Smartphones, Streaming and Universality: The Future of The Music Industry
Tom Silverman, the founder of Tommy Boy Records and primary force behind the New Music Seminar, has some incredible conversation pieces in his Manhattan office. The side of a grape crate bearing the moniker "Tommy Boy," which inspired the CEO's branding of his label, hangs behind glass on the wall. Another frame contains the original demo sleeve for Afrika Bambaataa's "Don't Stop...Planet Rock," one of the essential tracks in hip-hop history. Most eye-catching however is the trio of green glass Buddhas arranged on a side table.
"We just try to keep the balance around here," says Silverman. He means means balance in the sense of Buddhism's Middle Way, but he realizes that a different kind of balance is returning to the music industry. The Buddhas' owner helped popularize hip-hop and plant the seeds for electronic music in America. Now, one of the most forward-thinking men in the business looks forward at the future of his industry.
The United States, at its peak, represented more than 40 percent of the international music industry. Now the country has fallen to somewhere between 25 and 27 percent.
Markets that formerly devoured American recordings, such as Japan, have decreased their purchases. This is less an indication of recorded music's downfall (a frequent theme in the media) and more about the willingness of smaller nations to fill voids as they appear. Korean music has taken Japan by storm, similar to how Psy crashed American shores, but tenfold. Sweden, a nation of merely 9.5 million (10 million less than greater New York City), is now the world's third largest music producer, behind the U.S. and England.
An industry long dominated by Western interests faces potential equity for the first time ever.
Silverman, still behind the helm at Tommy Boy and consequently part of those Western interests, doesn't see the shrinking of America's portion as a threat to his cut of the pie, but rather a sign of hope for the music industry that media insists is sinking into its grave.
Sure, America's semi-monopoly has slipped, but considering the imbalanced number of producers and buyers the country has in the music economy, a drop off was inevitable. Silverman lists the estimated number of total music consumers in the world somewhere between 250 and 300 million, barely more than 4 percent of the world's population and again, based disproportionately in the United States.
The question of reaching the other 96 percent brings Silverman, an otherwise contemplative and measured individual, into a relative furor of statistics and strategy. His answer to the seeming collapse of physical album sales rests in what many consider the problem child of the industry.
"We're a $16 billion industry with 250 to 300 million buyers," he explained. "That could go to $50 billion or $100 billion depending on how streaming is dealt with."
"How streaming is dealt with" would sound like a threat coming from the mouth of Thom Yorke but Silverman embraces the concept. Many musicians have raged against providers such as Spotify or Deezer, which offer minimal returns to performers in return for a play or "stream." Silverman foresees profit in the process however.
Modern consumers spend less and less on physical format albums (vinyl sales have risen, but not nearly enough to cover the drop in CD's), and the concept of a record collection will likely disappear. Consumers, who have relied entirely upon streaming services for music listening will need to continue subscribing in order to access music at all. If small subscription fees are enforced (unlike the modern system, where users can easily access streams for free with limited commercial interference) a constant source of income will flow into providers and, ideally, they'll be more willing to shell out to record labels accordingly. More subscriptions means more money for performers represented, by Silverman's logic.
His plans for those extra subscribers to come from markets not yet utilized by record companies.
The internet has made discovering new music easier than ever before, for audiences in both traditional markets and otherwise. Psy and "Gangnam Style" serve as the ultimate example, although an extreme outlier in terms of success. A viral YouTube campaign, having now gathered more than 2 billion views, cemented the Korean pop star into the international consciousness. Gaining popularity and profiting from it are apples and oranges however.
Although due royalties for every view of a music video or song, a number of factors make collection a chore. The number of illegitimate versions available on YouTube, coupled with the sheer volume of copyright claims that the site deals with, prevents many performers from cashing in. Streaming offers a more reliable chance for profit, especially when paired with another trend sweeping the planet: smartphones.
Ericsson AB, the world's largest telecommunications network developer, reported during 2013 that it estimates more than 5.6 billion smartphones will exist by 2019, servicing more than 9.3 mobile subscriptions. Silverman and others suggest that packaging new cell phones with Spotify or other services built in will both increase streaming subscriptions while expanding the influence of performers represented on them.
He compares it to SiriusXM's pairing with General Motors to bundle the satellite radio service with new automobiles. The company hovered on the brink of bankruptcy during 2009, with subscription numbers resting around 18.8 million. Car buyers received a free three-month trial when purchasing a new vehicle from GM, and SiriusXM found that those with bundled automobiles continued with their subscriptions, even when paying, at an attractive rate. The company counted 23.9 million subscribers by 2013.
Silverman argues a similar ploy could hook new consumers and amplify music into an $100 billion-a-year industry. "We need to stop looking at music as an economy of buyers and downloaders," he explains. "And instead look at it as an economy of subscribers."
The implications of streaming, on markets both domestic and international, made it the understandable hot topic at the 2014 New Music Seminar June 6-8 in New York City. The panel at the Midem International Roundtable Discussion assumed the rise and spread of streaming as an inevitability, and emphasized boosting the impact of its performers by using services as a reference point.
The five-man panel, particularly Daniel Glass of Glassnote Records, cautioned the producers and managers in the audience against casting their acts out across the entire planet, despite having the capability to do so.
