200878187 / MA Popular Music Studies The Recording Industry as a Cultural Industry MUSI 526 Assignment 1

Music Streaming and the impact on the recording industry

Clearly the growth of digital technology has had an exponential impact on the recording industry itself. This rise of technology has led to a fall in CD sales (BBC, 2012a; Sinha-Roy, 2012) with digital sales now overtaking them (BBC, 2012b; Halliday, 2012; NME, 2012), and accounting for 35% of the UK albums market (Sherwin, 2012). Within this digital technology, the notable growth of streaming (, which this assignment will focus on,) has led to the recording industry facing a new alternative business model, due to the impacts streaming has brought about.

As of July 2012, nearly a third of consumers in 25 countries now use streaming (Peoples, 2012) with companies such as; Spotify, Rhapsody, WE7 and Pandora, offering non-paying users a free unlimited music library with ad-support, or the same service but without adverts for users who pay a monthly subscription. This context provided by digitisation has allowed for the globalisation of music allowing it to reach much wider audiences1. The purpose of this globalisation aims to allow for users of these streaming companies to move from illegally downloading music to legally streaming it whether paying or non-paying for it (Dredge, 2012; Litowitz, 2011), with William Booth (, Director of media licensing at PRS) even commenting on these services of legal alternatives to piracy online (Musicweek, 2011). Thus showing the support such companies have gathered from the recording industry itself.

The wider impact that streaming has had on the recording industry, is what this assignment intends to establish using eight key articles, each of which focus on these different impacts individually, but may share common themes or effects. These articles will then be critiqued as to whether their issues demonstrate any impact on the recording industry. The only article to raises a unique theme is that of the investments from non-musical companies to streaming companies, notably Spotify (BBC, 2012c); going on to demonstrate the significance of the growing market to the wider world. Other articles that will be looked at share common themes, despite their individual pathways. These include; streamings royalty payouts and effect on the survival of its service (Sisario,
1

These audiences are entirely dependent on the countries that have the service operating within them.

200878187 / MA Popular Music Studies 2012; Rushton, 2012), streaming as the answer to lost money from piracy and bringing people back from illegal downloading with streamings access (Dredge, 2012; Kenber, 2011; Rushton, 2012), and the recording industry using streaming to create business expansion and private profits (Kenber, 2011; Rushton, 2012; Irish Times, 2011). A further common theme addressed by most of the articles, but more so in some of them, is streamings continued evolution, proposes a direct threat alongside its already revolutionary business model, to the recording industrys business methods and models (Boyd, 2012; Dredge, 2011).

An individual theme that can be addressed is that of the investment of non-musical companies into streaming sites, and that reports how Spotify specifically has attracted 100m of investment from Coca-Cola, Goldman Sachs, and Fidelity (BBC, 2012c), showing how Spotifys business model, has gained the interest of companies not from the music world. What the article fails to discuss, is the impact this investment could have on the current recording industrys business, and how it faces a threat from this new business model. However a point that is raised by the BBC is that due to the lack of expected investment, and increased rivalry from other services Spotify still ended up declaring lost revenue of 37m (2012c). A point that shows, despite boasting the significant-market of 15million active users, and 4million paying subscribers (Musil, 2012) and the increase of streaming revenues by 40% globally (BBC, 2012d). Spotify may not be an as direct threat in replacing the recording industrys business model, due to its own problems discussed above as well as factors regarding Artist and label reservations, that are described more in depth by Dredge (2012) in future paragraphs.

The first of the common themes looked at, is that of streaming as the answer to the money lost from piracy, and its attempts to bring people back from illegal downloading with streamings access, with articles including Dredges (2012), Kenbers (2011), and Rushtons (2012). Martin Mills, chairman of Beggars Group, has stated that; Streaming services have changed the way people listen to music, because the friction-less experience makes users more likely to experiment with sampling new artists or delve into musicians back catalogues (Rushton, 2012)

200878187 / MA Popular Music Studies The quote itself shows the true impact of musics globalisation, with streaming services having created a new business model based upon access2. The business model presented here is completely different to the recording industrys model, which is based around copyright and ownership3 given in exchange for the payment of recordings (Hunter-Tilney, 2010). Rushton (2012) supporting this theme of streaming being the answer to lost royalties4, gains support from Kenber (2011), of whom after critiquing the discrepancies of Spotifys royalty payments, comes to the same conclusion. Going on to state The music streaming service has been held up as a key success of the industry finally persuading consumers to pay for music online (Kenber, 2011).

