[This post was co-authored by FMC Communications Intern Scott Oranburg]
Digital Music News recently published a series of automated pie charts that document the recording industry’s revenue streams over the past decade (2000-2011). The data paint an interesting — and, for some, troubling — picture about changes in the recorded music biz. We at FMC love geeking out over stats, but we’re more concerned with how musicians are making a living than the declining popularity of ringtones. To that end, FMC recently kicked off our Artist Revenue Streams (ARS) project, which aims to assess how musicians’ revenue streams are changing in this new music landscape. (If you’re planning on attending SF MusicTech Summit in San Francisco in May 9, be sure to catch project co-director Jean Cook’s ARS presentation and panel.)
Here at FMC, we’ve come to realize that musicians’ access to potential revenue — especially in today’s digital landscape — expands far beyond what is typically accounted for in charts like these, or in media and trade press reporting.
ARS is well underway, but we’re not yet at the stage where we have pretty charts and graphs (but we will!). So for now, let’s look at these industry-focused reports. One caveat: the charts were assembled by the Recording Industry Association of America (RIAA) — an organization that has something of a mixed reputation in the broader music community. Still, we find this information to be pretty interesting, if incomplete. (You can play along at home by clicking here.)
It’s been clear for some time that the music landscape has undergone drastic changes as a result of digital technologies. The RIAA’s pie chart breakdown indicates just how much has changed, and what direction this part of the industry may be heading.
At the beginning of the new millennium, some 92.3 percent of revenue from recorded music came from full-length CDs. Other physical-world items (CD singles, cassettes, vinyl, etc.) accounted about another 5.5 percent, with a mere 2 percent of industry-related income coming from music videos and the like.
The charts reveal just how staggeringly one-sided earnings were a mere decade ago. We immediately start imagining (OK, fine: remembering) what those bygone days were like for musicians and fans. Purchasing a CD — rather than listening to something on Pandora or watching a YouTube video — demands a certain commitment of one’s time and money. Albums were generally $10-$20 and were available almost exclusively at brick-and-mortar retail. Although that system for distribution and point-of-purchase amounted to a reliable revenue source, it also may have led to less exploration among music fans, who were naturally more judicious about where they plunked down their cash. Furthermore, one of the earliest channels for discovery of new music – MTV – accounted for the only substantial, non-physical revenue source in the industry. But, by 2000, MTV had all but eliminated its music video programming. Coupled with highly restrictive commercial radio playlists, there were few opportunities for independent and niche artists to gain exposure.
By 2005, the charts reveal that, while CDs remained one of the largest revenue generators, the remaining chunk was beginning to be driven by new technologies. Downloaded songs accounted for 4 percent of sales; subscription services accounted for 1.2 percent, and music videos jumped to 4.9 percent of total revenue. This clearly reflects a transitional environment. Looking ahead to the present day, we see even greater shifts.
2011 data shows the most scattered chart to date. Less than half of all revenue comes from CD sales, while 43 percent is new and digital media (i.e. downloads of albums, singles, music videos plus mobile music, subscriptions, and digital performance royalties). Considering these seismic shifts, there is little wonder why many labels have struggled to adapt.
Although these changes disrupted the bigger players’ traditional business models, they also meant more opportunities for musicians and music entrepreneurs who may have had difficulty reaching potential audiences in the old system. There are far more avenues for musician exposure, and risk for consumers to explore new sounds have fallen. But what about revenue for musicians? There are still a lot of unanswered questions on that front, which is why we launched ARS.
Another interesting thing to note in the RIAA charts is the growth of digital performance royalties and money from subscription services. These are both areas where further growth may improve musicians’ bottom lines. Generally speaking, these services help music consumers find new music that would otherwise go undiscovered. They also substantially lower the cost of “trying out” new artists or genres. There is no monetary cost to a user for trying a new station or hearing a new artist on Pandora; if someone dislikes a track, she can simply skip it or change the station.
Furthermore, webcasters are required to compensate performers and sound copyright owners (usually the labels, but sometimes the artist) for the web-based plays of their work, via the digital public performance right. This is also true for satellite radio like Sirius/XM. Compare that with over-the-air radio, which only pays the songwriter and publishing company for plays. For example, because Beyonce did not write “Single Ladies,” she receives no payment for its broadcast on terrestrial radio even though her voice is the main driver of its popularity. In contrast, digital broadcasters like Pandora pay digital performance royalties directly to performers, as well as the labels. So you can see why the growth of web-based services can have a real impact on revenue around recorded music.
Finally, these new platforms may also increase musicians’ overall exposure. But there’s not much data on how — or whether — that exposure correlates with revenue, which is yet another reason why we’re working on the ARS project. Anecdotally, we see tons of evidence that non-traditional platforms have elevated the profile of some of this decade’s most successful artists: OK Go found YouTube acclaim; Feist broke out because of an iPod commercial; Dropkick Murphys’ popularity soared after the The Departed soundtrack; Florence and the Machine gained similar exposure via Eat, Pray, Love and “Glee.” Still, it remains unclear what affect these kinds of opportunities are having on a broader set of musicians and composers — particularly those outside of pop, rock or alternative genres.
Check out our Artist Revenue Streams page for more info on this important area of research. And, for extra credit, you might want to have a look at our “29 Streams” blog post, which was what got us thinking about ARS in the first place.