The Music Biz in 2013: In Flux, Disruptors Disrupted

The week before Christmas, pondering a year-end music business essay, a litany of major stories jumped to mind, including: the Twitter and SFX IPOs; Sony and Vivendi investors’ calling for entertainment spin-offs; Live Nation’s record revenues and the touring market’s banner year; the Samsung-Jay Z partnership and branding’s continued rise in the music space; impressive album roll-outs by Daft Punk, David Bowie, Justin Timberlake and Eminem among others; new entrants to the U.S. streaming market iTunes Radio, YouTube, Beats and Deezer just as MP3’s sales flagged and streaming revenues rose; the WMG-Clear Channel broadcast royalties deal; pre-emptive lawsuits against music legends like the Beasties and Marvin Gaye; and, of course, all things Miley.

This seemed a reasonable starting point with a range of events from different aspects of the music business. But then, of course, the earth spun. And, in rapid succession, three major music business news stories broke.
Within a span of 24 hours, WME announced it was purchasing rival IMG whose clients include Justin Timberlake and Taylor Swift; the federal rate court ruled on the BMI-Pandora case with far-reaching implications for the U.S. music publishing business; and, out of nowhere, an artist named Beyonce dropped a surprise album that rocketed to No. 1  and went on to sell nearly a million albums in ten days with virtually no promotion. The music business in 2013 awaited no one—especially those pondering.
“Disruption” is a business concept that has been bandied about ad nauseam for years in journals and at virtually every music and/or tech conference on the planet. The basic gist is that new, innovative technologies creating new markets can disrupt older, firmly-entrenched businesses and pick-off market share. The old guard music industry, for example, when it was run by a powerful, shit-kicking oligopoly was disrupted by the rise of digital music and an MP3 market that could not be tightly controlled.
The music biz’s disruption began over a decade ago, but the music market and consumer behavior has yet to settle—even more so in 2013. The business remained in a state of flux as consumers had yet to decide how they will listen to and pay for music and many new music businesses models have yet to be fully realized. And this year, too, as disruptors were disrupted, any sure bets were off.
The MP3 download, for example, that glorious, easily transferable, compact and rather soulless digital medium that brought down a long-entrenched music empire, this year lost market share. Digital music sales through November shrunk by 4%, which Billboard’s Glenn Peoples described as the music format hitting “middle age.”  Perhaps in the same way that MP3s sparked consumer fatigue with teetering towers of CDs, music streaming services, like YouTube, Spotify, and others facilitated consumers loss of interest in storing, finding and playing music from daisy-chained external hard drives or far-away cloud storage lockers backed-up to the hilt with music and selfies.
No, consumers need it now and everywhere at once; on their smart phones (increasingly so), wafer-thin laptops, multi-sized tablets, desktop towers and from clouds—simultaneously. Also, in car dashboards and when traveling domestic and international. And “it” means the history of recorded music instantaneously at the fingertips. And better if both soul mates and vague acquaintances can know exactly what they're thinking, doing, bothered by and dreaming of while listening. Thanks Jimmy, Larry, Daniel, Axel, Tim and Brian--let us know when it’s really ready. Talk about demanding consumers...
But for some artists, the long tail’s promise of incremental micro-payments lifting all boats has yet to happen as promised (see Chris Anderson’s 2006 book “The Long Tail: Why the Future of Business Is Selling Less of More,”), and they grew weary and impatient. "To me this isn't the mainstream, this is like the last fart, the last desperate fart of a dying corpse. What happens next is the important part," said Thom Yorke in an oft quoted interview with Mexican website, that clearly resonated. "It's like this mind trick going on, people are like 'with technology, it's all going to become one in the cloud and all creativity is going to become one thing and no one is going to get paid and it's this big super intelligent thing'. Bullshit,"

