Music industry on a magical digital tour
● Long plagued by piracy and relatively low sales — for all but a few artists such as Brenda Fassie, Cassper Nyovest and Kurt Darren — the local music industry has never been famous for high profit margins.
The fourth industrial revolution is set to further disrupt the industry as the streaming revolution ushers in new business models.
Globally, the digital age has lowered barriers of entry for artists and producers, destroyed the traditional business model, and allowed consumers to stream millions of songs for less than R100 a month. Locally, the music business has also seen massive disruption over the past two decades.
Despite the still high cost of data, Dharam Sewraj, a former director of Universal Music, says music streaming is growing fast but much has yet to be done before it becomes mainstream.
Who still buys CDs?
The rise of streaming has contributed to the decline of the once-flourishing CD-pressing business in SA. Many operators have shut their doors and others have downscaled sharply.
The profile of music consumers is a major consideration for the industry. Who is listening to the music, and are they willing to pay for it? Millennials (those born between 1982 and 2002), aided and abetted by social media, are said to the biggest market for music streaming.
Content is still king, which has caused the value of the big companies such as Universal Music and Sony Music “to almost double as more people are interested in their vast music catalogues”, says Sewraj.
The advent of widespread computer ownership brought with it piracy through peerto-peer sharing sites such as Napster at the height of the dot-com boom in the late 1990s and early 2000s.
With digital players like the iPod and digital distribution through iTunes, companies such as Apple tried to bring order to the chaos. This evolved into curated radio-like services that saw the rise of Pandora, Beats Music and iTunes Radio. This has resulted in online streaming through popular services such as Apple Music and Spotify.
New music-distribution giants
Spotify commands the largest market share in music streaming worldwide, though Apple Music has had first-mover advantage in SA, where it dominates the market with its R59.99-a-month individual service.
As the oldest and largest independent recording business in SA, Gallo Music Publishers has access to the country’s largest back catalogue of music.
Gallo digital operations manager Alex Zarmakoupis says: “Music streaming has sparked new interest in our catalogue. We just have to overcome the high cost of digitising our full library to take real advantage.”
(Tiso Blackstar, which owns the Sunday Times, also owns Gallo.)
One of the main factors preventing streaming from taking off further in SA is the prohibitively high cost of data. Infrastructure constraints are also a hindrance.
Warrick Percy, head of licensing and business development at the Composers, Authors and Publishers Association (Capasso), says revenue from streaming is now starting to outpace that from downloads. “We’ve seen a 186% rise in revenues from streaming in the last year alone.”
Capasso is a licensing and rights agency that collects and distributes royalties to music publishers and composers.
Like any industry facing disruption, the music business is creating and testing new business models to match the new rules of engagement.
Bhavani Entertainment and Investments, a new record label launched by Sewraj, has a profit-sharing structure that allows artists to receive up to 60% of revenue from licensing and royalties, most of which now comes from digital distribution.
Joox, a new platform in the streaming market owned by Tencent, has enjoyed widespread adoption in Asia.
Joox offers a completely free version of its service, which carries no advertising, unlike Spotify’s free offering. Naspers launched the platform in SA last year, further cementing its message to the market that it is now a digital-first operation.
Mobile payment apps
Recording and distribution companies have shifted to a “digital-first” strategy in which streaming and music downloads are the main focus, unlike the CD, vinyl and cassette tape strategies of old.
Zarmakoupis says record companies are now like digital agencies, focusing on streaming, downloading, social media and anti-piracy measures.
The market has also created opportunities for seemingly unrelated players to assume integral roles and take a piece of the music-business pie.
Telecommunications companies such as Vodacom, MTN and Cell C provide the infrastructure that many South Africans use to access their favourite streaming platforms.
And with that, they’ve now taken on a revenue-collection role on behalf of the music industry. Percy says mobile money solutions are now being used to pay for services that were previously the preserve of those able to afford Visa and MasterCard fees.
But even as technology has disrupted the market, consumers have developed nostalgia for old-fashioned vinyl. Research by the BBC and International Creative Management, a leading agency for artists of all kinds, shows that consumers are using streaming as a discovery tool for niche and older sounds that they then collect physically on vinyl.
An old business model has been revived by the new one.