Comparison and Contrast of the Advent of Commercial Radio vs. the Advent of Music Streaming Services
Conrad Askland – 27 January 2016
Commercial radio broadcasting in the United States began in 1920 after the end of WWI and grew steadily in popularity through the late 1920’s and early 1930‘s. The dramatic effect of radio in the 1920‘s vs. the newspaper industry was that radio could deliver the news immediately as it was taking place. In addition, radio was free to listen to and easy to understand for those who had difficulty reading.
Newspaper owners in the late 1920’s, and escalating in the early 1930‘s during the depression, were concerned that the popularity of radio would put the newspaper industry out of business.
Radio stations also threatened the music industry in the late 1920’s and early 1930’s when they started programming music on a regular basis. In the short term this cut heavily into the sales of sheet music, recordings and live performance; but in time, all of these markets saw growth.
This is a historical example where a new technology was appearing to destroy the economic growth of the music industry, but actually contributed to growth in the long run. Let’s compare that to the current technology of downloads and streaming.
Worldwide music industry digital revenues grew by 6.9 percent in 2014 to 6.9 billion USD, yet physical sales declined an additional 8.1 percent.
This can be interpreted that although physical sales are declining, there are still other income streams in the music industry that are increasing and can be tapped into. These other income streams include income from performance rights, streaming and licensing.
Streaming sites like Pandora and Spotify have cut deep into download income for recording artists. In 2014 it was estimated that performing artist Pharrell Williams only made $25,000 from Pandora for 43 million plays. In straight publisher and songwriter royalties it’s reported the total from Pandora was only $2,700.
In the short term it would appear that Pandora and similar streaming services have irrevocably destroyed the audio recording and music sales industry. But if we look at past history of the music industry where it appeared that a new technology was destroying the industry, but instead added to growth in the long term, we can apply that historical knowledge to our “crystal ball” and foresee some different outcomes.
Streaming services like Pandora and Spotify have negotiated special lower royalty rates with the intent of growing subscriber bases. It is estimated that by 2020 there will be 250 million streaming music subscribers globally which will generate $16.42 billion in revenue.
For comparison, the entire global recorded music industry (including physical sales and downloads) generated $15 billion in 2014.
In a few years, with a solid subscriber base, streaming services could actually increase the total revenue for recording artists as a very strong additional income stream.
Another upside in the digital age is that there are more efficient ways to track usage of artists work in a wider variety of applications. Take YouTube for example which for years has hosted videos that technically make illegal use of artist soundtracks. YouTube, using audio matching technologies, now can automatically detect use of a master recording and immediately put ads on those videos. That ad revenue is then paid to the owner of the sound recording. In June of 2015, AMRA signed a global deal with YouTube to collect music royalties on behalf of artists in over 100 territories around the world (excluding North America).
It’s my opinion that we are in the mid-phase of the digital revolution. Product sales have been slowly replaced with digital downloads, and digital downloads in return are slowly being replaced with streaming services. Once more subscribers sign up for streaming services we should reach a tipping point where that part of the industry stabilizes. At that point, streaming income may be equal to digital download income in which case the overall monetary intake will have doubled.
If the monetary intake doubles, then this should be a big incentive for new artists and producers to create high quality product. This could possibly be a robust time for the arts financially that could see rapid growth as artists are able to support themselves with their music.
If we look at the historical growth of new technologies that seemingly threaten the music industry, then the question should be where do we want to position ourselves when the new growth hits. What’s most exciting about all this is that we will likely have these answers in just a few short years.
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1 Encyclopedia of American Journalism, edited by Stephen L. Vaughn (p. 433-434) Link: https://goo.gl/CKteSC
2 Radio in the United States: 1920’s – https://en.wikipedia.org/wiki/Radio_in_the_United_States#1920s
3 Take Care of Your Music Business, John P. Kellogg, Esq. – Chapter One: Growth and Development of the Music Industry.
4 IFPI (International Federation of the Phonographic Industry) http://www.ifpi.org/facts-and-stats.php
5 BusinessInsider.com – “Pharrell Made Only $2,700 in Songwriter Royalties from 43 Million Plays of ‘Happy’ on Pandora” by Maya Kosoff- Link: http://goo.gl/tAWFpt
6 TheVerge.com – “Spotify pushing labels to lower costs, open up free service to phones” by Greg Sandoval. Feb 19, 2013. – Link: http://goo.gl/hqI9Sv
7 IFPI.org – Global Statistics – Link: http://www.ifpi.org/global-statistics.php
8 Billboard.com – “Kobalt’s AMRA Signs Global Deal with YouTube for Royalty Collection” – Link: http://goo.gl/g1YFeq