Streaming and the New World Order

Spotify has been in the spotlight for months now. They’ve been making people happy worldwide with their low cost subscription plans for music. Who couldn’t blame their subscribers for being happy with the service? I find it hard to blame them simply because I’m a Netflix subscriber. I enjoy having unlimited content at hand. It’s not just a feeling of “power” but it saves me a trip to Blockbuster – which in case you haven’t noticed has been absorbed by Dish Network and is turning into a mostly streaming movie service. With the advent of the MP3 and high-speed Internet, the whole entertainment industry has been turned upside down. In many ways, it’s been a good thing. In other ways, it opened a Pandora’s Box that cannot be shut, but has not offered a clear solution after more than 10 years offered a clear solution.

So what has really changed? Well, the majors labels are struggling to find a way to remain big, while at the same time downsizing their staff like mad. Back in February, Warner Music Group announced its 8th straight quarterly loss. That kind of loss is impossible to sustain. Then again, they deserve it right? After all, a major label artists only makes on average 8 cents on per iTunes download. This is where I think we get caught up in the streaming debate. If the big labels are so evil in the eye of public opinion, where does that leave the small indie labels like Dot Dot, MK837, Deeplife, Llama Farm and others?

Ultimately, beyond the DJ world (and even within it at times) all labels are lumped together and treated as evil entities. This builds up resentment among the buyers of music, and with sites like Megaupload and Piratebay, well… they turn to piracy. After all, the artist is going to get screwed anyway and the music should be free.  Because of the way major labels HAVE treated artists in the past, and how they continue to fail adapt to the new mediums, the market reacts negatively and together the idea that a label should exist at all or even that an artist should be paid for a recording has been lost.

Today, it seems that the market believes that an audio recording has zero value. It does not matter if it’s a CD or MP3. Vinyl has some nostalgia, but the allure of physical media is becoming lost on younger generations. The youngest among us barely know what a CD is these days. The future could be bleak for those of us still in love with pristine audio and music packaging.

All of this combined with the use of mobile devices, wireless networking and various other “pod” like devices has culminated in streaming services. The market is quickly going from an ownership mindset to a renter’s mindset. Whereas 10 years ago someone might have spent $10-40 on music a month, now they can cut that expense down to $9.99 or LESS per month.  That cuts personal music budgets down from roughly $120-480 per year to less than $120 annually. Did I mention that you can listen to not just your collection of music, but THOUSANDS of releases for that? To quote a myriad of people:

“I can’t compete with that!”

To survive as an artist or even a label, you have to compete with new business models. This is the new music reality: ownership among the masses is now nonexistent or soon will be.

What is the real impact of this? Time to look at some numbers. Most of you have probably read about how low the payouts are from streaming.  On average, a single stream of a track nets about $0.007. That’s before the distributor takes a cut. That’s before the label has their cut. That’s before the artist sees a single… wait… what exactly is $0.007 anyway?

The point is, that in order to make total of $7.00, that track has to have 1,000 streams. Now, I can brag a bit here about my label. We believe that the artist puts the most effort into creating the product we sell. Because of that, they deserve the biggest cut. So they get over 50% of the royalty. That said, in order for them to make $7 from streaming, they have to have close to 2,000 streams. Figure in mastering costs of no less than $20 for a CHEAP job on one track and you’re still looking at a loss for the artist of $13 after 2,000 streams.

It doesn’t matter how good your contract is, streaming is not enough to keep the artist in the black.

And there’s the rub. Streaming has the potential to give artists a ton of exposure. However, like the Internet in general, unless someone recommends an artist to you, you have to make a real effort to find something new. With thousands of artists available through streaming services, the chances of receiving 2,000 streams in a given quarter is quite slim. MK837, from October through November had a grand total of 293 streams with the most any one track received being 20.

Now, I’m not complaining about MK837’s streams, but I am using them to show that relatively unknown artists and labels do not break through this whole “People will discover you” argument. Sure, it’s possible. Yes, it does happen. It’s also a bit of false hope. People have to have a reason to seek you out and communicating that reason can often times be difficult when your audience doesn’t have a face.

