The music industry has been bleeding from a financial perspective for more than a decade due to a cliff dive in record sales. However, things have turned for the positive over the last several years. Digital music (i.e. the illegal pirating of MP3s) was once considered the knife to the heart, but it actually turned out to be the music business’ lifesaver. Streaming revenue jumped 53% last year, with ad-supported and subscription music services plugging the hole in the sinking ship that is record sales. Last week, Citigroup published an informative 88-page report breaking down the industry’s finances, citing $43 billion in revenue was generated in 2017, the most in over a decade.

How ironic, the internet ultimately came to save music labels’ arrogant and archaic asses. They were late to acknowledge the shift in innovation and late to adopt to a shift in people’s consumption preferences. Labels should be greatly thankful people are willing to pay for great music, be it through a Spotify account or a concert ticket. In Citigroup’s report, revenue during “Post-Smartphone” era started to rise in 2010, which correlate in greater consumer spending.

So everything should be a-ok now, right? People are making money in music again, right? Well, in the same report, Citigroup claims that artists, the ones who create and perform,  get a measly 12% of the $43 billion in revenue, which includes CD sales revenue, streaming music, YouTube ads, radio royalties, and concert tickets. This translates to 12 cents for every dollar generated. Most of the revenue is kept by the music platforms and record labels. 

That’s a seriously crappy deal. Imagine creating a hit song that gets people dancing and singing all across the world, yet seeing most of the money you generated from said song being collected by those who didn’t even have a hand in making it.  With this said, its no surprise that artists are constantly disgruntled with their labels. Playing devil’s advocate, would the artists be really better off not being signed to the label? For every Chance the Rapper (who chose the indie route and succeeded) there are probably hundreds who still struggling to get noticed in an increasingly extremely saturated music space. Labels can provide a needed boost, but to what cost?

Citigroup’s idea to fix this vast earning shortfall is the vertical integration of labels and music platforms i.e. Spotify launching its own imprint where it signs and markets talent while collecting streaming revenue. Though it could remove unnecessary middle men and cooks in the kitchen, vertical integration could take away more bargaining power from artists, which is why they’re getting hoodwinked right now.

So what’s the ideal solution? Mega stars like Beyonce,  Drake, and Taylor Swift have the chips to negotiate better deals because they possess the vast fan base that can hurt an intermediary’s business. But for small artists, they’re almost stuck between a rock and a hard place. Would the big artist start helping out the smaller ones i.e. Jay Z and Tidal, or are they too busy with their own businesses to care?

A true and fair resolution is ways away. You can see Citigroup’s full report here.

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Rex Pham

Originally from the Bay Area, who then moved to Los Angeles, then out to New York City. NYU Stern MBA c/o 2014. Inspired by the grind of NYC to create something that has value. Lover of all things digital, culture, and brand strategy.

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