Hayes: How streaming revolutionizes the music business strategy


Bob Hayes, Columnist

As the year in the ever-transforming music industry begins, it has grown abundantly clear that the era of streaming music — as opposed to purchasing physical or digital albums — is here to stay. While debates persist about whether streaming properly benefits artists, the Spotify, consumer-driven model of 30 million available songs for $10 a month will continue to dominate the music consumption marketplace.

“Based on streaming’s convenience and immediacy, there’s really no putting the genie back in the bottle,” Scott LeGere, a professor of music at McNally Smith College, told Deseret News. “That a company like Apple, that has the largest music store in the world, would cannibalize its own music sales tells you where the future is.”

Upon the launch of Apple Music last summer, CNET reported that investment analyst Gene Munster wrote in a note that he estimated “Apple Music would add less than 1 percent (around $1.8 billion) to the company’s revenue,” with Apple’s apparent primary goal of the service to be “a way of luring users into the Apple ecosystem.”

Much of the dialogue regarding this music consumption trend laments artists’ dwindling revenue streams in the wake of users’ booming music streams. Yet, too many people overlook how Apple’s pivot from music sales to streaming, made with the larger goal of drawing new consumers, simply mirrors the musicians’ business strategy. In 2016, album releases will largely serve to enhance potential revenue from live performances, a marked departure from the old revenue model.

The exact payouts to rightsholders and artists are nearly impossible to dig up — in 2013, Spotify revealed artists make around $0.007 per stream, though industry and public pressure has likely increased that payout slightly. Yet, it is no secret that artists struggle to gain revenue from streamed music once substantial slices of the already-meager payouts from streaming services go to record companies and promoters.

Why, then, would artists sacrifice so much potential album sales revenue by allowing streaming services like Spotify, and Pandora the rights to stream their music? To build a fanbase.

Because of the futility of releasing music for sale, even notable artists like Martin Garrix and KSHMR will tend to punt and simply release tracks as free downloads with the goal of building popularity to raise demand, and subsequently revenue, for live performances. The incentive is in the ability for users anywhere in the world to become fans of an artist. Take a minute to consider how many musicians you love whom you never would have heard if you had been required to initially purchase their music. And consider how many of those artists for whom you have paid to see live.

Here is where we arrive at the other major music industry boom: the commercialization of live performances and festivals. The rise in popularity and utter number of shows and festivals has become a punchline in music circles, but they keep our musicians working. According to a Nielsen Music report, an astounding 32 million people attended at least one music festival in 2014. Of that group, 14.7 million were from the coveted millennial demographic. For artists, this means between 70 percent and 90 percent of revenue comes from live shows.

A 2014 Rolling Stone article outlining the rise of the large-scale music festival reveals Outkast’s 2001 46-show tour grossed $4.8 million. This was the last tour for the hip-hop duo until its 2014 40-show festival run grossed around $60 million despite nearly a decade without an Outkast release. Folk band Neutral Milk Hotel released its lone album last millennium, when “the group was lucky to make a few hundred dollars per show,” Steve Knopper, the article’s author, wrote. Despite not releasing any new music since its debut, the band still draws large crowds at major festivals and substantial revenue: “You can add a lot of zeroes, basically, to what they made,” Jim Romeo, the band’s booking agent, said to Rolling Stone.

Outkast and Neutral Milk Hotel exemplify how artist revenue from live shows has exploded throughout the industry, but only a handful of artists have similar levels of staying power, making new music releases via streaming services a necessity to cultivate and maintain sufficient popularity for artists. For decades, tours have served to promote albums for sale, while releasing music now has a key goal of reaching new consumers and giving them a reason to purchase tickets to live shows.

Musicians are experiencing a revenue shift, not a revenue plummet. Next time a conversation turns to how artists can possibly only make $70,000 from 10 million Spotify streams, remember that dozens of artists gain that same amount of money by playing an hour-long festival set. I cannot decide which side of that equation sounds crazier, but such is the product of the modern, consumer-driven music industry.

Bob Hayes is a Weinberg junior. He can be reached at [email protected]. If you would like to respond publicly to this column, send a Letter to the Editor to [email protected].

The views expressed in this piece do not necessarily reflect the views of all staff members of The Daily Northwestern.