2020 – Where is the Money in Today's Music World?
Music has never been as omnipresent. And yet, like gold dust blowing all around us, its revenue streams have never been as dispersed, as invisible, or as tricky to grab hold of. How much is really out there? Where is it? Who’s getting rich at your expense? And what kind of music market are the 2020s shaping into?
For the average working musician or music entrepreneur, it’s been the toughest decade in memory. With little to show for all this hypnotic new technology, most of us are struggling as hard today as we were ten years ago – missing the simpler, more prosperous days of CDs, and seriously wondering if so-called modernity is actually regressing into a cultural dark age. If this is you and music is your livelihood, get ready for a change of outlook. The bigger picture now emerging across Europe, America and Asia is definitely brightening up. After almost twenty years of economic and existential crisis, the embattled giants of the music business are back on their feet and seeing green in all directions.
It happened once before
To understand what’s really happening, it pays to know that it happened once before. Like music itself, the music business is inherently cyclical and connected to the wider technological, cultural and economic landscape. The music business depression we’ve been experiencing since the early 2000s, as profound as it’s been, was neither the first, nor will it probably be the last. In the 1920s, an equally cataclysmic music crash was provoked by radio. Also a tidal wave of free music on cooler, newer gadgets, this ‘wireless’ boom of the interwar years coincided with the Great Depression and a wider sense of civilisation disintegrating. This perfect storm floored the once-dominant gramophone industry (and musicians generally) into twenty years of irrelevance and poverty. It wasn’t until the 1940s that a transformed music business recovered in a vastly changed culture. That’s roughly where we are now. And like the 1940s, when the world was distracted by far bigger problems, today’s most clairvoyant survivors are waking up to a strange idea: the music business isn’t just coming back to life, it might actually be bigger than before.
The evidence is mounting: In annual music sales and ticket stubs alone, a record 50 billion dollars are now flowing through an economic landscape so transformed by the internet that even today’s moguls can barely map this multidimensional terra nova, $15 billion of which is tangled up in the invisible jungles of digital commerce. Considering inflation, we’re still below pre-crash levels, but we’re getting there, with one major difference: Music is growing more strategically vital to the wider economy. If you add in all the spin-off trades like audio equipment, sponsorship, broadcasting, merchandising, music media and B2B services, the surrounding ecosystem stretches to an estimated 130 billion dollars – a level of economic activity equal to the GDPs of fast-developing countries like Morocco or Kuwait. Factor smartphones into the equation and music is a battle the modern world cannot afford to lose.
Where rock stars once ruled
It’s no accident that the world’s biggest tech conglomerates are investing billions to place music at the heart of their ecosystems. It’s not philanthropy. They’re expecting dollar signs to keep raining from the proverbial iClouds of the 2020s in increasing intensity. If you don’t believe it, look at the elephant standing in broad daylight: The live sector – largely unaffected by the internet and now worth an all-time record of $20 billion globally. With tickets averaging at a record $94; with the number of festivals growing; with sponsorship rising and online marketing gaining in accuracy; it’s no surprise that big venue gigs and monster festivals remain the juiciest end of the modern music business – albeit for the luckiest children of the music world. But here’s the thing. There’s no sign of it ending. Goldman Sachs is one of several market researchers now forecasting that the live industry will keep growing steadily to around $38 billion in 2030.
And here’s why: Just ten years ago, as piracy raged and record labels sank, it seemed for a surreal moment that the skyrocketing ticket prices for the farewell tours of granddad rockstars was the end-game bubble before all-out collapse. And yet, new festivals kept sprouting. Millennial pop and EDM (Electronic dance music) kept moving into the stadiums where rock stars once ruled. And as sponsors kept spending, gigs and festivals kept mutating into all-encompassing lifestyle experiences, something that kids clearly love. And now, the recovery of the recorded music sector has lifted the last clouds of gloom and tipped all forecasting firmly into the positive. Back from what we thought was the brink of extinction, record labels are currently generating over $20 billion and expanding at a rate of 10% annually. With inflation, that’s still well below the $26 billion high-point in 1999. But it’s $5 billion more than rock bottom in 2015. Still recovering but officially out of recession, major and independent record labels have survived the internet revolution.
