Apple Music and the Future of the Music Industry

A version of this essay was originally published at Tech.pinions, a website dedicated to informed opinions, insight and perspective on the tech industry.

In the past few years, it has become glaringly obvious the economics of streaming music was not favorable toward artists. Interestingly, I recall the same thing being said when Apple first launched the iTunes Store, as the music industry pundits feared the move would make it easier for people to only buy the song(s) they wanted versus the whole album. They felt it was better for everyone to sell a $9.99 album versus just one song for 99 cents.

In case you don’t know the economics of the music industry, it is generally pretty ugly for most artists. Unless you are a largely successful artist, your cut of sales can range between 10 percent and 25 percent, depending on how well you negotiated your contract. (Those were the common percentages 15 years ago, when I did work in the music industry. It’s doubtful that much has changed)

Labels simply act as investors. They generally offer artists money up front as part of the deal, and then agree on a percentage of all sales. The label puts up the money to record the album, market it and, during the analog era, distribute it to retail. There is a science to this, and it works.

But the sales revenues are not just split between the label and the artist. Often there are licensing costs, costs to a songwriter, publisher, and a range of other costs built into revenue share. That 99 cents spent on one song can often be split anywhere from five to seven ways. This is an intricate mess, but ask any expert on the music business and they will tell you where artists really make their money is on performances and concerts. From getting discovered, signed, cutting an album, getting your album in retail, into circulation on the radio, promoted on TV or the Web, it all leads to one desired end goal for the artist’s financial interests — performing live.

We can scrutinize the economics, and often the politics, of the music industry all we want. However, if we are to take a truly pro-artist view of the situation, we need to think about how the structure — which now includes a streaming business model — will help artists build a large enough following that they can go on tour and get paid for performing. Certainly, the business of music is evolving. Both free and paid streaming services are now part of the economic model. Understanding the economics of the business that doesn’t favor artists until they get large enough to tour and have multiple successful albums in order to negotiate better terms on future albums helps us frame how its evolution may impact the future of the music industry.

Curation/discoverability

If I’m an up-and-coming artist newly signed by a label, my deal inevitably sucks. My hope is that my song gets lots of air time and climbs the charts, generating awareness and a following. Historically, artists depended on tastemakers to like what they hear and want to expose it to listeners on their radio station. In the past, this was not done by algorithms. If I’m an artist wanting to get discovered, I’m not sure I’d want to leave my fate in the hands of an algorithm.

Radio DJs have played key roles in artists’ success. This is where Apple building DJ-run radio stations starts to get interesting. If Apple can build out a number of genre-specific radio stations run and curated by DJs to expose listeners to not only the best music of that genre, but also help them discover new music, it could wind up being huge for artists. Interestingly, there is a service that exists today, called Dash Radio — which happened to be started by my friend, DJ Skee. He is a well-known DJ and was the host of an XM radio station; he branched off to start Dash Radio, which offers DJ-run curated stations for every music genre. Both approaches believe in the human as the ultimate curator over an algorithm, and I tend to agree with them.

Minimizing the need for “labels”

Assuming that you followed how I broke down “labels” above, then we can understand labels as basically the financing, marketing and distribution. What is interesting to me is to think about the way things are changing, and if labels are even relevant in the future. It is easier than ever for artists to record and self-publish their own music, solving the distribution need. While marketing is not inherent to most artists, and they may need help, the Internet and social media give artists great tools to market themselves. If tastemakers are continually hunting to discover and play new music for their listeners via their Internet radio stations, this only helps their ability to attract an audience.

In today’s digital era, you can make a case that the traditional role labels play is becoming antiquated. While I don’t imagine labels actually going away anytime soon, it is interesting to see the things Apple is doing to create a more artist-friendly environment, both with discoverability and distribution. The last angle could be with concerts.

Festivals

Whenever Apple held their iTunes Music Festivals, I wasn’t entirely sure what they were doing. Now I’m wondering if they weren’t using those festivals to learn and refine this idea of regular global music festivals. I can imagine Apple Music Festivals happening all over the world, widely attended and, more importantly, coveted by artists because of their global appeal. Remember, artists make the most money from performances, and these music festivals could be lucrative for the artists, not only economically but also to be a great platform for newer, less-well-known artists to be discovered on a much larger stage. I’m speculating whether or not this will ever happen, but I think it is an interesting idea, with an exceptionally pro-artist angle.

As I think about the future of media in general, many questions remain. Ten years ago, I knew many pundits who thought that change to the business of music would come much faster than it has. Whether the fundamentals for sweeping change are upon us or not, I think the next five years are going to be fascinating to watch.

Ben Bajarin is a principal analyst at Creative Strategies Inc., an industry analysis, market intelligence and research firm located in Silicon Valley. His primary focus is consumer technology and market trend research. He is a husband, father, gadget enthusiast, trend spotter, early adopter and hobby farmer. Reach him @BenBajarin.