Record Labels Attempt To Elbow Their Way Back To Relevance
As music consumption moves rapidly toward streaming platforms, music labels are facing an immediate sense of urgency to keep up. According to Forbes, US album sales were at their highest in 2000, with a total of 785 million being sold. With music sharing services and torrent sites removing the need to actually purchase music, the industry has seen a $7.9 billion loss in annual retail sales since 2000.
In 2008 alone, album sales fell by 45% and have continued to drop another 40% since 2008. The industry went from 6 big labels in 1999 to a mere three in 2015. As the music industry continues to transition away from traditional means of digesting music, labels are worried they'll be left in the dust.
Warner, Universal and Sony, aka The Big Three, are actively striving to assert their power within the digital entertainment space. Having made their claims with stakes in the best digital entertainment startups, the Big Three currently own 10%-20% of services such as Rdio and Spotify.
Warner Music Group recently made the leap and became the first major record label to establish a deal with Souncloud, acquiring 5 percent equity in the online music platform. The agreement instantly led to the massive legalization of music content on SoundCloud. Thanks to new partnerships, Soundcloud has gone from losing $29.2 million in 2013 to a net worth of over 1.2 billion.
Warner is evidently trying to get back what it lost in the decline of album sales. The Soundcloud deal is one way the label is ensuring the music it owns is distributed legally versus having to constantly put out fires, lawsuit by lawsuit. Labels can acquire stakes at a discounted rate, while locking in the option to buy larger stakes. The trade off is that the startup gets instant access to artists and songs, eliminating the risk of legal complications.
This emerging model is not sitting well with artists, and many are fighting back. Jay-Z bought WiMP and Tidal for a cool $56 million and merged them into a single service and direct competitor to Spotify. Where the Big Three have currently taken up stake in the digital music realm at an estimated $3 billion, the 16 artist owners of Tidal have a 3% stake in the service.
Labels are also profiting in the grey area of collecting royalties from abroad, as Forbes estimates that they are collecting around $300 million of “attributable” earnings each year that should be going to artists. Adding to the list of grievances, labels are also figuring out how to profit from live concerts. What used to be a money pit has now become a cash cow in the music industry, and labels are starting to leverage their power to get a larger piece of the concert revenue pie.
Big labels may still carry a negative connotation, but as the threat of their decline forces a new attitude of “if you can’t beat ‘em, join ‘em”... they may have a chance of surviving.
Cover image via teachmedia.org