"I believe it's a dangerous mistake," Glass said, warning of watering down an act's potency. "You need to establish a beachhead, versus diluting a band across the world."
The label president cited Half Moon Run from his own roster. The Canadian indie folk rockers had found an audience in its own nation of course, but also generated particular interest in the European trio of England, France and Germany. Rather than launch a full-blown European tour, Glass and his team focused the band's attention on its three "biggest fans" to anchor the group's marketability in the region.
Glass and Silverman separately cited Sixto Rodriguez, the subject of Searching for Sugar Man, the 2013 Academy Award winner for Best Documentary Feature. Rodriguez, a Detroit songwriter, found little commercial success domestically for his '70s releases, but his lyrics struck a chord with a South African audience struggling against apartheid. The albums went platinum in South Africa and made him a national icon. The performer belatedly discovered his status but it was too late to profit from it. He had ended his career.
If Rodriguez had modern tools such as Shazam and Spotify, the panel suggested, than he might have raked in massive returns from his African successes, rather than reside in the $50 home he bought at a government auction.
Algorithms have infiltrated music almost at the same level as they have in professional sports. Internet music providers and multimedia sites have bought up music analytics companies such as the Echo Nest (Spotify) and Gracenote (The Tribune Company) to provide more personalized service to their users, and generate coffers of data at the same time. Sites like Shazam have sold such information to advertisers, but agencies representing performers can use it to determine where they should send their acts.
A story from late 2013 described how metal icons Iron Maiden had used data from peer-to-peer (read: piracy) sharing website Bittorrent to determine where its music was illegally downloaded the most, and then planned its tour based around the findings, thus tapping into proven markets. The blurb ended up being a hoax, but not before thousands in the industry realized it was a wonderful idea.
Steven Hill, head of marketing for Warp Records, found data useful when finding markets for Boards of Canada, a Scottish electronic duo that plays almost no shows. Marketing a band that virtually refuses to market itself sounds like a PR nightmare, but Hill was able to track YouTube and Spotify numbers to find the "beachheads" that Glass referred to. Warp increased its promotions of Boards in said regions accordingly.
So Silverman wants to increase the number of music consumers in the world, primarily by using streaming and smartphone expansion. Glass, Hill and other promoters want and need to find new audiences around the world (and one can assume, as businessmen, they would prefer the biggest markets possible). Both of those lines of thought meet to form an arrow, pointing to four of the ten largest countries on Earth.
The acronym BRIC consists of four nations—Brazil, Russia, India and China—deemed by financiers as massive states that have entered a new era of economic development during the last 25 years. All also fall far from filling their theoretical quotas in the world music purchasing scheme.
"Those are territories that have never had a significant music business at all," Silverman laments. "Considering the giant populations, they've been pathetic in terms of actual contributions to music revenues."
Those four giant populations equate to nearly 3 billion people, more than 40 percent of the world's total inhabitants. And all are conveniently buying into smartphones. According to the International Data Corporation, a markets intelligence firm, China is the world's second largest smartphone consumer and Brazil is at no. 4, although the latter may pass Japan during 2014. The same report indicated that India's smartphone market had grown by 229 percent from 2012 to 2013.
Brazil has added several streaming options in the last few years, which has resulted in average users turning away from the previous piracy establishment, Silverman says. Although Brazil serves as an example for BRIC potential, the sway of torrenters will be tougher to break in nations such as China and Russia.
A 2013 Congressional report from the United States Trade Representative on China's World Trade Organization compliance revealed that more than 99 percent of all media in the nation is pirated. Pressure on China's government to actively enforce copyright law would be helpful, but the United States has been less than firm in looking to protect its own citizenry's arts-based intellectual property.
Still, as suggested by the fictional Iron Maiden narrative, the populations in pirated waters still turn out en masse for live performances. Taylor Swift's album Red may have been illegally downloaded enough in China to merit gold certification, but her 2014 stop at Shanghai's Mercedes Benz Arena sold 18,000 tickets in less than a minute. Had the performer staged three shows in the Chinese metropolis, she could have sold out all within an estimated five minutes.
Silverman acknowledges that lax copyright protection doesn't help the music industry, but it's not keeping it from succeeding in the BRIC states either. Brazil has curbed piracy with streaming services, an alternative that offers free music while giving musicians a cut, however slight it may be. China has seen a crop of small streaming services pop up, such as QQ, which offer a much smaller selection of Western music but a selection nonetheless. More advanced offerings could counteract piracy as it did in Brazil, but to a population six times as large. Breaking into the Chinese or Indian markets is considerably easier for foreign interests than entering those of most European states, and an entrepreneurial Western company could find profit from filling the void in those markets.
The sound of the traditional music industry falling down has made quite a noise, amplified by the panicked screams coming from music media outlets. Silverman's calm evokes Noah, at ease in the face of biblical devastation. Many have pointed to streaming as the flood and the New Music Seminar founder might agree. But where others see destruction, he envisions the tides carrying music to new worlds, like a 16th Century explorer. Unlike the conquistadors however, Silverman believes the industry will actually strike gold in Asia, Africa and South America. Possibly up to 100 billion dollars worth.
Streaming and other web sources represent the opportunity for balance in the music industry, its own Middle Way. It's a path that the industry needs to walk if it plans to survive.