Dredge (2012) whilst agreeing with this common theme of streamings access countering illegal downloading, raises a concern missed by Rushton (2012), of how many artists managements, are holding albums due the cannibalisation of existing sales on iTunes (Ibid) that streaming has created5. This Catch-22 situation is furthered by Dredge who cites Ken Park, album holdouts are harmful. They punish the people they need to embrace who were previously paying very little or nothing at all (Dredge, 2012). Implying that streaming through digitisation, has forced the recording industry to embrace streamings business model, which has helped with the battle against illegal downloading. Or stay with their battle of ownership but risk the piracy issues. The previous cannibalisation issue however, that is raised by Dredge (2012), the impact of which is missed by the articles of Kenber (2011) and Rushton (2011), can also be found in the noting of the industrys failure to close the gap between digital sales and the fall of album sales (Dineen, 2011; BBC, 2012a)6. All these key articles from the eight being critiqued, as well as further reports start to delve into how streaming is having mixed results in re-building firm foundations after the loss of money and people
2

Kenbers article supporting this statement from Rushton (2012), in explaining how specifically Spotifys back catalogue of more than 15 million songs allows users to stream music over the internet (Kenber, 2011), from anywhere they want. Thus creating ultimate-access for the listener.
3

As this assignment will refer to the recording industrys ownership centred model consistently, please see Appendix 1 for further information.
4

One must only look at the title of her article to see this Musicians getting more than half of royalty income from online streaming (Rushton, 2012).
5

Rushtons article does briefly mention how download -to-own services like Apples iTunes store are helping to replace the lost revenues (2012), but fails to delve any deeper into the significance of iTunes, its fixed price on music in the digital world, and how this is creating an online ownership market.
6

A further reason for not being able to close the gap could be, that with users streaming rather than buying the album / listening to it on a paid membership, companies such as Pandora and Spotify have had to declare that their services are still not earning income (Resnikoff, 2012; Yarow, 2012); demonstrating the problems between the competing between the two business models.

200878187 / MA Popular Music Studies to illegal downloading. With Spotifys emphasis on paid membership, Ken Park again raises the critical point in this battle that if we can take people who werent paying anything and get them to pay 120 a year this industry can grow bigger than it ever was (Dredge, 2012). An idea of which could truly build firm foundations for the recording industry to weather the current digitisation storm that it faces.

The common theme of how streamings royalty payouts are affecting the survival of its service, is discussed within the articles of Rushton (2012), Kenber (2011), and Sisario (2012). Rushton begins this discussion, declaring that Spotifys royalty payments within the last year have risen, revealing that it paid $180m to musicians in 2011, and is on track to double that to $360m in 2012 (Rushton, 2012), showing an increase in the number of users for Spotifys service, due to the catalogue access its business model provides. Developing on this, Rushton (2011) further cites Martin Mills, who states if we didnt have digital, we wouldnt have a business (Ibid)7, a point that is in line with Kenbers statement that the music streaming service has been held up as a key success for the industry (Kenber, 2011). Both showing how streaming is seen as a reputable service, with Rushtons quote (2011) showing how its royalty system has become a key business. However these two articles miss the theme of how these royalty increases, and statements on the effectiveness of streaming services, are truly affecting the underlying business model for the recording industry itself, as well as streamings business model.

Sisarios article, Fight builds over online royalties (2012), describes the court case and how the issue pits the survival of Pandora Media and other internet radio services against the diminished paychecks of musicians in the digital age (Ibid). The situation that Pandora is in, as the founder Tim Westergren describes, is one where the royaltys current price is too high, dramatically depressing how much music gets played suffocating the industry (Sisario, 2012). So if royalty prices need to come down in order for Pandora to survive in the music world, the big question is can Pandora do so? If they are brought down, it will face difficulty from future artists, as well as musicians already angry at streamings currently low royalty payments (Kenber, 2011; Dredge, 2012). If they arent put up however, Pandora faces future opposition towards streaming as the best business model for the music listener, as well the problem that it cannot keep declaring a revenue loss every-year, for the rest of its existence (Resnikoff, 2012; Krukowski, 2012:10). It is a catch-22 situation. Pandora can
7

This statement on its own demonstrates the extent, to which digitisation and streaming have become the current now business model in the music world, instead of the recording industrys model.

