Do Streaming Services Make Sense For Labels/Artists?

Metal record label Century Media was recently in the news for deciding to bring (at least some of) their catalog back on Spotify. Without going into the pros and cons of using streaming services from a consumer perspective, I want to address from a record label’s perspective a few basic issues I see with distributing music on streaming services.

Century Media is not the only label to vacillate back and forth on the streaming services question, and for good reason. It’s clear without a doubt that direct profits from streaming plays are negligible (there are many variables that impact the actual payout figures, but as a rough estimate it takes over 150 streaming plays to earn $1). Labels do earn money from streaming services, but the profit amounts are meager in comparison with regular retail profits. Still, publishing your music on streaming services has benefits, but not universally. I believe labels have to consider their artists individually and whether it’s appropriate for that particular artist to have their content on streaming services.

(Huge caveat for my argument: I don’t have a confident answer as to whether or not streaming use erodes potential retail sales. Are streaming and retail complimentary? I’m assuming they are not completely complimentary, and that more people would purchase a given song if they were not able to stream it for free. Of course, that’s what everyone thought before Napster came along 10 years ago. And now we have Pirate Bay / Bit Torrent, which is Napster on steroids. But hear me out…)

I think artists can more or less be grouped into 3 categories, although the distinctions between these categories is very subjective as well.  The categories are: emerging, established, and stars. Unequivocally, emerging artists should have their music on streaming services. It helps gain exposure and build a fan base. On the other hand, stars should not have their music on streaming services. From a business perspective, there is no reason why Taylor Swift, Beyonce,  Justin Bieber or any artist selling a million records should be on Spotify.

At some point in the future, selling recorded music may not be feasible, and then the conversation changes. But today music still sells. Artists like Taylor Swift have fans that are willing to pay for her music, so why give it away to them for fractions of pennies? I heard an anecdote today about digital sales along those lines. A track on iTunes typically costs .99 ($1.29 for higher quality / premium artists). Taylor Swift’s manager allegedly wants to sell her tracks for twice that much, and they’d probably sell almost as many units at that price.

However, stars like Taylor Swift represent 1% or less of all artists. But it does raise the question of whether variable / demand pricing should be applied to music sales. Taylor Swift tracks could sell for $2, while an artist like Michael Kiwanuka could sell tracks for $.25. I would buy his debut album for $2.50, but not at its current price of $7.99. Why should all tracks and albums be worth the same? Why should we restrict music sales to traditional retail pricing tiers? What if the lead single was $.99 but all other tracks $.69? (I didn’t see my argument going in this direction, but at the moment this seems like a compelling idea, aside from the accounting nightmare it would inflict, and no doubt other serious ramifications).

To rehash the main point, making your music available on streaming services is a yes for emerging artists but a no for stars. Most artists would likely fall under the “emerging category,” but I would say about 10-20% fall under the “established” category. For these artists, it’s less clear whether or not having their music on streaming services makes sense. Established artists gain the same marketing and exposure benefits as emerging artists, and the detriments (decreased potential retail sales opportunities) are less since potential retail sales for their music are less. I think an important variable is whether the artist is on tour or planning to tour. If they are on tour, it makes sense to utilize streaming services to help build fanfare in other states and countries. If the artist is not on tour, it’s perhaps best to concentrate on retail sales. Of course, getting into the practice of toggling an artist’s catalog on and off streaming services based on these types of variables could alienate fans. There are so many unknowns in this entire equation.

What is clear, ultimately, is that music is more popular than ever. Digital music sales are still increasing, while physical sales continue to decrease. Touring is accounting for a larger portion of revenue than ever before. The sales are in there somewhere. I look forward to returning to this topic in 6-12 months, I’m sure the landscape will have changed again.

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