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Music to my Ears

Horace McDonald
Music To My Ears Blog

The Department of Culture, Media and Sport have recently been looking at music streaming to determine whether the revenue generated is split appropriately between content creators, content owners and broadcasters. Submissions were invited from the Digital Service Providers (DSPs) themselves, artists, songwriters, managers, performers, record labels and collection societies, and the DCMS published their findings last week. The top-line view is that more money should flow to creators and performers. Having a daughter who is a singer/songwriter signed to a major record label, it was certainly an outcome I read with interest.

I joined the music industry in a sales role in 1994. At that time the retail market was dominated by music specialist (HMV, Our Price, Virgin et al) and Woolworths played a key part, particularly in the singles market. The grocery supermarkets had recently started selling CDs, indeed only last week Sainsbury’s announced that they are removing CDs & DVDs from their stores. Millions of singles and albums were purchased each year, which delivered the bulk of the income to record labels. The primary model was to promote and sell singles, which were a key indicator for albums success, whilst albums were where the money was made, as most singles lost money. Back then, the only way to hear an artist’s full body of work was to buy and own the album, despite the fact that it was nigh on impossible to hear the tracks that hadn’t been released as singles. I bought many albums on the back of one or two singles only to be bitterly disappointed by the body of work in its entirety and only ever played one side of George Benson’s ‘Give Me The Night’.

Through the 90s and 00s the industry grew strongly due to high adoption of CDs for both albums and singles. However, the late 00s saw the start of a precipitous in CD sales, due in part to ‘illegal’ downloading, which was particularly rife amongst younger consumers. Some respite came in the adoption of ‘legitimate’ downloading driven by the huge success of Apple’s iPod, however a key plank on which the revenue model was built, ownership of albums, was removed once Apple decoupled the album, thus allowing consumers to download individual tracks, rather than being forced to buy full albums in the previously explained physical product environment. Between 2005 and 2015 the global recorded music industry halved in value, which resulted in reduced competition as the major labels reduced from 6 to 3 and significant job losses.

The recorded music industry has been saved by streaming. The record labels have made huge sums licensing their catalogues to the DSPs (dominated by Spotify) and receiving streaming income. Whilst there has been a renaissance for vinyl (which I simply don’t understand), the revenue numbers are relatively small. Having experienced years of decline the emergence and adoption of streaming has significantly grown the size of the recorded music industry cake, much in the same way CDs did. For successful artists, the monies earned are huge, most particularly older artists, who’ve benefitted from income as their songs have been purchased on vinyl, cassette (which is bafflingly also something of a renaissance), CD and now streaming (which isn’t strictly a purchase, but this is not the place for this discussion).

The best negotiations are between parties who understand how to negotiate. They understand that there is an opportunity to grow the size of the cake through creative deal making and that building trust through exchanging information is key. By being open to one another’s ideas, skilful negotiators create value through effectively trading, by getting things of high value in return for giving away things that are low cost.

The challenge is often not related to the growing of the size of the cake, but how it is then distributed, as it in these moments where self-interest can dominate and value can be destroyed. For the DCMS recommendation to have any chance of being successful, it is going to require some very creative thinking from all parties at the table, particularly from the major record labels.

Horace McDonald
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