record industry haven’t been entirely optimistic: some have noted that the download market seems to have peaked in the US, while others have observed the lack of a million-selling album in the UK market this year. And cynics might point out that the record industry is currently benefiting from advances and royalties from loss-making streaming services, which may or may not survive long-term.

But, while the record industry is still a long way from its 1990s heyday (worldwide annual revenues are still down around 40% compared to 1998), you did sense that the label community was feeling more upbeat in 2013, after being the strand of the wider music industry experiencing the most doom and gloom for over a decade.

Booming digital revenues played a key role in the renewed optimism (it was mainly artists bemoaning digital royalties in 2013, as we shall see in Section Five), though while subscription-based streaming services got the most attention, it was good old fashioned iTunes and ad-funded YouTube and Vevo that brought in the serious revenue (especially for the majors).

Likewise, while sync is definitely an increasingly important revenue stream for the labels, the less talked-about public performance licensing is also becoming key, as the record companies get as good as the music publishers in making sure they collect every pound they are due for public performance.

But perhaps the key here is multiple revenue streams. Labels are reviving their fortunes by monetising their content – records and videos – in more ways than ever before, recognising that no one revenue stream is the assured winner, and that revenue types will vary greatly from act to act, and market to market.

And, of course, many labels are now enjoying revenue streams beyond those directly linked to recorded music, by signing up artists – especially new talent – to multi-revenue stream (aka 360 degree) deals. With a few notable exceptions in the indie sector, it seems that most labels now insist on such arrangements when investing in new talent.

In a traditional new talent record deal, a label – as the principal investor in and marketer of the new artist – would take complete ownership of any sound recording copyrights created under the arrangement, committing to pay the artist a nominal cut of any profits generated from the exploitation of those rights (if and when the label went into profit after paying off its initial investment).

But, of course, artists enjoy a number of other revenue streams in addition to the sale of recorded music. A recent UK Music report estimated that while the annual value of the British record industry was £634 million, the music publishing sector (which monetises song copyrights) was worth £402 million and the live sector (which monetises live performance) delivered £662 million in value. Revenue from merchandise, brand partnerships and other fan services are presumably in addition to all this.

As the revenues generated by recorded music have declined (and become less secure), labels have started to take a cut of artists’ other revenue streams, either by taking control of those other products, or by guaranteeing work for sister companies operating elsewhere in the music industry, or by taking a cut of any income received by an artist through other business dealings. Initially resisted by some artist managers and music lawyers, these deals are now becoming the norm for new talent.

Every multi-revenue stream deal is different, though most labels seem most keen to secure involvement in an artist’s merchandise and brand partnership activity. Interestingly, few record companies are pushing for combined-rights deals, where the label gets control of song as well as recording copyrights (where 360 deals do include song rights, it’s usually that the label gets a cut of the artist’s royalty from their separate publishing deal). This despite evidence to show that lucrative sync deals are easier to secure if a label can offer a licensee a ‘one-stop shop’ service, covering all rights in a song/recording in one deal.

Although becoming the norm, multi-revenue stream deals do still pose challenges for labels and artists. If a record company takes control of another revenue stream, is it able to deliver added value, so that the artist still gets a decent income after the label has taken its cut?

And if a record company gets a share of revenue generated by an artist’s other deals (eg with a publisher, promoter or merchandiser), how does the artist’s management account for this income? You sense that labels are now convinced that artists are screwing them out of their contractual cut of touring revenue etc, in much the same way that artists have always doubted royalty statements from labels are 100% accurate.

And even as labels, managers and lawyers do get their heads around how these deals should be structured, you feel that the real potential of a multi-revenue stream alliance is often not realised.

The single biggest internet-initiated revolution in music is direct-to-fan – the fact that artists and their business partners can now talk to, analyse and sell to fans directly 365 days a year. Artists and labels have always under-serviced core fanbase and missed out of on lots of potential revenue in the process. Direct-to-fan technology provides a way to access that revenue, but the big question is who should manage the D2F business, and who develops and delivers the content, products and services that can be sold?

The answer is either management or the label. But the latter will only be incentivised to take on the day-to-day management of core fanbase if they have a vested interest beyond a new album every two to three years. Multi-revenue stream deals can provide this incentive; and if labels become D2F experts on the back of these deals, it will mean 360 degree arrangements can be beneficial to artists too, rather than just a necessary evil to secure upfront investment.

However, few labels seem, as yet, to have truly cracked the D2F thing. Some are making moves in the right direction, but most managers feel that 360 arrangements are usually just traditional record deals with the other revenue streams tacked on. Labels are not yet taking a more holistic view of their artists’ business affairs, thinking beyond the big album campaign in marketing terms, and capitalising on the real potential of D2F.

But it’s this kind of thinking that could ensure the label community remains upbeat as the digital market faces the new challenges that will occur once the streaming services have to become profitable.