[UMG, WMG] record labels and the music industry: opportunities and challenges

I.

Every few years, this graphic from the Recording Industry Association of America (RIAA), reproduced by Matthew Ball, makes the rounds:

It shows how a 15-year decline in recorded music revenue, precipitated by the cannibalistic effect of free downloads, is being reversed by the rise of subscription fees from digital streaming providers (DSPs). As I detailed in my Spotify/Sirius post from 3 years ago:

See that peak in the chart of recorded music sales below? That’s what it looks like when an oligopoly controls the point of scarcity and bundles tracks together in an album, forcing consumers to pay for the songs they don’t want in order to get the songs that they do. This gave way to a period where tracks were disaggregated from CDs, encoded into mp3’s, and distributed for free on file sharing services like Napster. Given how profitable CD albums were, you will not be surprised to learn that the labels summarily rejected the opportunity to license copy-resistant mp3 technology years before Napster was launched (and then they later refused to partner with Napster). And you’ll notice in the above exhibit that during the 2-to-3 year period after Napster launched but before the ubiquity of portable players allowed consumers to carry mp3s with them, Napster may have actually facilitated discovery and boosted CD sales. But the portable players caught up and the labels, whose production and distribution efficiencies were constrained by the limits of the physical world, proved no match for the network effects and the zero marginal distribution costs of Napster’s P2P model.

Harrowing declines in album sales finally forced the record labels to unbundle CDs. Through iTunes, they offered individual tracks, which hewed more closely to consumer needs than albums but still did not capture variations in a song’s long-term appeal since every track was priced at 99c regardless of how many times it was subsequently played. Per-stream pricing, where the artist/label is paid every time her song is played, is now supplanting owned tracks. Each transition, from album to owned track to streaming, more closely aligns payment with song popularity.

By consolidating and curating the world’s music, Spotify did what record label lawyers and the US court system never could: they made music worth paying for again. For a growing number of consumers, subscribing to Spotify for ~$10/month provided more value than pirating tracks for free. A minor contribution 10 years ago, digital – which includes payments from DSPs like Spotify as well as emerging platforms like TikTok and Roblox – now accounts for between ~60% and 70% of Universal, Sony, and Warner’s recorded music revenue.