Music Business News, January 3, 2017

Vinyl sales hit a 25-year high in 2016. Also, analysts predicted that SoundExchange may lose $200 million in revenue this year. And Facebook said it is working on a way to identify copyrighted music attached to videos on the platform.


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Vinyl Sales at New Peak in 2016


Vinyl sales in 2016 in the UK were at their highest in 25 years, reported The Guardian. According to statistics gathered by BPI, 3.2 million LPs were sold last year, up 53 percent on 2015.


The last time vinyl was at this peak was in 1991, when Simply Red’s Stars was the best seller. Spending on vinyl also surpassed spending on digital downloads.


Deaths of mega stars helped push vinyl sales to new heights. David Bowie’s death led him to be the best-selling vinyl artist of 2016, with five albums in the top 30 posthumously. His album Blackstar was the most popular-selling album of the year. The Rise and Fall of Ziggy Stardust, Hunky Dory, Nothing Has Changed and Changesonbowie were also popular.


This is the ninth year in a row that vinyl as a format has grown, fueled also by Record Store Day and the increased availability of vinyl in brick-and-mortar stores.


Over 30 albums sold more than 10,000 copies in 2016. In 20007, digital downloads decimated the vinyl market, and only 200,000 LPs were sold total.


The CEO of Regent Street and Gold bar Records and indie label member of BPI Council Vanessa Higgins revealed, “It’s twofold in that older people are going back to vinyl but I also think the younger generation are discovering it in a way they weren’t before … People think millennials just stream and are just digital but actually I think we are going to see increasingly over this coming year that young people still want something tangible and real and that’s where vinyl is taking on the role that the CD used to have.”


Higgins said that a move towards streaming, up 500 percent since 2013 has driven people back to vinyl as a way to own music they found through the music discovery aspect of streaming.


She added, “It used to be music discovery was mainly limited to the radio, but now now people are free to look and listen to all sorts of music, so people are hearing so much more new or different music than they were before. They are finding music through streaming and if they love it, they are going out and investing in it in a physical format.”


Higgins also said that discovery is still favoring artists on major labels. For smaller labels like hers “the capital required to invest in vinyl is a lot upfront. And because most vinyl is pressed in Europe, the price to manufacture has gone up this year.”


Still, she said, “I think what we are going to see this year is more smaller artists and independent labels start to benefit from vinyl as well because so many different types of music fans are now willing to go out and buy it.”


Chief executive of the BPI and the Brit Awards Geoff Taylor said, “Growth in UK music consumption in 2016 was fuelled by the explosive rise in audio streaming, which has increased 500% since 2013, and relative resilience from physical formats … We believe this performance is indicative of the promise of a new era for music, where recorded music’s investments in a digital future fuel compelling benefits for fans, artists and the entire music ecosystem.”


SoundExchange Losing Power in the Modern Music Business


Non-profit entity SoundExchange may lose $200 million in revenue in 2017, according to Billboard. Some of the major satellite, digital radio and cable music players are moving away from using compulsory licenses for recorded music, signing direct deals with record labels.


SoundExchange has been growing for the past five years as it collects and distributes digital royalties for labels and artists for non-interactive transmissions (Pandora, SiriusXM and others). Its revenues were up 229 percent from 2010 and 2016.


Under compulsory license, U.S. regulations dictate that digital services have to pay all royalties to SoundExchange, which distributes 50-percent of royalties to record labels, 45-percent of royalties to artists and five percent of royalties to side musicians/singers’ unions.


Since it was developed in 2003, compulsory license use has been huge in the digital landscape for programmed music, but that has changed recently.


A source in digital services explained, “We’ve been warning SoundExchange for years that direct licensing will eventually impact their business model and they need to get ready for it.”


Although SoundExchange did not comment directly to Billboard, sources have said the collections organization has been looking for new income streams.


Labels and services cutting out direct deals has also been happening in music publishing; majors have started cutting deals directly with Pandora, iTunes Radio and Apple Music, which cut out any administrative fees.


Pandora is getting into the on-demand streaming business, which means it is cutting a lot of direct deals with major labels and indie labels. These deals are covered in its on-demand service that is set to launch in 2017 and also cover its custom radio service that started in the last quarter of 2016.


SoundExchange will not be collecting and doling out label royalties from most of Pandora’s direct deals, but it till still process payments to recording artists and unions, which will see income growth slow for 2016 and drop sharply in 2017.


Pandora was working under a compulsory license through Q3 of 2016 and paid approximately $525 million in royalties to SoundExchange; $125 million was directed towards licensing and $400 million was paid out to labels, with $200 million going to the artists and musician unions. Billboard’s estimate is that major labels and major indie labels made up about 90 percent — $180 million – of label payouts from Pandora. In 2017, assuming Pandora does not grow, SoundExchange will only get $200 million for the artists’ and musicians’ share and $20 million for indie labels not associated with majors or the major indie labels run by Merlin. Thus, the company will lost about $180 million in revenue.


The loss of revenue may also affect SoundExchange’s overhead expense structure. Its overhead costs have grown from $18 million in 2010 to $41 million in 2016 – 4.6 percent of its revenue. This is a low figure compared to other music industry companies like PROs BMI and ASCAP, who charge 13 percent of revenue.


However, SoundExchange’s low overhead percentage is not an indication of its efficiency. Factored into it is the rapid growth of Pandora and Sirius, who pay the most in revenue to the company. Some experts have said it did not take into account the growth of these two companies when it bragged about having the industry’s lowest administration fee.


SoundExchange has been investigating other income streams, including Srius’ two pre-1972 settlements, which could add about $235 million or more and offset Pandora’s decline. However, experts are not clear on whether or not these will pay enough in administration fees to maintain the $41 million in overhead beyond 2017, or how SoundExchange can offset the potential departure of Pandora for direct label deals.


Others have said that problems in 2017 may only last for one year if the Copyright Royalty Board favors SoundExchange. It is proposing that Sirius pay SoundExchange 23-percent of income starting in 2018, which would bring $600 million in incremental revenue.


Facebook Developing Method to Remove Videos with Copyrighted Music


Facebook said it is developing a YouTube Content ID-similar system for identifying copyrighted music in videos posted on the platform, according to the Financial Times.


XXL magazine summarized the move, saying it is in part designed to help Facebook better work with the music industry as it attempts to collect royalties for copyrighted songs.


The Financial Times also stated that Facebook has identified 900 viral music videos containing top 33 hits on its sites and that these videos have been viewed 600 million times. These figures show the need for the music industry to either get paid the royalties it is due or have the infringing videos removed.


Facebook has not yet designed an infrastructure that distributes revenue from copyrighted songs in videos on the platform. YouTube, however has claimed amidst speculation that it has paid the music industry its fair share, doling out more than $1 billion through advertising revenue last year.

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