Forbes explored the effects of social media on music retail. Also, Billy Corgan talked about ditching outdated business models in the music industry. And experts analyzed whether or not there are opportunities for artists within the radio format.
Social Media, Direct-to-Fan and the Music Retail Industry
Digital technology and in particular social media has been changing the music industry landscape for well over a decade. And according to Forbes, the way it has most recently disrupted the business has been through its use as a direct-to-fan marketing tool, strengthening relationships between artists and fans worldwide. Social media has made it possible for touring bands to sell out shows via tweets and emails at little to no cost.
E-commerce, direct-to-fan marketing platform Music Glue has been helping artists sell music to consumers since its launch by founder Mark Meharry in 2013. With clients like Mumford and Sons, it has 15,000 users globally and competes with software platforms such as TopSpin and Sandbag, which offer direct-to-fan services including ticketing. Music Glue allow artists to sell music, tickets and merchandise from a single marketplace in order to increase the revenue earned by artists from music retail and keep costs to fans at a minimum.
The goal of direct-to-fan services is to put artists at the top end of the retail supply chain in an industry currently valued at $60 billion. Meharry said he believes that 2015 will be a huge year for artists and the music business overall. Because of variable artist revenues, explosive vinyl sales and new technologies, he stated that 2015 will be the year players within the industry who have outdated modes of thinking are finally forced to make major changes: “With the exception of a few that shifted into a services model, record labels have not evolved and continue to over-fund traditional marketing campaigns around the release of an album which the public never really wanted in the first place. Revenue is drying up and the marketing costs of breaking an artist are increasing. The traditional deals have all but disappeared for emerging artists and cash is scarce.”
With the continued decline of CDs and even digital downloads, “… the B2C end of the music retail supply chain is changing, with the complete removal of the CD format from supermarket shelves, due to dwindling demand, looking increasingly likely.”
Meharry explained, “It is now almost impossible to buy a device capable of playing a CD; try it yourself. As the last cars possessing a CD player hit the scrap yards, the age of the physical format that started in 1949 by Columbia Records and RCA will be over. The vinyl resurgence is insignificant and will also plateau this year or next. MP3 sales are set to decline rapidly, especially when iTunes pivots toward subscription later in the year.”
He also stated that he is not as certain as many others that subscription services will save the industry long term: “Jay-Z tried to sell Tidal to the world with many USPs, one of which was exclusive digital content. However digital content can never be exclusive, by nature of the format. Consumers and artists are getting a lot wiser to that.”
Subscription services continue to grow, but Meharry said that those new to the marketplace will not make money. Major record labels are already not making money from back catalogues and decreasing their A&R. And indie labels are being crushed by a lack of solid retail and marketing opportunities.
Now that artists are able to cut out middlemen and connect directly with fans, Meharry added that it is only a matter of time until the current retail structure dissolves. Artists are now selling t-shirts and tickets to earn a living and using their music as a way to attract fans to this merchandise.
As a result, Meharry’s prediction is that “within the next three years artists will no longer be spending money building websites as marketing tools. Instead they will simply have an account with YouTube, Twitter, Instagram, Facebook, MailChimp and [services like] Music Glue. We crave ease of use and we will continue to invest heavily in tech.”
Billy Corgan, on the Future of the Music Industry
Billy Corgan shared his opinion on how artists and others need to adapt in a recent interview with CNBC. According to DIY Mag, the Smashing Pumpkins frontman called out heads of the industry as being “feckless idiots” who espouse business models that are outdated in the current climate.
Corgan explained that technology has completely transformed music careers, and everyone needs to adjust: “The tech world is just blowing music out of the water … Music artists need to figure out their true value in a free market, which they have been slow to do because you have that old model of telling artists they are not worth anything, that they are disposable.”
He also shared his views on Jay-Z’s recent TIDAL launch: “To try and sell it as an altruistic thing is disingenuous because it’s not … He [Jay-Z] is taking his slice of the pie, which he has every right to do – he is a powerful man and he works with powerful people. But by the way, I’m a powerful artist and I don’t recall getting a phone call from him.”
Radio Still Reigning, but without Real Opportunity for Artists
While streaming services such as Spotify, Rdio and Tidal are being viewed as the, albeit controversial, future of the music business as they overtake downloads and physical formats, radio remains the standard, reported Vox.
A majority of Americans still listen to music on the radio. According to a 2013 Pew Research Center report, 92 percent of music listeners still tune into AM/FM radio, even though the Internet has introduced new options. And 39 percent of Americans listen to online radio, while 23.9 percent listen to satellite radio, with some overlap.
iHeartRadio has emerged as the largest AM/FM radio company in the U.S. The company owns 858 radio stations nationwide, serving 245 million people, a number with which online streaming still cannot compete. The company’s Internet radio presence also helps increase its reach even further.
According to studies conducted by iHeartRadio, people tune into the radio eight times per day, for a total of 2,045 minutes of both talk and music radio each week. People still spend more time listening to the radio than they do online.
Tom Poleman, head of programming at iHeartRadio said, “Music is a basic human need … That’s why we work so well with the music industry, because radio is inherently social. Artists and radio have always had that fantastic symbiotic relationship. We can’t survive without music.”
Data supports this idea, as AM/FM radio is the only format that has not seen a huge drop in users in the last decade. 96 percent of U.S. listeners listened to radio in 2001, and in 2011, this number was still at 93 percent, while sales of CDS fell 13.5 percent in 2013 alone.
Still, the real growth is in online radio. Simon Fleming-Wood, chief marketing officer for Pandora explained, “The difference between how many people are listening to the radio and how many people are listening to us is huge. It’s a delta of about 120 million people.”
However, online radio companies still view AM/FM stations as competition. Fleming-Wood admitted, “What’s in the crosshairs for us is getting Pandora built into car dashboards. The hours that are for Pandora to take are in broadcast radio.”
Other direct streaming, online radio and satellite radio companies are also gunning to get their music into car dashboards, since the car is still where people most often tune into radio. The average American commuter is stuck in traffic for 37 hours each year, and a 2007 study found that this same commuter spends 101 minutes each day on the road. And this is why AM/FM radio remains popular and still plays a major role in an artist’s popularity.
The problems that technology has inflicted on the music industry have only increased the importance of radio, making it impossible for artists to ignore, even as it presents few opportunities for them to earn revenue.
Poleman said, “The artists and anybody you talk to in the music industry will tell you that unless the artist’s music is on the radio, they’re nowhere.”
Even if listeners do not like the same six or seven songs that play on Top 40 radio twice every hour or consider them art, they are still popular, which represents strategic marketing on the part of both labels and radio stations. Pandora and other streaming radio stations can try to compete with radio stations by giving them more data to help them locate fans and plan tours. However, these platforms do not have a huge, captive audience or huge amounts of money, both of which radio has.
While radio does not have to pay performers any money under copyright law to play songs, it is still drowning in debt. Even iHeart Radio is struggling. In September of last year, Billboard announced that iHeartMedia is $21.1 billion in debt, in part because it viewed radio as a stable and safe format.
However, the company discovered that being involved in the digital market costs more money that it does not have. Thus, while the radio format is still going strong and still represents an artist’s biggest shot at breaking, a close look at iHeartRadio’s and other companies’ dwindling revenues indicates it may not be a sustainable format for much longer.