Streaming services a boost for industry
Even Neil Young no longer turns his back on subscription-based biz
There is a possibly apocryphal story that Neil Young admirers have told for decades. After the massive success of Harvest, exhausted by touring and grieving two friends lost to heroin, in 1973 he retreated to a studio in Santa Monica to make a new album. The ramshackle result, Tonight’s the Night, recorded mostly on a single day, would not be released for another two years.
In the meantime, Young went on tour again, playing Tonight’s the Night in full, night after night, to sellout crowds across America that had turned up to see him perform Heart of Gold and Old Man from Harvest. One night toward the end of the gig an exasperated fan yelled: “Play something we know!” at the stage. Legend has it that Young heard the cry, turned his back on the audience and played every song on Tonight’s the Night again.
Several ages of rock later, the joke is now on young Young. Nostalgia and fan power are now more important than ever in the music industry. Meanwhile the rise of the subscription streaming services Spotify and Apple Music as the primary distribution channel for recordings is forcing labels and artists to reconsider their long focus on new material.
The main feeling in the record industry now is one of relief verging on euphoria, however. After 15 years of sharp decline, overall revenues are climbing again, driven by the popularity of subscription streaming on smartphones.
The record business is still little over half the size it was at the peak of CD sales in 2001, before broadband Internet undermined its foundations.
But a recent prediction by Goldman Sachs that streaming growth will accelerate globally to nearly double total music industry revenues to more than US$100 billion by 2030 has excited major record label executives and investors alike.
Goldman Sachs analyst Lisa Yang says: “Streaming is a massive game-changer for the recorded music industry, in the sense that it establishes a much more sustainable business model for the labels.”
In China, for instance, which never developed a significant CD retail sector, tens of millions of consumers are paying for music for the first time as the convenience of the subscription, streaming, all-you-can eat, user-friendly approach beats online piracy.
Spotify and Apple Music offer tiny fractions of a penny for each time a song is played, rather than the big one-off royalty a CD sale would have provided. They also have limitless “virtual” shelf space. For streaming services there is no such constraint. This means that on Spotify and Apple Music, revenues are more closely tied to consumption of music. Thus established artists, or “catalogue” in record industry jargon, account for most of the income of record labels.
Hartwig Masush, chief executive of the second-tier label BMG, owned by the German media giant Bertelsmann, which does not offer big advances and big promotion budgets, instead offering a larger cut of long-term sales in a model designed for the streaming era, says of the previous system: “You didn’t get a Grammy for being very successful on the catalogue campaign for Simon and Garfunkel, put it that way. The question of what actually pays for your business was not actually raised very much by shareholders 10 years ago. It was all about how many artists you have on the charts.
“They generated big money, but they also generated massive costs.
“Spending 80 per cent of your time obsessing about the latest hot new thing when new releases account for not much more than 20 per cent of the streaming business does not necessarily make good business sense.”
The major labels that are enjoying a recovery on the back of streaming still have much of the vastly expensive marketing infrastructure built for another era. In the streaming era, however, the business is much simpler, putting pressure on the major labels to be more transparent with artists about the money they collect and, potentially, with future owners.
While wannabe hitmakers may find the streaming-based music industry tough to crack, it all plays into the hands of figures with a classic back catalogue, such as the late David Bowie, or Neil Young. He took his music off streaming services in 2015, in a protest over their poor sound quality, bowed to demand and made a quiet return in November. He still plays plenty of new stuff live.
But these days, Heart of Gold is nearly always on the set list.