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Problems in the Music Industry Today

written by FuturisticLawyer
October 19, 2020

The music business is a cruel and shallow money trench, a long plastic hallway where thieves and pimps run free, and good men die like dogs. There’s also a negative side.

– Hunter S. Thompson

Music plays an important role in our everyday lives, perhaps much more important than we realize. Music is everywhere around us; in shops, restaurants, cafés, bars, fitness centers, cinemas, cars, televisions, computer games, and of course on various streaming platforms and video sharing sites that the vast majority of us visit every day.  Beyond its wide distribution, every music-lover would agree that the value of music is much more than just commercial. Listening to music helps people when they go through tough times. Paradoxically enough, as the reality of the industry looks today, making music puts artists through tough times, as they struggle to pay the rent.  

In this post, I will uncover the workings of the music industry and point out some of the major problems that the industry faces today. 

The Music Industry – Before and Now
We speak of “one” music industry as a unified whole, but from a practical viewpoint, it is more accurate to think of three interrelated music industries: the recording industry, the live music industry, and the licensing industry.[1] The industries are based on different logics and structures, but overall, they have one common agenda: to exploit music-based intellectual properties.[2]  

In the pre-internet era, the recording industry by far generated the main revenue stream through sales of physical records. In today’s world, where music is digital and distributed via streaming platforms, the significance of the revenue from recorded music has diminished drastically – in spite of the fact that people listen more to recorded music than ever before. 

The live music industry was traditionally a way for artists to promote new studio albums, a secondary source of income. Sometimes the record labels even paid support for bands to go out on tours and promote an album even though the actual tour was running with a loss.[3] Today, the sales of concert tickets and merchandise are the bread and butter for most artists. Also, the biggest music company today is Live Nation, not the major record labels as was the case in the second half of the previous century.[4]

The licensing industry has evolved into the most profitable part of the music industry.[5] The primary reason is that the media and entertainment industry has gone through a similar transformation, all thanks to the internet. Movies, series, tv-shows, websites, commercials, video games, radio channels, podcasts, etc., are now being distributed at a much larger scale, and they rely on music as an important part of their content.

From Illegal Filesharing to Streaming Platforms
Historically, technological advancement has always been lucrative for the music industry.[6] Such was the case in the recording industry when CDs replaces cassette tapes, and when MP3 files replaced CDs. However, the introduction of peer-to-peer filesharing by Napster in 1999, made the recording industry suffer tremendously. Napster quickly gained popularity and wide-spread use and was followed by similar, increasingly advanced sharing software such as KaZaa, LimeWire, and The Pirate Bay. Prior to peer-to-peer filesharing, consumers were forced to spend USD 15-20 (EUR 12-17) to purchase a CD with only one song they liked. File sharing services like Napster allowed users to download one song, a whole album, or even an artist’s full discography freely, without compensating the rights holders. Although Napster and its various illegal counterparts are now shut down via lawsuits and settlements[7], piracy made a lasting imprint on the music business and forced the recording industry to think in new ways of distributing music.Problems in the Music Industry Today.

Apple’s iTunes provided an initial solution to restore the recording industry’s revenue loss from music piracy[8] by allowing consumers to buy digital music and cherry-pick individual songs from albums. Then came the advent of legal streaming services such as Spotify, fully able to compete with illegal file-sharing platforms. Spotify’s music registry can be accessed freely and contains a larger catalog of music than Napster. Spotify’s business model (Spotify offers free membership with ads or premium membership with subscription fees) helped to save the recording industry by placing a fair compensation back in the hands of the rightful copyright holders. Concurrently, Spotify made it easier and cheaper for consumers to access music. Finally, Spotify eliminated the need for MP3 players and effectively freed up storage space on consumer’s hard drives.[9]

Low Payouts to the Artists
David Byrne from the band Talking Heads summed up the current state of the music industry well in 2015:[10]

THIS should be the greatest time for music in history — more of it is being found, made, distributed, and listened to than ever before. That people are willing to pay for digital streaming is good news. In Sweden, where it was founded, Spotify saved a record industry that piracy had gutted.

Everyone should be celebrating — but many of us who create, perform, and record music are not.

The reason why music creators are not celebrating is of course because musicians – with the exception of a small minority– are not able to make a sustainable livelihood out of their passion. The shift in the music industry’s major source of income – from physical records sales to streaming royalties – has made the conditions for aspiring artists even harder than before the digital revolution.

As pointed out in my post Copyrights on Recorded Music the revenue from a song is typically shared equally between everyone who has contributed to the creative process, unless the right holders have entered into a written agreement that states otherwise. The right holders are songwriters, composers, performing artists (singers and instrument players), and producers. A record label or music publisher will commonly claim a part of the revenue as well. If the artist’s label is independent, they will pay music aggregators like CD Baby or TuneCore to distribute their music through the various streaming platforms. The national copyright collecting agencies that are responsible for issuing licenses and collecting and distributing royalties to the right holders when their music is performed in public will also claim an administration fee. And now, finally, streaming platforms like Spotify and YouTube have inserted themselves into the supply chain and demand their piece of the pie as well.[11] As a result, the slice left to the artists is thinner than ever.Problems in the Music Industry Today.