Despite the 3 million paying subscribers that Spotify has, indie labels are leaving Spotify due to financial reason. I’m not talking major labels, but rather Indie labels. In fact, the major labels own a good bit of Spotify. This environment favors the known artists rather than the unknown. Streaming is basically the new radio. Those who are popular will be played. Those who are not will be tried and forgotten rather quickly.  The advantage here is rather than having to purchase the music later so you can listen to exactly what you want, you just click on it.

The counter argument that wasn’t

One of the most common counter arguments as to why streaming services are good is that artists are forced to go on tour and earn money that way. The music is free (as they believe it should be), but the experience of a performance has value. It’s also exclusive. Not only that, but it’s not a new concept. It’s always been that way.

Yup, from day one, live was it. It’s just in the past 135 years that recorded audio was possible. The buying and selling of anything other than sheet music is really a relatively new concept. Concerts were the staple income for composers and musicians for hundreds of years. What was old never really went out of style. These days, what is new quickly falls out of fashion. It’s a loss of a revenue stream, not an opportunity to start touring.

Again, I’m not saying that you cannot be successful in the realm of streaming music, but that the odds are stacked highly against you.

The simple fact is that even if most acts wanted to do more touring, the opportunities may not be there.

Think about it. Since the late 90’s there has been a music production revolution. It doesn’t matter what genre you produce, a studio can cheaply be made in your house. This is true even if you are recording vocals. Andy Hunter proved this clearly back in 2007 in his video blog. Distribution became simple thanks to outlets like CD Baby, Bandcamp and so on.  To this new environment’s credit, thousands of people who might not normally have been able to get something recorded and on the market has managed to do it on their own. Sans label. Sans studio. You can argue about the quality of the material, but you can’t argue the effectiveness of the new production model.

Now we have increased number of people who are making music. The problem is that we don’t really have an increased number of music venues for live performances. In fact, we probably have a fewer number today thanks to the current economy. As an event promoter, you live and die on your bottom line. If you don’t think an act can cut it, you’re not going to book that act. More people seeking a 1-2 hour set at a local club just means the competition is that much fiercer. It may not have been easy to get booked before, but it certainly isn’t any easier now. Let’s not even go into how much you will get paid for your live show. It’ll probably be more than for streaming though.

An actual tour is another level of complexity. As an unknown act, you’re making the big bucks. Even some well established DJs traveling struggle to make $1,300 a night.  With hotel costs eating up $100-200 a night, flights of $250 or more and food, that gets whittled down pretty quick. Remember those are just the travel expenses. Add in the cost of either manager or the time it takes for you to book the gigs yourself as well as any other business expenses you might have.

Making money while on tour is possible, but more than likely you will be losing it for a long time.  You’ll have to keep a day job and if you have a family, traveling may not be exactly high on your priorities. These factors make it very hard in today’s world to step out on a tour. Yes, you can do it, but there are consequences that involve missing out on loved ones and incurring a greater financial loss than if you had stuck to only selling music.

The above graphic is a break down of the typical expenses and revenues an unknown band will have trying to attend Cornerstone as a generator bands. They aren’t official bands. They have to pay their way 100%. In the end, a good showing for them will be 20-100 people per set that they play. Yes, there are success stories from these bands, but financially most of them just fall further and further behind. Keep in mind to, I left some expenses out like the costs of making those CDs and shirts.

So what’s the solution?

This is the questions just about everyone is asking. If traditional ownership of music no longer works and if streaming doesn’t lead to revenue then what is the solution in this post-ownership world? Well, despite my doom and gloom, I don’t fully believe ownership is dead.  A recent study from Europe in a way confirms this in regards to CDs.

People still want their music after their subscription is over, but they only want what really matters to them. They want the music that they are truly fans of. In the EDM world where DJs need higher quality audio, they will still buy their music (or pirate it). From an EDM label’s standpoint, it makes more sense to focus on growing support among DJs than the masses. It’s a solid/identifiable target audience so to speak. It’s something you can work with.  This group also tends to follow labels, artists, genres and of course the exclusivity of early release. The person who can deliver all of this to a specific group of DJs on a regular basis is going to be the winner.