200878187 / MA Popular Music Studies basically not afford to isolate itself from its cliental either way, as they are what allow its business to hold the access wanted by its consumers8. This problem faced by Pandora though, is one that is all the more dangerous, as it is attempting to determine by law, the price of its royalty per stream, with MusicFirstCoalition declaring that royalty payouts could be cut by up to 85% (Sisario, 2012). A situation of which, would be a monumental regression back to the archaic ownership, of the recording industrys business methods, and one that would most certainly see Pandora continuing to declare losses.

Another common theme is that of how the recording industry is using streaming services to create business expansion, and private profits; with articles by Kenber (2011), an Anonymous writer for The Irish Times (Irish Times, 2011), and Rushton (2012), discussing this theme, and the incredibly important issues at stake within it. With the decline of its ownership business model and streamings success of its access model, the foundation of the recording industrys business has crumbled away to digitisation. Rushtons article (2012) cites Nick Gatfield, the chief executive of Sony Music UK, and his comments that the industry, was too slow to respond to the shift of digital music, constructing its own downfall (Rushton, 2012). With the Irish Times view of the industrys dilemma, being that both music and internet seem to have sneaked ahead (2011). Both articles highlight issues at stake for the recording industry, which appears to be straying close to the point of no return, where a third of its consumers are now streaming (People, 2012), and digital downloads having overtaken the industrys physical music sales (BBC, 2012a, 2012b; Halliday, 2012). Thus despite having been in the position of having fought every inch of the digital revolution (Irish Times, 2011), and with the losses described, its hardly surprising to see the recording industry trying

Sisarios article (2012) gathers further views from those involved in the court battle in order to provide balanced information from each side, with people including, from Cary Sherman chief executive of the RIAA, Representative Jason Chaffetz, and Robert W. Pittman of Clear Channel Communications; each describing their idea of the impact if Pandora does get its way in lowering royalty fees via the courts. Representative Chaffetz view is the most interesting out of the three, as when asked to respond to changes hurting musicians he responded, The old-school dinosaurs are trying to help, but theyre stuck in the tar. Indeed this infle ction of his presentation of the issue is critical very much, that it does not understand that the artists are not there to keep their feet in the old industry. They are there to stay in an industry that revolves around access but demand a higher royalty fee, with Barney Hooper stating the problem that only the handful of bands who can attract millions of monthly plays will receive any significant revenue (Kenber, 2011), thus there is evidently a discussion needed on royalty fees, more-so than a court case to lower them.

200878187 / MA Popular Music Studies to stay afloat. Achieving this by displaying interest in streamings potential as a market, and assessing how it could further the industrys expansion of business and private-profits9.

In her article Kenber discusses this issue in regards to its effect on artist royalties, talking with Sam Duckworth10 who states, Because the big record labels own shares in Spotify, they have no incentive to negotiate better royalties for artists (Kenber, 2011). Kenbers (2011) own further notes describe the four major labels and Merlin, which represents many independent labels, collectively owning nearly 18% of Spotify, a company valued at $1.1billion+ (Ibid). This theme is supported by the Irish Times (2011), who further state that there are other streaming services the labels are involved in, and if these companies do well, they stand to make a significant one-off return, with no obligation to pay the artists (Ibid)11. Collectively, both articles raise and discuss the potential future profit the industry stands to gain, if streaming continues. However just as the CD and physical ownership market came to its end, both articles miss discussing this concern of the future. With Resnikoff (2012) and Yarow (2012) already stating that Pandora and Spotify, two of the biggest streaming companies, still have as of yet to declare profit. How long can the recording industry hold to streamings coat-tails? What is the life-expectancy of the business model? Both these questions on this theme regarding the future are missed by both, if not all three of the key articles, instead they depict the industry building itself on non-secure footings12. Maybe though by holding on to streaming, the industry may be seeking to make the best of a bad bet: cents of income are indeed better than the zero of widespread file-sharing? (Irish Times, 2011) Even if this is the case however, the question is still left unanswered of how is a business built when the waves of change are so unpredictable? (Jones, 2012)

Whilst the previous paragraphs have described how streaming has created alternative new business models/methods, that seek to provide an alternative to the recording industrys archaic
9

Their interest is most likely down to the consumer numbers that streaming services can command, with Spotify boasting the significant-market of 15million active users, and 4million paying subscribers (Musil, 2012). A market of which is worth investing into, if a business is in place.
10

Otherwise known by his stage name of Get Cape. Wear Cape. Fly.