Inefficient Payment Systems
Music, any kind of music nowadays, is rarely further away from the consumer than a few presses with the thumbs on a smartphone screen. In comparison, the road of the payments from the streaming platforms to the right holders’ can be long and tortuous. In some cases, it can take up to three years before the royalties finally reach the right owners.[12] If a copyright owner is located in Country A and a song is streamed on Spotify in Country B, the local copyright collecting agency in Country B must complete all of its tracking and royalty calculations before paying the relevant collecting agency in Country A, which then goes through a similarly bureaucratic administrative process.[13] The local collecting agencies will charge administration fees along the way, as will the streaming platforms, music aggregators, record labels, and other possible intermediaries, leaving the right holders with less money. Usually, the persons behind the creative efforts, are the last to reap any monetary rewards for their work.

Lack of Transparency
Spotify pays out 70% of its revenue to the master and publishing owners.[14] The royalty calculations are fluctuating and depend on numerous factors. As of January 2019, Spotify reported that it paid between $0.00331 and $0.00437 per stream to rights holders.[15] In many cases, the master and publishing owners are the major record labels, and they get to determine how large a share of the revenue the artists will receive.[16] What percentage of the gross revenue that ends up in the artists’ pockets is unknown. For a streaming service to grant access to a major label’s repertoire of music, the two parties negotiate a non-disclosure licensing contract.[17] Because the licensing contract is strictly confidential and unavailable to anyone but the contracting parties, it is nearly impossible for a musician to know precisely how much money their creative work is worth.[18] A report from 2015 by Ernst & Young in collaboration with the French trade group SNEP, suggested that the major record labels (Warner Music, Universal Music, and Sony Music) kept 73% of the royalties paid to right owner by streaming services. [19] That would mean everyone who has contributed to the lyrics, beat, hook, melody, etc. of the song has to split the remaining 27 % of the streaming revenue.

The major record labels large cut made more sense in the pre-internet era where physical manufacturing costs were an inevitable part of distributing music through CDs or vinyl records.[20] However, such extra distribution costs are obviously not required in the age of digital music streaming. So, where does the money go? 

The real problems of the music industry are not only the artist’s low payouts and inefficient payment systems but perhaps even more so the lack of transparency through every part of the value chain. The actual revenue from streaming services such as Spotify is based on complex calculations and hidden variables.[21] Then the licensing agreements made between the streaming platforms and record labels are governed by non-disclosure clauses. As a result, music creators have no control over their songs as commodities, and they have no way of knowing, and even less way of determining, what the actual value of their songs are. Problems in the Music Industry Today

In a report from 2015 by Rethink Music, Larry Kenswil, the former head of Universal Music’s eLabs, commented on how the current lack of transparency benefits the intermediaries such as the record labels and the streaming platforms: [22]

“There is no incentive for anyone to build a system that is fully accountable (..) major labels and publishers benefit from the currently complex and inaccurate system, and streaming services have no incentive to invest in transparent reporting and accounting systems, which are expensive.”

Lack of information
Another problem is a lack of information about ownership rights of music. If the metadata of a song (artist name, producer, writer, song title, release date, genre, track duration, record label, music publisher, etc.[23]) is missing, spelled wrong, or entered incorrectly according to the style guide of a database, that can muck up payments for everyone involved.[24] In Rethink Music’s report from 2015, it was estimated that 20-50% of payments from music, never make it to the rightful owners.[25]

There is no global registry of copyrights on music. Instead, the metadata is fragmented among a large number of territorial organizations.[26] The organizations treat their databases as valuable property, due to the large investments they have made in obtaining the datasets and keeping them up to date. The relevant metadata needs to be synchronized across all databases to make sure that the right people are identified and paid when you play a song.[27] In reality, a record label’s database will likely be different from Spotify’s database, which will likely be different from the databases of a national copyright collection agency. A song can pass through several songwriters, producers, and sound engineers before it gets released, and the longer the chain of data, the greater the chance of mistakes creeping into the datasets.[28] Mistakes could simply be if someone fat-fingered a name inside one of the databases, if credits to a producer who briefly worked on a song were left out, or if technical errors erased some information.[29]

No Global Database of Copyrights
Because there is no publicly available registry of copyrights, it can be difficult to figure out who owns what in order to obtain various licenses.[30] Under the Berne Convention (see more in my post on copyrights on recorded music) a musical work is copyrighted as soon as it is written down, recorded, or edited in any form[31] without any formal registration process needed. In respect of copyright law, one needs to get consent from every copyright holder in order to use music commercially – a cumbersome process without access to a common, global registry.[32]