For today’s newfound sense of synergy, profitability and sustainability, we must thank subscription streaming platforms like Spotify, Apple Music, Amazon Music, Tencent, Pandora and Deezer. A whopping 255 million people are now paying for some kind of subscription-based streamed music. Way out in front, Spotify has 108 million premium subscribers and another 120 million people using the system every month in some ad-funded form. Sit these mouth-watering figures next to gig juggernaut Live Nation, who sell 60 million tickets every year, and it’s easy to understand why for the first time in a generation, business angels are flapping down from their skyscrapers. Last year, labels collectively spent $5.8 billion on artist royalties and A&R, levels of investment not seen since the CD boom. And no profession is more relieved than concert promoters that labels are quietly retaking their historical roles as the talent pumps of the entire musical ecosystem. The trillionaire titans of Silicon Valley are just as happy. Even they’ve learned that little old record labels are still the best sources of hit songs, new stars, cool videos and all-round street-credible substance. The heartbeat of the whole music organism is quite literally artists and repertoire.
The demographic breakdown of today’s streaming community is particularly encouraging. Spotify, once thought to be too European for America, is now reaching almost half of America’s 16–24 year olds, proving that for the smartphone generation, irrespective of country or parental culture, a $10 monthly subscription is becoming normal on a global scale. Legitimate streaming services are even taking off in developing markets where bootlegging was the norm. South Korea, Brazil, Mexico and India are among today’s musical El Dorados where major record companies, seeing 15–20% growth, are investing in local A&R teams and copyright lobbyists. All this bodes well for both copyright and diversity. As the globally implanted majors are already observing, the more streaming is adopted on all continents, the greater the demand for local repertoire. Not only that, regions of the world are already listening to one another directly, as illustrated by the current success of Korean pop across East Asia or the popularity of latino electro in Arabic-speaking North Africa.
K-pop – the South Korean music market is now ranked at number 6 among the top 10 music markets worldwide.
Death of old formats?
Music has never been so multi-dimensional. If record labels have survived, it’s because they’ve learned to adapt, diversify, embrace youth culture and tap into as many revenue streams as possible. It’s a mathematical necessity. Streaming currently accounts for 40% of recorded music revenues. The other 60% is spread out across an unprecedentedly complex mess of generations, regions and formats. Take MP3 stores, a waning fashion – as underlined by Apple’s announcement this June to phase out its once-mighty iTunes. But beware of eye-grabbing headlines constantly announcing the death of old formats. All downloading platforms combined are still generating a tidy $2 billion for the music industry. As for physical formats, about $5 billion is still being generated by CDs, vinyl and cassettes. Not about to drop dead any time soon, the CD’s 20-year decline is more like a setting sun pegged to the life expectancy of baby boomers. Japan, the world’s second biggest music economy, is the stat-skewing hold-out. Due to protectionism and public affection for the format it invented, Japan still spends $1 billion every year on its own breed of immaculately packaged CDs – an amazing 72% of their market. Elsewhere, Amazon is now the world’s biggest CD retailer. Following the closure of so many megastore chains, Amazon’s cheaper, user-friendly service enabling pre-listening and doorstep delivery has proved a quiet hit with an older customer loyal to this high-fidelity format.
Also bucking the trend towards streaming, vinyl is currently enjoying its fourteenth consecutive year of growth. Official figures place vinyl at a modest 3% of overall music sales, but this underground market for deluxe vinyl is disproportionally important to indie stores and artists, few of whom register their sales with Nielsen or Soundscan. Based on factory production totals, vinyl is selling far above official numbers in the areas where music innovation is most intense – half of the market is concentrated in America, where it’s poised to eclipse CDs in registered cash receipts.
