The consolidation in the music industry today is a threat to not only musicians and their ability to make a living, but to the principles of political and economic equality.
The music industry has always sucked for musicians. From stories about never getting paid for hit records, artists being caught up in record label mergers or other deal complications, losing creative control of their work or being shelved, going broke after hitting huge success — the choir sings that the industry is broken. Not only is it not serving the artists, but it’s also failed the songwriters, producers, and engineers behind your favorite records. Unfortunately, it’s become this way by design.
The industry has experienced big changes over the last few decades, of course. In the 1990s, independent record shops were gobbled up by chain stores. Labels pressed CDs and sold them for $20 when it cost 30 cents to make them and launched online stores. Profit? Sure. Great experience for consumers? Less so. Next came pirating and file sharing and online sales. When Napster entered the market, young people realized file sharing was the future. When this happened, record labels couldn’t figure out how to keep making money like they usually would.
Enter streaming.
Record companies are faced with the challenge of promoting their artists and finding ways to ensure that they are getting paid for their work in an increasingly digital industry. When streaming began to take off, it took labels years to figure out how to get back to making money. While the Spotify pays only in the neighborhood of a third of a penny per stream if you’re not Drake, it boasts over 248 million active users. But there’s something tricky going on behind that, “if you’re not Drake” comment.
While all the changes in the consumer landscape shifted from the 1990s into the 2000s, the six major record labels consolidated into The Big Three — Universal, Sony and WMG — who control over two thirds of the market. In 2014, after several months of debate, American and European regulators approved the UMG takeover of EMI, making “The Big Three” what it is today. Universal Music gained access to the work of some significantly major artists, including the Beatles, Pink Floyd, Lady Gaga, and Kanye West. The sale created a huge shift in the industry, consolidating power to the Big Three, who now controlled the vast majority of the music market, and indubitably changing the business landscape.
In the political world, this is what we call “monopoly power”. Today, in every corner of the music business industry, you will find a small number of big actors. Take streaming services, for example. Just a few years ago, we had a competition that existed between services like Pandora, Rhapsody, Tidal, Google Play, Spotify and Apple Music. Today, however, that “competition” has essentially become a two-horse race between Apple Music and Spotify. The live music industry isn’t all that different. Live Nation and AEG have an overwhelming grip on North American venues and festivals.
More importantly, most of these companies are also vertically and horizontally “integrated,” meaning they own or have stakeholder shares with other companies that are relevant to their financial success. For example, Sony, Universal and Warner — The Big Three — are all partial owners in Spotify. Live Nation, meanwhile, owns Ticketmaster and has tentacles in venue sponsorship, artist management and promotion. Spotify is branching out into music journalism and playlist “curation,” as well.
Because of integration, streaming platforms are not neutral. Streaming has quickly become the dominant form of music consumption, and major music labels generated around 4.3 billion U.S. dollars in revenue from streaming in 2017 alone. According to Music Business Worldwide, the recorded music divisions of Universal Music Group, Sony Music Group and Warner Music Group jointly generated $22.9m, on average, every 24 hours in 2019 from streaming. That’s just under $1 million every hour between the ‘Big Three’.
So where is all the money going?
Major record labels use their market power to shape the marketplace for everyone else — including the songwriters, producers, and indie artists who choose not to sign deals with a major. As Tim Ingham, the founder and publisher of Music Business Worldwide, succinctly wrote in Rolling Stone, “In 2018, artists and record labels were paid 1.1% less of the total money handed over by US consumers to music ‘retailers’ – a sector now dominated by streaming services – than in 2016. That percentage stat might not sound hugely noteworthy, but think on this: 1.1% of the total music retail revenues in the US last year ($9.8 billion) equates to $108 million.”
One of the biggest factors playing into this development is Spotify’s new deals with major and independent labels struck in the first half of 2017, in which they agreed to lower the share of pro-rated net revenue they received from the platform, down from approximately 55% to 52%. Mind you: these are confidential agreements, so it’s hard to get details on this. The major labels make these agreements which grandfather the artists on those labels into them. However, indie artists have a unique opportunity to make this kind of deal directly with Spotify. The challenge lies in ensuring that an indie artist, like Chance the Rapper, gets a fair shake in the development of this agreement.
To clarify on this point: Spotify needed “margin relief” from the labels in order to become an economically sound company. Ironically, shortly after this, Spotify also joined Amazon, Pandora and Google to legally object to the agreed royalty rate rises for songwriters in the United States in 2019. When pressed about it afterwards, Spotify published a blog which included this key line: “Music services, artists, songwriters and all other rights holders share the same revenue stream, and it’s natural for everyone to want a bigger piece of that pie. But that cannot come at the expense of continuing to grow the industry via streaming.”
The details of major label’s agreements with Spotify remain a mystery, even to artists on “The Big Three”, like Lady Gaga. If Lady Gaga can’t get answers, there may be a reason for the intentional privacy.
As the legitimacy of unprecedented market dominance of Apple Music, Spotify, Facebook, Google and Amazon goes on trial in the court of public opinion, musicians and producers need to begin taking monopoly power seriously — and maybe even do something about it — as it’s become clear that they do not care to see the music creators flourish. Artists and creators must demand transparency from all of the main actors within the industry so that we know how to look out for ourselves.