Internet Movie Database (IMDb) exists in the movie industry, as a global, public registry with metadata for movies. Several attempts have been made in the music industry to create a similar, universal registry that every copyright owner can upload copyrights to.[33] The most ambitious attempt was the Global Repertoire Database (GRD) that was launched by the EU commissioner in 2008. The objective of the GRD was to create a singular, compiled, and authoritative ledger of ownership and control of musical works around the world.[34] The project was carried by more than 80 organizations across six continents and backed by the world’s major record labels, tech giants, and collective societies.[35]

Unfortunately, the life span of GDR came to its end in 2014 when key actors withdrew their funding from the project. Some sources suggest that the failure was caused by fears from the collection societies of losing revenues under a more efficient system.[36] Others speculate that GDR failed due to disagreements between the stakeholders about who would control the global database and administer its catalog.[37]

Looking forward
In this post I have identified five major problems that the music industry faces today:

  • Low payouts to the artists
  • Inefficient payment system
  • Lack of transparency
  • Lack of information
  • No global database of copyrights

It is hard to tell where one problem ends and the next one begins. From the artists’ perspective, today’s music industry is a mess. Music, and the ways in which we consume it, has evolved in the past decades, yet the principal structures of the music business remain unchanged. The main problem is that artists have no control over their music, and their music’s true value is essentially hidden from them. To fully optimize the music industry the payouts for streams need to be higher, we need more efficient payment systems, fully transparent licensing deals, and a global, public copyright registry to ease licensing and make sure that right holders are correctly paid and credited.  The main revenue stream from music should be placed where it belongs; in the hands of the creators.  In a future post, I will delve into how blockchain technology can help to resolve the five issues mentioned above, and what is already being done.

If you have read this far, feel free to post a comment in the comment section

Until next time,
Futuristic Lawyer

****************************

[1] Patrik Wikström (2014), The Music Industry in an Age of Digital Distribution, In Vazquez, J, Morozov, E, Castells, M, & Gelemter, D (Eds.) Change: 19 key essays on how the Internet is changing our lives. Turner / BBVA Group, pg. 10.

[2] Ibid. pg. 10.

[3] Ibid. pg. 11.

[4] Ibid. pg. 12.

[5] Ibid.

[6]  Jaclyn Wishnia, Blockchain Technology: The Blueprint for Rebuilding the Music Industry, 37 CARDOZO Arts & ENT. L.J. 229 (2019), pg. 229-230.

[7]  Ibid., pg. 232.

[8] Ibid.

[9] Ibid. pg. 233.

[10] https://www.nytimes.com/2015/08/02/opinion/sunday/open-the-music-industrys-black-box.html?_r=1 (opened 04-10-2020).

[11] Don Tapscott & Alex Tapscott (2016), Blockchain revolution: How the technology behind Bitcoin is changing money, business, and the world. Toronto: Portfolio/Penguin, pg. 230.

[12] Rethink Music (2015), Fair Music: Transparency and payment flows in the music industry, “Recommendations to increase transparency, reduce friction, and promote fairness in the music industry,  Berklee Institute for Creative Entrepreneurship, pg. 20.

[13] Ibid.

[14] https://help.songtrust.com/knowledge/what-is-the-pay-rate-for-spotify-streams (opened 13-10-2020).

[15] https://help.songtrust.com/knowledge/what-is-the-pay-rate-for-spotify-streams (opened 13-10-2020).

[16] https://www.nytimes.com/2015/08/02/opinion/sunday/open-the-music-industrys-black-box.html?_r=1 (opened 13-10-2020).

[17] Engebretsen and Haugen (2018), pg. 16.

[18] Ibid. pg. 15.

[19] Rethink Music (2015), pg. 14.

[20] https://www.nytimes.com/2015/08/02/opinion/sunday/open-the-music-industrys-black-box.html?_r=1 (opened 16-10-2020).

[21] Engebretsen and Haugen (2018), pg.16.

[22] Rethink Music (2015), Fair Music: Transparency and payment flows in the music industry, Recommendations to increase transparency, reduce friction, and promote fairness in the music industry. Berklee Institute for Creative Entrepreneurship.

[23] https://artists.spotify.com/blog/metadata-what-it-is-and-why-it-matters (opened 18-10-2020).

[24] https://www.theverge.com/2019/5/29/18531476/music-industry-song-royalties-metadata-credit-problems (opened 18-10-2020).

[25] Rethink Music (2015), pg. 26.

[26] https://www.wired.com/2014/12/bitcoin-for-rockstars/ (opened 19-10-2020).

[27] https://www.theverge.com/2019/5/29/18531476/music-industry-song-royalties-metadata-credit-problems (opened 18-10-2020)

[28] Ibid.

[29] Ibid.

[30] Engebretsen and Haugen (2018), pg. 17.

[31] Ibid.

[32] Ibid.

[33] Engebretsen and Haugen (2018), pg. 18.

[34] Wishnia (2019), pg. 236, and Engebretsen and Haugen (2018), pg. 18.

[35] Ibid.

[36] Wishna (2019), pg. 237.

[37] Ibid.

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