Barely reported boom sectors
Can vinyl keep growing in the digital age? Probably not, but the observations of retailers provide some interesting clues. Young women are conspicuously well represented at in-store happenings where artists showcase and sign limited-edition vinyl. There’s a powerful social allure about this bigger, prettier, deliciously smelling format, typically pressed in heavyweight sleeves with coloured discs. Thanks to all the touchy-feely excitement and €25 price points, vinyl has enabled specialist record shops to survive, grow and even find a new counter-cultural relevance. As for all the indies who can’t afford big videos or mainstream ads, vinyl is an effective way for artists to launch ‘the masterpiece’ to nucleus fans. Mix up all these urges and you get why the vinyl underground, as gravity-defying as it seems, keeps sucking in more rebel millennials every year.
The boom in ‘merch’ is another aspect of this millennial demand for high-priced collectables. It’s now a $3 billion market mutating across online stores, concert stalls and even high-street pop-up boutiques. Bigger still, music sponsorship, though no complete figures have been compiled, is almost certainly the juiciest spin-off of all. Corporations today spend $1.5 billion to have their brands associated with concerts and festivals alone. Aping the sports industry, some have even started sponsoring pop and EDM stars individually. Also booming along the fringes of the millennial pop world, $1 billion is now being spent on licensing music for ‘e-sports’, the new term for live, crowd-based video-game contests. If all these millennial buzz-words are making you feel old, you’ll be pleased to discover that old-school ‘synchronisation’ for film and TV now generates $400 million, a minor niche in comparison to all these barely reported boom sectors.
Vinyl – HMV has just opened up a new flagship store in Birmingham, HMV Vault, with 25,000 records.
The artist pay hike
So how are today’s artists doing in this strange new marketplace? Thanks to fatter ticket prices and fairer record deals, they’re getting an average of 12% of overall revenues, almost double the 7% they were getting at the height of the CD boom in 1999. That’s a serious pay hike. And it owes much to the existential panic felt by record companies and music publishers in the early 2000s. To remain attractive to hot young talent, they had to overhaul their contracts, offering artists up to 50% cuts on certain digital revenues and 75% on publishing. They can afford it. Monetising digital audio files has severely reduced all the old costs, risks and logistics of physical stock. In today’s leaner, cleaner business model, there’s definitely less exploitation of young artists by record companies. But widen the picture to music publishing and collection societies, and the famous Tom Waits adage still applies: ‘The large print giveth and the small print taketh away.’
It’s at the unglamorous back end of the music business where money cloaked in eye-glazing legalese passes through a whole underground intestine of stamp clerks and gravy trains. Take, for example, ‘performing rights’, the fees that nightclubs, bars, restaurants, hotels and other commercial spaces must pay European collection societies such as IMRO, PRS or SACEM for the right to play music on their tannoys. Or the millions also paid by internet radios like Pandora and Sirius XM. From a zillion different sources, this largely ignored revenue stream has bulged into a $2.7 billion river. That’s some piggy bank. And it’s just for the sound recording rights, because many hundreds of millions more, possibly billions, are also being paid through the same Byzantine labyrinths for composer/author rights.
Leaky music publishing plumbing
‘If the global music publishing business were a house,’ wrote Annabella Coldrick of Music Managers Forum in a recent Medium article, ‘its plumbing would be the leakiest, most bizarre, inefficient and complicated imaginable.’ In a series of investigations on the inner workings of collection societies, her union has cast a damning light on the ‘mess of complexities’ surrounding ‘royalty chains’ and ‘black boxes’, a convoluted practice of collection societies bouncing around ‘unmatchable’ and ‘unallocable’ monies, then divvying up the unidentified leftovers on a dubious market share basis. In Europe each year, this quasi slush fund adds up to around $103 million. Then there’s the commissions all these administrations are creaming off for, in some cases, taking 18 months to pay writers.
Collection societies and the major publishers who sit on their boards, argue that the real world is still a patchwork of sovereign states, each with its own copyright laws. As such, administering millions of songs all over the globe is not as simple as it might look to a starving songwriter clicking around on Spotify. It’s a reasonable excuse for the time being. But it’s not going to wash in a digital economy where increasingly sophisticated ‘dashboards’ enable artists and copyright owners to monitor music traffic globally in real time. With the tools and markets now decades ahead of the laws, expect angry scrutiny. Last year, Spain’s collection society was at the centre of a multi-million euro corruption scandal. It’s an extreme case, but it nonetheless highlights the urgent need to look into all this suspiciously archaic piping and the vested interests who maintain them. Our trade and culture ministers must now be asked who these copyright collection systems really serve.
