The number games

The number games

If the music industry’s financial structures weren’t complex enough before streaming, the last nine months have revealed just how tangled a web is now being woven and how much cash is being burnt in the process.

The licencing deal between SoundCloud and the majors (with the big three reportedly taking a stake as part of their deals), Spotify’s latest $1 billion loan note-based funding round and Pandora’s problems, all show the price that’s being paid.

From an accountancy perspective, I take a pretty cold, clinical view of numbers. Where they become interesting is in interpreting the significance of what sits behind the figures and ensuring individuals or companies gain the returns that make their businesses sustainable. That makes the freemium/premium debate particularly relevant.

Like it or not, streaming is unquestionably the future. The latest figures, from IFPI, show $2.9bn in streaming revenue to labels and artists, almost $1bn up on 2014. About $2bn came from around 70m premium users of Apple Music, Tidal and the rest. That’s about $29 per user. Keeping up so far?

Contrast that with the 900m users of ad-funded streaming, in particular YouTube, which gave labels and artists $630m last year – just 70 cents per user.

Let’s face it, once a fan actually acquires music – whether CD, vinyl, or download - that’s it. While there’s no indication that ownership-related sales are likely to die anytime soon, they remain a one-off purchase. It may mean short-term brass in pocket, but the rights holder has just collected all they’re likely to get from that particular consumer until new creative is available – excluding live and merchandise. With streaming, they’ll still be earning every time that fan listens to their favourite track. The payments may be micro, but they are perpetual.

So, it’s in everyone’s interest for Spotify and its ilk (or should that be Ek?) to succeed. The ramifications of failure and a return to un-regulated piracy would be catastrophic for the whole industry.
That said, it is also essential the balance of payments are right and it is the responsibility of everyone, particularly business advisors, to make this happen. As an industry we need to lobby for the best possible returns from all streaming providers.

It’s little wonder that some record companies appear to be some way from inking a sustainable long-term deal with YouTube. It returns significantly less to the industry than the hundreds of billions of ad-supported streams it generates and commercial value it creates for its owner, Google. With all the majors’ contracts believed to be up for renewal shortly, just maybe the balance will change.

While the Goliaths battle it out in the corporate arena, what about the Davids and Davinas? It’s interesting to note that artists are now starting to vote with their intellectual property, making clear choices about where their music is accessible.

Those choices will inncrease after SoundCloud’s fast-track launch of its Go premium service. Meanwhile, Spotify has stated it’ll be using much of its $1bn war-chest to expand its Premium base.
Right now, everyone in the industry is feeling the burn. We just need to be certain we’re not putting out the fire with gasoline.

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