Digital Disruption in The Music Industry - Digital Distribution

The music industry is in the middle of something new and bold, thanks to digital technology. Traditional distribution venues have already been replaced with digital ones and this has surprisingly boosted the popularity of artists. Instead of slowing things down, downloads and media streaming have helped artists mount more successful tours and sold-out concerts than ever before. This is a positive example of what digital innovations and bold ideas can do.

Concerts as Benchmark

Concerts and tours are strategic methods of promoting songs and albums. It is common though for productions to lose money during promotional tours, but in the age of digital interaction and Livestreaming, concert ticket sales and revenue are seen to be increasing. A 2016 survey showed that 51% of Americans attended at least one concert in 2015, a notch up from the 44% in 2014. Concertgoers are actually willing to pay very good money to see their favorite artists perform.

In terms of ticket prices, the average ticket in 2011 was priced at $78, increasing to $85 in 2017. The total revenue for concerts in North America for 2017 was $8 billion. From 2000 to 2017, the most popular concert was U2’s, which topped the concert sales chart for times, in 2001, 2009, 2011 and 2017. Although in terms of gross sales Taylor Swift got the top spot when she earned around $200 million in 2015.

Digital Distribution

After years of steady decline, the global music industry revenue grew from $14.5 billion to $15 billion between 2016 and 2017. The sales of physical media continued to slow down, accounting for only about a third of the 2017 revenues. In the meantime, digital sales continue to grow, with a 17.7% increase from 2016.

Subscription services, which include Spotify, had 68 million users by 2017 and total revenues of $2 billion. The majority of users, however, prefer to listen for free, via ad-supported sites which include YouTube. Total industry earning was only $634 million in 2017. Another trend to note is  the growth of streaming services due to the growing buying power of millennials – an increasingly powerful market – which is currently estimated to be $1 trillion.

Music companies, artists and producers are shifting their gaze towards digital music distribution while maintaining other revenue streams. However, it’s worth mentioning that these traditional channels are also being disrupted by technological innovations. With data becoming easier to acquire and analyze, it has now become possible to crunch large numbers and predict audience preference and buying tendencies.

Here are a few examples:

  1. Royalty Stream

Artists and songwriters are dependent on royalties for their passive income sources. These royalties come in from payments when their song is played on the airwaves, or in concert by another artist. This field is where an Ohio startup came up with an idea on how to track the number of times a song is played. Soundstr relies on the cooperation of the venue, and makes it easy to attribute royalty to the right person.

Soundstr is a device which connects to the sound system in a store. This device listens to the songs being played and traces or records the royalty owner. The establishment’s management can monitor the data being collected by Soundstr. At the end of the day, Soundstr creates an attribution database, and calculates the royalty due and payable to each artist or royalty monitoring body.

For establishments, their royalty payments can go down, as they do not need to pay for royalty on a long list of songs, or a company catalog. They only need to pay for the actual songs played in their store, or during a concert. This effectively decreases their royalty payments. This also benefits artists and creators, because they are properly attributed for their song. In addition, only those songs which are actually played get royalties. Music companies also benefit because their revenue collection improves.

Soundstr was recently acquired by VNUE, a company which specializes in live concert recordings and experiential content for fans. VNUE had earlier bought other music tech companies like Set.fm, a live music distribution platform.

  1. Concert Promotion

Live Nation is one of the biggest online concert ticket sales sites. It earns money through concert promotion and concert setup. In some instances, this also includes concession sales. The company sells tickets through Ticketmaster, where they get 22% of their revenues, but a greater share of the profits. Live Nation also sells advertising and concert sponsorship. This includes ads in arenas, venues and music festivals.

Completing their end-to-end business model, Live Nation also has Artist Nation which represents acts and artists. Although only representing 5% of their gross revenues, it is a foundation of their whole vertical market coverage.

Trends show that there are going to be more concerts, more concert goers, and more expensive tickets in the very near future. Live Nation has a virtual lock on the sales, promotion and fan interaction of concert artists. This is expected to grow bigger in the coming years, and with it there would be a shift in focus from songs and music developed for personal hearing pleasure via physical album or streaming media sales.

  1. Social Media Analytics

One company that provides insights into the music industry, and should be able to predict future hit acts, is nextbigsound.com. The company scours social media engagement for artists and music groups. Across the social media landscape, nextbigsound.com polls for mentions, comments, shares, and other interaction. The website reads conversations and threads and digests this information as actionable analytics. It uses big data methods with more than seven years of data at its fingertips. It also boasts a database of 750,000 artists and acts, as well as 30 million songs and videos.

For those who are searching for the next big act, nextbigsound.com is an exciting app to use. It has global reach and able to pinpoint user and fan engagements through the fluff of everyday social media. The app analyzes raw data and comes up with a potential list of hitmakers.

  1. Content and Media

 The advent of digital distribution mean that there are no more physical tapes, CDs or LPs to count, instead the number of downloads and plays are counted. Content is truly king in today’s music scene. In this model, the rules have changed when it comes to royalties and compensation. The absence of physical media to count has caused the cost per music to go down. The more music sold, the higher the percentage of the gross the artist should have, which unfortunately has not happened. Digital distribution via iTunes and Spotify have changed the way artists are compensated for their work.

Technology has led the way for streaming media to slowly replace the sale of physical media, which could actually be a good thing. Digital technologies are being adapted to improve music industry sales. It is expected that as streaming media matures in the coming years, there will be more such technologies with diverse use and purposes.

These changes are not only for the millennials to enjoy, but for every music lover to experience.

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