Nothing beats YouTube
But for hidden money and legalistic obfuscation, nothing beats YouTube, still the world’s biggest streaming platform that pays the music industry around $1 billion, despite its Google owners raking in an estimated $16–25 billion from YouTube ads. How do they get away with it? The short answer is political lobbying. In 2015, when an alliance of record labels brought their Fair Play Fair Pay proposals to Capitol Hill, YouTube cleverly teamed up with the notorious lobby behind American Top 40 radio – itself a shady network that for decades ran on payola. They successfully persuaded the Republican-dominated congress that YouTube provides ‘free promotional value’ to labels and artists, just like any radio station, which in America don’t have to pay any royalties. This is how Google, the last marauding outlaw of the digital wild west, always gets to keep so much money all for itself.
Embarrassed by the stench of brown envelopes, Republican senators have since thrown musicians a few scraps. As of 2022, the likes of Spotify and Apple Music will have to pay 40% more to songwriters through a new American collection society, similar to IMRO or PRS. It’s better than nothing, but to catch YouTube, the music industry’s eyes have turned to the European Commission, already breathing down Google’s neck for tax evasion and other abusive practices. We shall soon discover if EU Commissioners are as manipulable as their American counterparts, and also, if the EU’s policy for protecting the interests of music creators will be weakened by Brexit. Not being discussed by the music community right now is England’s vital role as Europe’s only true music superpower, the home to our biggest and best labels, publishers, artists and music lobbies. In comparison, what can we realistically expect from tiny Ireland, a Google tax haven? Even France, the traditional guardian of artists and copyright, just doesn’t have the native music industry to take, fight and win complex policy battles in Brussels.
The better behaved beast
These battles represent many billions of euro that aren’t going to actual music creators. But with public opinion migrating towards fair-paying models like Spotify, Apple Music and Deezer, there’s every reason to approach the 2020s confidently. Objectively, we’ve come a very long way from Napster, MySpace and even iTunes. All the converging signs suggest that as a whole the internet revolution, having wreaked 20 years of destruction on the music industry, is finally stabilising into a better behaved monster.
Despite so much progress, it’s easy to feel a certain hostility towards this new beast. At face value, the modern music business, with its screens, airpods and drop-crotch merch, seems to have reshaped itself around the ugly contours of millennial pop. But look a little deeper into the foundations of what’s just happened. There are now more revenue streams than ever in history: Streaming, downloading, vinyl, CD, merch, publishing, live, sponsorship, performing rights, airplay, synchronisation and innumerable B2B services. Artists today can also tap into more media than their predecessors ever could. Twitter, Facebook, Instagram, podcasts and blogs now enable artists to build their own communities. Okay, so it’s a full-time job of attention-seeking. But was the old system of PR agents and sitting around really all that better?
Nor should it be overlooked that today’s pop factories – Universal, Sony and Warner – are also the owners of nearly all the great repertoire ever recorded in the twentieth century, its jazz, classical, folk, blues, rock and electronica. Thanks to the negotiating power of these vast and beautiful catalogues, the twenty-first century is now equipped with streaming systems that pay artists, spread culture and regenerate billions back into production. The bottom line is this: Copyright has been saved. The single most decisive battle of the last twenty years – safeguarding the principle of intellectual property – was fought and won by the very record and publishing companies now reaping the rewards of recovery. Music is regaining value. Revenue streams are rising and synchronising by direct debit with the monthly pay cheques of the working population. What we’re seeing in slow and painful formation is an ecosystem reaching a critical point of life-sustaining synergy. There’s plenty still to revolutionise. But incontestably, musicians, writers and independents now have a brighter future to fight for.
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Published on 24 October 2019
Gareth Murphy is author of Cowboys and Indies – The Epic History of the Record Industry. For his music business articles in the UK press, he won Writer of the Year at the 2017 PPA Independent Publisher Awards. He ghostwrote Siren Song, Sire Records founder Seymour Stein’s official autobiography, and lives in Paris.