The high profile, experienced, industry executive quoted in this article simply didn’t want to “talk up,” until I suggested they might wear a cloak of invisibility… with the freedom to be Anonymous, they dished plenty.
The discussion is about revenue streams— past, present and future. “Anonymous” comments on record labels, radio, media, publishing, artists and media. It’s about looking ahead and avoiding some of the shortfalls that lie directly in our path. It’s also about re-examining current practices to see if they still make sense… So come on Mr./Ms. Anonymous, can you Show Me The Money?
Anonymous: Everything around our industry has changed. The economy, the recording tools, social media, how we distribute the music—even the quaint small houses on Music Row are getting transformed into office buildings and condos. Yet, despite it all, the country music business still operates a lot like it has over the past decade or two, relying heavily on radio to promote and expose new artists and songs to the country consumer.
NEKST: Why not? Research still names country radio as the prime discovery source for country consumers?
Anonymous: Yes, and despite the high cost, promoting to radio used to make perfect sense. If labels were lucky enough to get a song into the Top 5 they were almost guaranteed a big sales reward plus a career jump start for the artist. Money was spent, but there was a reasonable chance to recoup. Overall it was a good model. Today that model has broken down because physical sales are shrinking and digital downloads, which were supposed to supplant the CD, are also tapering off. Now, even when an artist grabs that elusive Top 5 brass ring they aren’t able to sell enough album units to justify the promotional expense. The SoundScan debuts over the past year prove how much the sales returns have diminished.
NEKST: But labels have 360 deals. Doesn’t that close the ROI (return on investment) gap?
Anonymous: The 360 deal came into being to offset shrinking sales revenues, but unfortunately many of the 360 deals weren’t designed to offset sales/ profits falling at the levels we are seeing today. Worsening margins from moving so rapidly from physical to digital to streaming have accelerated that shortfall.
NEKST: What if labels gain a sound performance copyright?
Anonymous: I have no idea if labels will ever win the performance right from terrestrial radio, but even if they do, will it make the same difference it might have ten years ago? The automobile dashboard is fast becoming Internet enabled, so it makes sense that people will eventually be listening in their cars to radio via internet distribution, instead of airwaves. Isn’t that what iHeartradio is about?
NEKST: Will the value of publishing copyrights change? Is that still a great long term investment?
Anonymous: Nashville’s entertainment industry was built upon publishing and it has traditionally been a dependable long term investment. It continues to be a highly competitive business as fewer songs generate a larger share of the total revenue. Publishers have a lot to win or lose, as we go forward. They should be highly motivated to find ways to properly fund the music streaming business which is where much of their future revenue will originate. It’s anybody’s guess how it will play out, but I’d bet on publishing maintaining its strength.
NEKST: Consent decrees have kept publishers from negotiating for a fair market rate with respect to streaming royalties. If they are repealed will that solve publisher’s issues?
Anonymous: Songwriters, publishers and artists all deserve fair compensation for their works. If Consent Decrees were erased it would likely result in a more even split of the overall streaming revenues between artists/labels and publisher/writers. However, the fundamental concern here isn’t just the split, it’s the size of the pool. There just isn’t enough streaming money on the table being generated to compensate either artist/labels or publisher/writers. Spotify has only about 3.7 million paid US subscribers and the company is already offering steep family plan and student discounts. If they had 100 million subscribers paying an average of $6 mo. it would create gross revenue of $7.2 billion. Paying out 60% would total $4.3 billion So even with 100 million subscribers, a number we may never see in our lifetimes, the industry would shrink substantially from its current size of about $7 billion. I worry that Consent decree changes are simply too little too late. We need to be looking ahead to identify where the money will come from to make up for everything that is disappearing.
NEKST: Looking ahead at technology is not something we have traditionally been good at as an industry.
Anonymous: True. And what seems like the “big lie” now is that if we could just get a better royalty rate from the streamers then everything would be ok. They are already paying over 60% of their revenues. It will get better only if/when they can attract massive new revenues by dramatically increasing paid subscriber numbers. And don’t forget that most companies like Spotify are heavily in debt.
NEKST: Are we going to see a DIY (do it yourself) superstar, without a major label?
Anonymous: Yes. You can record in your bedroom and place it online for sale the same day. Social media and digital marketing can potentially get you heard. Those steps used to require a big investment. Labels may try to improve their odds of success by shifting investment away from newcomers, in favor of artists that have begun to establish a following and are already showing signs of marketplace acceptance. Further, that shift may also entice managers to compete against labels and sign new talent. Why can’t a successful manager invest in a new act, arrange distribution and outsource whatever services are necessary? Especially if radio promotion becomes less important.
NEKST: Let’s go back to revenue streams. Can you “show me the money?”
Anonymous: If music sales dollars are shrinking and streaming is a disappointment, what’s left? Touring is a powerhouse for highly established acts and even new acts will more actively embrace grass roots touring as a means to offset expenses and build that all-important following. Ancillary streams will also become increasingly important for career success. Artist branding, merchandise and endorsements will bring added value and play a growing role in monetizing a career. Country radio has already recognized this. Large media chains like Cumulus, Clear Channel and Town Square Media are already selling access to the music lifestyle and its artists across a variety of channels. (They aren’t selling music, because they see there’s no money in that end of the biz.) People want to see these artists, hear them perform and other brands want to benefit from that engagement. Different types of media access including Award shows may also become revenue streams. Performing on a show used to result in a large sales bump. Those bump days seem to be mostly over, so it seems likely that artists will start asking to share in the high dollar network licensing fees. Do an interview with your national magazine? Sure, paycheck please.
NEKST: Closing comments?
Anonymous: The entertainment industry needs to come to grips with what lies ahead by looking at revenue streams—those that are drying up and new ones that might offer opportunities. And then not be afraid to try new things.