Reinforcing the b.s. sentiment was Harvard professor Anita Elberse’s book  “Blockbusters: Hit-Making, Risk-Taking, and the Big Business of Entertainment” that focused on the short massive tail and found that record labels are most profitable when they focus investment on a few big-shot, can’t-miss juggernauts rather than smaller acts. This was seen in Hollywood this year, which had a record-setting year with notable bombs ("The Lone Ranger" for example), which reinforced the studios blockbusters strategy to the chagrin of smaller budget fils. It's an approach that leaves all but the biggest artists from receiving major label investment.
The lack of equitable digital compensation criticisms were met with stats from streaming services like Spotify which showed increasing royalty payments to rights holders as its business and other streaming services continued to scale.  At a media event earlier this month announcing Led Zeppelin's Spotify arrival, CEO Daniel Ek touted that, "Royalty payments earlier this year topped the previously set year-end 2013 goal of $1 billion."

With increasing success at monetizing mobile increased revenues for many digital muisc platforms which were sure to make their way to smartphones, U.S. music publishing laws continued to make profitability elusive as statutes, created decades ago in part to foster the terrestrial radio market, have yet to catch up to digital streaming technologies.  The recent Pandora-BMI ruling, which addressed digital royalty payments between publishers, PROs and digital platforms opened a literal Pandora’s box. The rate court judge seemed to hasten the possibility of publishers pulling out of performance rights organizations and possibly negotiating and administering their own publishing—which would create a vastly different music publishing landscape from what we know now.
There was perhaps no further proof of our industry’s volatility’ this year than the news that the two major labels with the largest market share, Universal Music Group and Sony Music, faced calls from parent company stockholders to be spun-off. Activist investor Daniel Loeb of Third Point called on Sony, which has struggled for a decade with turning a profit, to spin off Sony Entertainment as a stand-alone company.  While UMG faced similar calls, more surprising were reports that Japanese telcom SoftBank offered Vivendi $8.5 billion for UMG. Both conglomerates said publicly they would never sell or spin-off their music holdings, but behind the scenes for sure number crunchers were doing the math. In flux, indeed.
This year’s executive turntables seemed pitched to 45 RPM as firmly entrenched power players saw their jobs change. Guy Oseary and Paul McGuinness, Madonna and U2’s managers, respectively, sold out to Live Nation. Ex-Live Nation CEO Irving Azoff partnered with MSG’s Jim Dolan; Lyor Cohen’s started a new music company;  Beats Music and Twitter picked up key execs in Ian Rogers and Nathan Hubbard, respectively; AEG Live’s top brass Randy Phillips and Tim Leiweke hit the road and new CEOs came to Pandora and Rdio, Rhapsody lost its president and Spotify went on a hiring spree.
Amidst all these changes, the role of brands in providing the wind beneath the music biz’s sails became a $1.3 billion gale force.  The most obvious example, of course, is the million downloads of Jay-Z’s “Magna Carta...Holy Grail” that Samsung gave away to its smartphone users before its release—but that was really only the tip of a massive branding iceberg. Here One Direction thanked Nabisco, Katy Perry rep’d Pepsi and album roll-outs became a creatively choreographed branding ballet as artists like Eminem pirouetted with Call of Duty, Beats by Dre and ESPN and Justin Timberlake did grand plies with Target, Bud Light and MasterCard. This year too it was Live Nation’s exponential growth in concert sponsorships that contributed heavily to record-setting revenues.
But it was Beyonce’s groundbreaking year-end bombshell that may leave 2013’s most lasting impression. Without any promotion, visible sponsorship (though she has many outside of this release), the superstar singer went direct to fans with a new album that included 16 songs and 17 videos via an iTunes exclusive. In ten days, Beyonce sold nearly a million copies of her full-priced $16 album at a time when album sales are dropping. It it became iTunes’ fastest-selling album ever and in three-days Beyonce had the biggest-selling debut by any female artist of 2013.
Her unexpected release, like so much else in the music business in 2013, made the head spin. A creative new paradigm for how music can be brought to market as rulebooks, business models and marketing strategies were once again disrupted.