11

Notably with Spotifys expansion explosion in Europe, as opposed to Rhapsody and Rdio in America (Irish Times, 2011), the argument would be that the market is one of constant digital growth.
12

An article by the journalist Sisario summarises this point in relation to the streaming services; the critical question is whether streaming businesses can be successful at all in the current system. Digital music services have proliferated over the years, but just as many have died (2012).

200878187 / MA Popular Music Studies ones on their shared (, or individual) theme. This paragraph seeks to show how streamings continued evolution, proposes a direct threat alongside its already revolutionary business model, to the recording industrys business styles; an issue written on by Dredge (2011), and Boyd (2012). Dredges article looks at how the creation of Spotifys app-platform, allows the listener to, curate the apps they want, to shape how their music is consumed (2011). Through curating these apps the listener could use, to name a few, the Guardians app for album reviews, the Rolling Stones app to provide the magazine staffs album, song, and playlist recommendations, or Songkicks app to suggest gigs they want to attend based on their listening histories (Dredge, 2011)13. The appplatform itself demonstrates how streaming has evolved from a process of simply providing access for the listener; to a now fully integrated and entirely digitised business platform that improves the listeners experience. This has allowed for streaming to further distance itself from competitors as well as prove how its growth and expansion is a threat to the recording industry. The app-platform thus allows the listener to create a more personal and greater access to their musical tastes. As well as to work alongside the current digital world, expanding into a digital environment about sharing and collaboration14 (Dredge, 2011), with a constant business perspective. Within Boyds article (2012), he discusses how that through greater artist integration, Spotify by nudging people towards the free service or premium-rate service, the logical argument is that people would become accustomed to valuing music again (Ibid). The statement by itself, demonstrates how Dredges article (2011), is the answer to Boyds argument for a subscription based economy, where everyone can only fully reward, once a critical mass has been achieved (2012). Indeed both these ideas share common ground with the implications of the app-platform described above, in that by providing the people with greater access, and an ever-growing digital environment. People will be more drawn to the platforms provisions, and find that the provision of apps designed, cater to their individual needs, thus will value the model15.

13

The positive reaction to Spotifys app-platform in this article could be possibly, due to The Guardians involvement with the app-platform.
14

Within his article, one theme that Dredge misses the significance of, is David Eks mission statement that The ultimate goal is to be as ubiquitous as the CD, but with all the obvious advantages of being digital (2011). The mission statement itself shows Spotify is intentionally creating a business method that is designed to have a direct impact against the recording industrys ownership foundations.
15

In fact, with its proposed Facebook attachment that shows what friends are doing (Dredge, 2011), the app-platform itself is making Spotify adapt further its social business method. Where from a business standpoint, Dredge and Boyd share common views on this implementation, as it would allow those users who link their Spotify and Facebook accounts are three times more likely to become paying subscribers (Dredge, 2012), as well as be the perfect antidote to those pesky illegal downloaders (Boyd, 2012). Demonstrating how a more social business method can bring more users back to paying for music, through furt her increasing

200878187 / MA Popular Music Studies

To conclude, from the beginning it has been clear how digitisation has revolutionised the music industry as a whole, allowing for the globalisation of music and for it to reach much wider audiences. The key issue within this assignment was to focus on the wider impact music streaming, has had specifically on the recording industry, through the use of eight key articles, and the themes presented by them. All of which through demonstrating, discussing and critiquing their impacts, show streamings arrival allowed for the breaking down of the archaic ownership business model of the recording industry. Allowing instead, for a greater focus and value on the access to music, and services available to the individual user, and wider globalised audience. However as has been clear throughout, streaming is not the be all and end all of the crumbling recording industry. Questions are still unanswered as to the future business model, of a now more open market for the industry, and whilst for now streaming may be saving the industry from illegal downloading. It does not provide strong foundations for the industry to be rebuilt on, due to the as of yet failing to declare profit (Resnikoff, 2012; Yarow, 2012). However with this change happening as of this writing, foresight is not granted to predict how long streamings dominance will last, or how long till something usurps streaming itself.

the consumers access to music, and providing more features to them. The consequences of which impact the recording industry more simply by providing more to its users.

