The Future of the Streaming Economy: 5 Things to Watch (Guest Column)

Scott Windus/Manatt, Phelps & Phillips, L
Jordan Bromley

From singles to record deals, the rest of the world and more -- here's what you can expect to see in the new music business.

Jordan Bromley is a partner at law firm Manatt, Phelps & Phillips, LLP.

 

Over the course of the past several years, we have been watching with a keen eye and sometimes predicting various elements of the rise of the streaming economy. At the end of 2016 we showed you how streaming income is distributed to creators and IP owners with our royalty streaming infographic and explained why you should subscribe to a streaming service ASAP. Now we are here to tell you what you already know -- streaming is here as the consumption leader. With that said, look for these five developments in the new world of the streaming economy:

1. Singles only: With new music discovery coming from playlisting, more and more artists are dismissing the album format and releasing their music on a song-by-song basis. Releasing the "single" is a more flexible way to market and promote an act. Instead of releasing 10 songs at once, losing nine to the whirlwind of attention-deficit disorder musical consumption, acts are firing off one by one, creating small ripples which can sometimes grow into tidal waves. This encourages a "no filler" mentality among creators and allows artists to "catch and release" new songs with the possibility to even create and release them on the same day. 

This flexibility and ease will allow art to quickly grow, evolve and, sometimes, devolve. Fans will react accordingly, not necessarily pinning any one artist to any one defining sound. No longer should the sophomore album define or destroy an act. This is great for creativity, great for marketing, great for culture. Artists are challenged to consistently create better and better material. Labels are challenged to find and sign quicker and more rapidly, before they lose an artist to their competitor or an artist develops a model independent of the label.

2. More labels, more deals, more money: With the singles world solidifying, the discovery, marketing and promotion for labels changes as well. Artists are discovered based on songs' reactions and signed on a rapid- fire basis. Small labels are starting to win by offering profit split deals with a low product delivery commitment, which brings a lower production, marketing and promotion commitment. Labels can pop up with little money, find a hit and run with it. The larger labels are adopting this model as well, with labels like Sony EU and the re-launched Priority, among others, offering similar deals. All this makes the major label long-term commitment deals more expensive. But the majors can afford it, pulling into a winning streak with the gobs of money being earned by streaming services (and only 14-20 percent of which is paid through to recouped artists). And then, of course, you have the artists (like Major Lazer and Chance the Rapper) who find great success doing it all themselves.

Speaking of shifting record deals, question why the 360 model should continue to exist. A model invented out of apparent necessity due to piracy, now that the tide has shifted, why do labels still need this extra dough? While it seemed a good idea at the time, most labels had trouble tracking and monetizing this income stream until very recently. But when the label comes calling for their ancillary revenue, it is definitely felt by the touring artist. Also, if you enter into a deal on a typical PPD ("purchase price to dealer," or wholesale price) royalty basis, make sure that your artist isn't reduced territory by territory on streaming income.

3. The Long (Fat, Winding) Tail: Popular and contemporary music aside, think about the fact that 70 percent of streams on Spotify are on songs that have been out for over 18 months. Think further about mood playlists. People streaming music based on playlists that fit their current mood. This is a major aggregate use of the streaming services, and one that brings real economy to the obscure and old. A totally different model than the ones embraced by current record labels. Look for major opportunities for ambient, niche, focus, mood and "weird" music in these new sectors.

4. It's a whole new world: Streaming has opened up the ROW. If you are familiar with record deals, that stands for "Rest of World," an area covering billions of people, all with cell phones, all who listen to music. That means new markets in Africa, MENA, Korea, India and beyond. Saavn, a streaming service in India, boasts more than 20 million subscribers. While a lot of the music consumed is native to the country (Bollywood, for example), more and more listeners are discovering and sharing "international" music. There is opportunity in each of these countries that we used to write off as ROW.

5. A new service?: Streaming services currently take roughly 30 percent of the gross income earned from streaming music for overhead. This percentage hardly covers expenses. Spotify reports massive losses year over year as the trailblazer of the streaming economy. As most business students know, often times it isn't those who are first to market who eventually rule the market. Look for new services piggybacking off the massive research and development done by the trailblazers to emerge. Using algorithms, models and a license regime developed by the trailblazers, but with a small portion of the staff or overhead. Would a service like this need a 30 percent margin to turn a profit? What if it only needed a 10 percent margin? What if it used the other 20 percent to directly compensate performers and writers in addition to the money paid to publishers and labels? Perhaps a service that could deliver its users what they want to hear and compensate performers and songwriters better than the others could use this unique advantage to differentiate and offer a better value proposition. While I have no examples of current services or ideas cooking (other than mine), it seems to me to be a natural evolution of the market.

In summary, it’s an exciting time for us, our business and our culture. A time of growth, change and activity. I cannot wait to see what the future brings. I know you join me in this excitement.