If streaming is now worth billions of dollars, where’s all the money going?

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By Sergey Bludov
Senior Vice President, Media & Entertainment
If streaming is now worth billions of dollars, where’s all the money going?

Streaming, downloading, publishing, copyright laws, piracy, commissions, royalties, breakage, indie labels – the diverging complexities of the current music industry ecosystem and where the money is going continues to be the hot topic of conversation these days. The big question on everyone’s mind is what can be done to instill trust, confidence and ensure that music payments make it to their rightful owners?

Blurred Lines and Challenges

Multiple platforms support music consumption and the traditional lines that once divided artist, publisher, record company, distributor, retail, and consumer electronics have become blurred. In fact, the entire media and entertainment category are moving away from the old "ownership” model to a more dynamic "rental” model, which introduces differing revenue dispersion and payout methods. In the US, music streaming rose 93 percent in 2015 and shows no signs of slowing down (IFPI. “Global Music Report 2016 – State of the Industry Overview.” 2016). In 2000 record music represented 60% of the entire music industry, now it is less than 30%.

With all the ongoing criticism of low payments and original content from streaming sites, YouTube is one of the biggest challenges, with limited oversight of rights and small payouts based on ad views. Not only is this form of revenue divided by views (adrev) entirely different from other forms of music consumption, it fluctuations from day to day and hour-to-hour. According to Midia Research, streams on YouTube and Vevo grew 132% last year. During this same period, royalty rates increased a meager 15% -- bringing the overall rate down from $0.002 per stream in 2014, to $0.001 in 2015. This means that revenue paid to music labels and artists was slashed by half relative to the number of streams.

And though it is true that the music companies and digital services today offer fans a plethora of opportunities to get their music legally, the ‘Pirates’ continue to take a bite out of profits for everyone. The list of stream ripping sites is growing - attracting an estimated 800+ million visits per month collectively, which equates to approximately ten billion songs ripped for free a year. Though Google and YouTube claim to have taken some steps to fight piracy, they have made little attempt to block stream ripping, mostly likely because sites like YouTube-mp3.org continue to be a profitable source of advertising revenue for them. Or more disturbing perhaps, is that they can’t technically stop them, or just don’t have the legal resources dedicated to tackling the issue.

Technology Fuel Transparency, Monetization, and Profits

With all these technological advances and emerging on-demand channels such as the myriad of devices used to stream music and the channels the music is available on such as Spotify, Apple Music, etc., the industry is on a mission to safeguard the value of music in our society or economy. The Indie Music segment of the 21st century has become a really dominant player on the market which has lead the majors to reposition themselves as artist-centric. A new report by The Worldwide Independent Network (WIN), revealed that the real global market share of independent record labels is an impressive 37.6%, equating to $5.6 billion in 2015. This is a monumental shift in power from decades ago when artists were at the mercy of the labels and corporations. This has influenced music executives to have a renewed focus on finding technology solutions and designed to offer transparency, greater accuracy in reporting on intellectual property usage and the subsequent revenue artists are entitled. Technology to empower communication has also played an integral role in resolving the criticism about the lack of transparency, with corporations willing to share standardized data via visual reporting and statements on an ongoing basis.

Due to technology innovations, the music industry is undergoing a paradigm shift on a monumental scale that affects everyone – introducing both challenges and opportunities. Artists and labels alike have more ways to find audiences on a global scale than any other time in history, leveling the playing field for all. Many music startups struggle to find profitable revenue models, but one startup that does seem to have cracked the code is Kobalt. Kobalt is a big-data music analytics company that raised over $126 million in funding is focused on “providing label services without taking ownership of the masters and in turn putting the label and artist relationship on a more equitable agency/client basis.” There is also the increased effort to create a balanced, symbiotic approach between marketing older, or catalog, records and new releases, opening up opportunities to cross-market and attract more diverse audiences. Another swing in momentum comes in the way of new legal judgments aimed at protecting the interests of our songwriters, composers, and publishers. In a September 2016 ruling against US Department of Justice's (DOJ) interpretation of the BMI consent decree, the court sided with BMI, confirming the company is free to engage in the fractional licensing of musical works - a win for the entire music community.

It has never been more significant for the music industry to start modernizing and re-engineering fragmented legacy systems with updated, enterprise solutions focused on integration, reporting, and business automation. New systems that can correlate licensing, royalties, touring, artist management, rights management, distribution, real-time analytics and more. Developing and adapting innovative technology solutions will help solve the transparency and piracy issues to drive monetization and standardization. With the emerging technologies and marketing innovations, the only thing that is missing is a centralized system (blockchain) to track who the rightful owners are and how much are they owed.

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