200878187 / MA Popular Music Studies Bibliography: BBC. o

(2012a). UK albums sales fall as digital downloads grow. BBC, [online] 3rd July, 2012. Available at: <http://www.bbc.co.uk/news/entertainment-arts-18685793> [Accessed: 27th November, 2012]. o (2012b). Digital music sales outstrip CDs and records. BBC, [online] 31st May, 2012. Available at: <http://www.bbc.co.uk/news/entertainment-arts-18278037> [Accessed: 27th November, 2012]. o (2012c). Spotify music streaming service nets Coca-Cola cash. BBC, [online] 16th November, 2012. Available at: <http://www.bbc.co.uk/news/technology-20343418> [Accessed: 26th November, 2012]. o (2012d). Streaming music revenues up 40% globally in 2012. BBC, [online] 16th August, 2012. Available at: http://www.bbc.co.uk/news/entertainment-arts19270362 [Accessed: 27th November, 2012]. Boyd, B. (2012). Artists turning their backs on legal streaming are short-sighted. Irish Times, [online] 17th February, 2012. Available: <http://www.irishtimes.com/newspaper/theticket/2012/0217/1224311880601.html> [Accessed: 27th November, 2012). Dineen, S. (2011). Spotify has the music world gripped but it wont be a panacea for squeezed artists. City A.M., [online] 14th November, 2012. Available at: <http://www.cityam.com/forum/spotify-has-the-music-world-gripped-it-won-t-be-panaceasqueezed-artists> [Accessed: 27th November, 2012]. Dredge, S. (2011). Spotify amps up iTunes rivalry with its own apps platform. The Guardian, [online] 30th November 2011. Available at: <http://www.guardian.co.uk/technology/appsblog/2011/nov/30/spotify-apps-platform> [Accessed: 27th November, 2012]. Dredge, S. (2012). Media: Spotify at risk of eating itself: Music streaming firm needs to tackle growing artist complaints over payments. The Guardian, [online] 30th January, 2012. Available at: <http://search.proquest.com.ezproxy.liv.ac.uk/docview/918646885/fulltext?accountid=121 17> [Accessed: 26th November, 2012]. Griggs, B. (2011). Spotify founder: Future of music is access, not ownership. CNN, [online] 21st July, 2012. Available at: <http://edition.cnn.com/2011/TECH/web/07/21/spotify.fortune.brainstorm/index.html> [Accessed: 29th November, 2012). Halliday, J. (2012). Digital downloads overtake physical music sales in the US for the first time. The Guardian, [online] 6th January, 2012. Available at: <http://www.guardian.co.uk/media/2012/jan/06/downloads-physical-sales-us> [Accessed: 27th November, 2012]. Hunter-Tilney, L. (2010). The music industrys new business model. The Financial Times, [online] 10th September, 2010. Available at: <http://www.ft.com/cms/s/2/92d98d1c-bae911df-9e1d-00144feab49a.html#axzz2DYewuYGV> [Accessed: 28th November, 2012]. Irish Times. (2012). Spotify could be the worst of both worlds. Irish Times, [online] 5th August, 2011. Available at:

