At one time in my life, I had aspirations to do music as a career. Even though I no longer have either the band or the hair required to be a rock star I still listen to music and follow industry developments. Because of that, an article on the music industry caught my eye this morning. It comes from MediaPost and its headline reads “Streaming Music Enjoys Revenue Uptick to $3B.” It goes on to report that:
Revenues from streaming services continued to grow strongly both in dollars and share of total revenues. During the first half of the year, streaming music revenues totaled $1.6 billion — up 57% year-over-year. This accounted for 47% of industry revenues, which compares positively with 32% in the first half of 2015.
Impressive growth and reflection on how the business has changed. Spotify, Pandora, Apple Music, and others have changed how people consume this product. What hasn’t changed, however, is how the music business works. In fact, a business model that was written into some laws a century ago still governs how the business operates for the most part. As a result, as Fortune reported a couple of months ago:
Based on almost every metric that matters, Spotify is the most successful streaming music service in the world, with almost 90 million subscribers and close to $2 billion in annual revenues. Yet its recently-released financial results show that despite its massive success, it is still incapable of making a profit—and because of the way the music business works, it may never make one.
You won’t have to search very hard to find many articles detailing how little money artists make from digital music either. So where are these record (pun intended) revenues going? You can probably guess. The people at the record companies wrote the business model, and there are still payments to those companies for things such as “breakage”, physical discs (fragile vinyl when the clause was written into standard agreements) that didn’t make the trip to retail intact. Recently, “New Technology Clauses” were added which charges the artist to ready an album for digital distribution and which are completely unnecessary.
The point today isn’t to rage against the record machine. It’s to point out that this industry and almost every other business has been totally disrupted over the last 20 years. Middlemen serve very little purpose other than to act as legally-protected gatekeepers. Rather than rethinking the business model with an eye toward how to provide value to the customers (the artists and consumers) they serve, the record companies dig in further. They haven’t quite figured out that if they starve the artists and bankrupt the new distribution systems, they too will die.
So ask yourself if the business model in which you operate has been rethought in the last few years. You can watch it happening (finally) in the TV business and countless others if you need inspiration. Winners are rethinking everything. Losers dig in. You?
Consult Keith 