In other words, labels struggling for survival need to re-envision themselves as “channels”. They provide a specific line-up. They have a specific group of followers. These people will tune in for every release and never want to miss a show. This is what every label needs to survive. Spotify will never provide this because that isn’t its purpose.

The idea that has been hitting hard these past few months with me is that all any label needs is 100 fans who will buy anything they put out. In reality it’s probably closer to 1000 fans, but 100 would be a great start. What if you expanded that idea a bit though? What if you could get each one of those fans to commit to spending $10-15 a month on your label? They would of course get your newest releases and possibly some extras (videos, remix packs, mix sets). They’d also have the benefit of ownership as well. How would 100 fans change your label’s bottom line? $1,000-$1,500 a month in revenue is how.

Such a service could take your label from earning an average of $100 per release (if you’re the average label) to somewhere between 5 and 10 times that. You maintain a solidly loyal fan base. Move the release dates up so your subscribers get all of your releases a month in advance and you gain the loyalty of DJs as well. So, what’s the catch? The tools that artists and labels need to pull this have not been fully pulled together by anyone to do just this.

Wait… that’s not entirely true…

I wasn’t alone in coming up with this concept. Other people have been working on it for longer than I have. I’m always a bit slow to this stuff. The truth is Ghostly International has been working on this concept for some time. Recently, they have unveiled their new project drip.fm. It’s still in the beta stages, but Drip.fm is poised to make this revolutionary jump. The solution won’t be for everyone, but those who truly follow labels will benefit from it. In fact, it will help labels to focus more on putting out quality music. When they know that they could possibly loose subscribers over a bad release that puts a different kind of spin marketing and pressure on A&R.

Currently, Drip.fm seems to be sporting only three labels. MK837 has applied for beta access and I suspect that many other labels have as well. Even MTV has caught on already to Drip.fm’s potential. I don’t think this is something labels will be able to afford to ignore. We’re in a new world order as an industry now. The majors are struggling, but probably have found a home in streaming. The indie labels, the boutique labels; we don’t have a spot in the mass market. We know this. We understand that. Spotify is cool and all, but it won’t lead us to increased revenue. It won’t lead us to more exposure. It exists for when we, as a boutique label, become main stream. That’s a big if.

“Underground will live forever. We’re just like roaches. Always livin’. Never dyin’.”  – Roaches by Trancesetters

That’s what we have to do. We have to get “back to the program” and do what we’ve always done best: innovate music. Those of us who can produce a quality product and get it not only to market, but in the hands of paying DJs, will win. It doesn’t matter what the tool is that we use to do that. While current streaming subscriptions target the wrong audience, I think it’s a safe bet that a targeted subscription services like Drip.fm stands the best chance at helping boutique labels like MK837, Dot Dot, Deeplife, Llama Farm and others to survive.

Dave Richards has been producing a mixture of tribal, tech and progressive music for about ten years now. He has had releases on Next Dimension Music, PWM Records, Deeplife Records and more. In 2002, he became the owner of Tastyfresh.com and since then has developed the site’s name and favorable reputation across both the Christian and secular scenes. Currently, Dave works as the label manager with his partner in crime Kevin Oneel at MK837. World domination through “Jelly Doughnut” diplomacy is sure to follow.

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  • Josiah-Fingaz

    BAM!!! That’s some knowledge to ponder. Great read.

  • Katie Garcia

    Tidy article man.

  • http://www.daverichards101.com Dave Richards

    See… the real irony here is that since writing this article, I’ve subscribed to Spotify. I was curious about the social aspect leading to me “discovering” new music. Yeah… that failed. I’m listening to albums that either I never had or do have from bands that broke up 10 or more years ago. 

    So… I’m ripping off people who are past their prime now. Oddly enough though, I’m listening to more Christian music now than I have in a VERY long time. That evens things out doesn’t it?
  • Tim Bunch

    Good read. I still buy, but mostly MP3’s now. I like ownership. I like supporting artists. Streaming is the new radio. Well put. Tactfully placed shows can position you for better sales.