Streaming-music services have benefited independent labels hugely, but rapid changes in digital technology have made it difficult to determine how best to monetise the format, admitted Charlie Lexton, of independent-labels global rights licensing agency Merlin.
As the London-based agency’s head of business affairs/general counsel, Lexton was speaking yesterday at Beyond Playlists & Promoting the Future, the latest edition of the Music 4.5 Smart Radio events for Europe’s music-tech sector, investors and media.
The labels’ dilemma is to figure out when a streaming platform is functioning as a traditional radio service, which promotes artists as brands that drive potential recording and ticket sales, and when it is a commercial operation designed to generate income directly.
“Some (digital) services understand the power of independents as a block of repertoire, but at one point, we were shut out (during the rights negotiations),” Lexton said. “They didn’t want to talk to us because they didn’t see the value. But that is generally changing and we’ve done exceptionally well with Spotify. Streaming is democratising the sector for independents.”
However, the Smart Radio debate raised questions about the difference between a subscription/advertising-funded service like Spotify and the US-focused Pandora Radio, which is also subscription/advertising-funded.
Lexton pointed out that Pandora has positioned itself as a radio service competing against the traditional music stations in the US. “Pandora sees itself as a radio service and has ambitions to be there. So its competitors are other radio services (not Spotify.)”
Spotify’s pay-per-play format has made it easier for an organisation like Merlin to calculate the royalties owed its independent-label members.
Working with both services, however, means “if there’s no knock-on effect of the radio play (on Pandora), then you need to make sure you can monetise the usage (as in Spotify)”, he added. “For us, we try to put our labels in a position where they are agnostic about the service they are played on.”
As many artists in the digital age still consider radio a powerful promotion tool, labels cannot afford to ignore its role despite the drawbacks, he continued.
“Promotion in the recording industry is a cause-and-effect system. You promote to generate sales. But promotion was always thought of as giving music away for free, which made sense in the pre-digital age. It was also justification for rights users to use music for free.”
This led to conflicts between labels and music-TV channels like MTV when they started in the 1980s by using music videos for free to build their own businesses. “That is changing,” Lexton stated to explain why Pandora still needs to address labels’ wariness of its business model.
The accelerating change in digital media has seen Spotify, which launched in 2006, zoom up to be the toughest competitor for the publicly quoted Pandora, which started in 2000.
With more than 76 million monthly active listeners in mostly the US, Pandora reported revenues of $413 million in the first half of this year, a 54% jump compared to the same period in 2013, and 77% of its income is from advertising.
Spotify, which is still rumoured to be seeking a stock-exchange listing, boasts 10 million paying subscribers and 40 million monthly active users. It claims to have paid out $1 billion to rights owners since 2009 and an estimated $500 million was paid out in 2013 alone.
For more details on the Smart Radio speakers, including 7digital CEO Simon Cole, Shazam’s Cait O’Riordan, the BBC’s head of interactive Andy Puleston, and Mixcloud CEO Nikhil Shah, click here.
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