200878187 / MA Popular Music Studies <http://search.proquest.com.ezproxy.liv.ac.uk/docview/881250038/13AA2CE6EBA73F63DC 7/8?accountid=12117> [Accessed: 29th November, 2012]. Jones, M. (2012). The Recording Industry as a Cultural Industry [Lecture notes: 29th November, 2012]. MUSI526 The Recording Industry as a Cultural Industry. University of Liverpool, unpublished. Kenber, B. (2011). Spotify royalties wont even buy a packet of guitar strings. The Times, [online] 24th September, 2011. Available at: <http://search.proquest.com.ezproxy.liv.ac.uk/docview/893872399/13AA2CE6EBA73F63DC 7/12?accountid=12117> [Accessed: 27th November, 2012]. Krukoski, D. (2012). Making Cents. Pitchfork, [online] 14th November, 2012. Available at: <http://pitchfork.com/features/articles/8993-thecloud/?utm_source=dlvr.it&utm_medium=twitter> [Accessed: 28th November, 2012]. Musicweek. (2011). PRS supports Spotify amid royalties row. Musicweek, [online] 24th November, 2011. Available at: <http://www.musicweek.com/news/read/prs-supportsspotify-amid-royalties-row/047430> [Accessed: 26th November, 2012]. Musil, S. (2012). Spotify reportedly near financing round for a $3B valuation. CNET, [online] 11th November, 2012. Available at: <http://news.cnet.com/8301-1023_3-5754818793/spotify-reportedly-near-financing-round-for-a-$3b-valuation/> [Accessed: 29th November, 2012]. NME. (2012). Digital music spending overtakes sales of CDs and records for the first time. NME, [online] 31st May, 2012. Available at: <http://www.nme.com/news/miscellaneous/64078> [Accessed: 27th November, 2012]. Peoples, G. (2012). Business Matters: Nearly A Third of Consumers Using Streaming Services: Report. Billboard, [online] 9th July, 2012. Available at: <http://www.billboard.biz/bbbiz/industry/digital-and-mobile/business-matters-nearly-athird-of-consumers-1007531352.story> [Accessed: 26th November, 2012]. Resnikoff, P. (2012). Pandora: Theyre Probably Not Gonna Make it. Digital Music News, [online] 30th August, 2012. Available at: <http://www.digitalmusicnews.com/permalink/2012/120831pandora> [Accessed: 29th November, 2012]. Rushton, K. (2012). Musicians getting more than half of royalty income from online streaming. The Telegraph, [online] 1st August, 2012. Available at: <http://www.telegraph.co.uk/finance/newsbysector/mediatechnologyandtelecoms/944203 4/Musicians-getting-more-than-half-of-royalty-income-from-online-streaming.html> [Accessed: 27th November, 2012]. Sisario, B. (2012). Fight Builds Over Online Royalties. The New York Times, [online] 4th November, 2012. Available at: <http://www.nytimes.com/2012/11/05/business/media/fight-growing-over-onlineroyalties.html?_r=0> [Accessed: 28th November, 2012]. Sherwin, A. (2012). Album sales fall to new low as Rhianna tops UK chart despite selling less than 10,000 copies of Talk That Talk. The Independent, [online] 13th August, 2012. Available at: <http://www.independent.co.uk/arts-entertainment/music/news/album-sales-fall-tonew-low-as-rihanna-tops-uk-chart-despite-selling-less-than-10000-copies-of-talk-that-talk8038553.html> [Accessed: 27th November, 2012].

200878187 / MA Popular Music Studies Sinya-Roy, P. (2012). U.S. album sales slump, digital rises in first-half 2012. Reuters, [online] 5th July, 2012. Available at: <http://www.reuters.com/article/2012/07/05/entertainment-us-salesidUSBRE8641B920120705> [Accessed: 27th November, 2012]. Topping, A. (2011). Downloads fail to fill gap as album sales plummet for sixth year running. The Guardian, [online] 5th January, 2011. Available at: <http://www.guardian.co.uk/business/2011/jan/05/album-sales-plummet-sixth-yearrunning> [Accessed: 29th November, 2012] Tyrangiel, J. (2007). Radiohead Says: Pay What You Want. Time, [online] 1st October, 2007. Available at: <http://www.time.com/time/arts/article/0,8599,1666973,00.html> [Accessed: 28th November, 2012]. Yarow, J. (2012). Spotify is piling up losses, and its business model may not work. Business Insider, [online] 5th October, 2012. Available at: <http://www.businessinsider.com/spotifyrevenue-2012-10> [Accessed: 28th November, 2012].

200878187 / MA Popular Music Studies Appendix 1: Value chain and ownership business model of the recording industry.

Each box represents a different area that the band must pass through, starting at artists and repertoire, until the sale department is reached; in order to release their final musical product, along the way becoming the object owned by the recording industry. The problem however with this model, is that the arrival of digitisation destroyed each section of the chain, disrupting this traditional model, and allowing for a greater access to everyone and anyone willing to sought to fulfil these values, subsequently taking the power out of the process.