Streaming: The Economy of Listening

December 2, 2018

Ray Hair  -  AFM International President

Guest Column by Mike Huppe, President and CEO, SoundExchange

Below are excerpts from a keynote speech given by SoundExchange President and CEO Mike Huppe at the AFM-FIM International Streaming Conference held in Burbank, California, October 2-3. SoundExhange (www.soundexchange.com) is the world’s premier digital rights organization, and has distributed more than $5 billion to recording artists and rights owners.

Thank you, AFM, and especially Ray Hair, for the invitation to spend time with you here today. I’ve been with SoundExchange for 12 years, and I’ve seen firsthand what the streaming revolution has done to our industry and how technology has changed our world.

Indeed, technology has wreaked havoc on our industry and on musicians. Many of you are earning less from your art. Companies have shrunk, consolidated, or disappeared altogether. And entire formats are withering. Over the last two decades, it’s felt like a full-on battle for survival.

What caused the slide? New technology changed the way we consume music. Music sales went from albums to a la carte. Sales of vinyl, cassettes, and CDs declined. But the industry is rebounding.

What’s spurred that growth? In many cases, it’s the same thing that led to the initial decline: technology. At times it seems to be our nemesis, but now may be our ally. And nowhere is that more true than with streaming. Because with streaming—the thing you used to give away is now a key source of your income.

Streaming has changed what we call the economics of listening. Listening to music on the radio used to be promotional. You heard it for free, then bought it at a record store. Listening was a tool to drive sales. Now, listening is the ultimate commercial goal. The thing that used to be just promotion is now a critical revenue event. It’s no longer about a credit card hitting the cash register. The critical activity is the music hitting a listener’s eardrum. You have to capitalize on that act of listening and make sure you are properly compensated.

The record sales model has morphed into a streaming economy that revolves around how—or even whether—you get paid. It is now based on where a listener heard your music. How you, as an artist, participate in revenue is radically different depending on from what source the dollar enters the music ecosystem, whether through Spotify, Pandora, SiriusXM, YouTube, etc.

We at SoundExchange have had success getting artists a bigger share of the streaming economy. We’ve fought hard to get royalty rates up. SiriusXM satellite radio is a huge participant in the streaming economy—one of our biggest licensees. Last year, we successfully won an “overnight” increase of 41% in the rates they pay for the recordings. And this follows a historic jump of nearly 500% over the past 15 years. Similarly, on the webcasting side, we’ve fought hard to get you paid more fairly for your work, with rate increases of up to 175% for the use of music over the past decade. That means more royalties in your pocket.

Equally interesting is what the streaming revolution has done to the way we interact with music. That interaction has dramatically changed over the past 10 years. From Alexa to SiriusXM in the car to turning on Spotify on a smartphone, music is a constant presence in our lives.

The streaming revolution has also changed the type of music we listen to. Under the old sales model, revenues were primarily driven by new releases. A decade ago, we were constantly fed new albums that dropped in any given week, and what their sales numbers were. The fuel for the industry was heavily dependent on releases less than 18 months old. Now it’s no longer focused just on new releases. It’s more about good and timely music, whether old or new. Catalog music has more impact in the streaming world.

Now that listening is the consuming event, that heavy dose of catalog listening means older music and more established musicians have the potential to participate even more in the streaming revolution. In the prior sales model, older releases and back catalog would often get stale in the record stores. If these catalog records even managed to stay in the shop, they were relegated to the back or special bins. Not so in the streaming revolution. Today, catalog music can be reborn on these new services. What’s old can become new again.

The streaming revolution has also changed the music discovery process. In the old sales model, with limited sources for music and distribution, breaking new product was often top down. Radio was the primary way that most people heard new music, and our social response followed. It totally made sense. Today, music discovery and promotion is a bottom-up process based on social activity and mass behavior, not just on what the radio stations decide to play.

Technology—our old enemy—is helping the industry on its recovery. And the streaming revolution has altered all of our relationships with music. At first glance, this level of change seems unprecedented, but perhaps it is not so unprecedented after all.

From the dawn of technology, the way we interact with music has continually changed. And, at each step of these transitions, we’ve had a battle over the economics of listening—perhaps no different from the battle we have today. It followed a pattern that I call our trend of engagement.

Think about it. A hundred years ago, the only way people heard music was live. You were forced to move your body (or at least your ears) to the venue where music was performed. From the beginning of time, that was the only way music was consumed. That was the center of the economics of listening.

If streaming changes are mind-blowing, imagine what our great-grandparents thought about the radio, which suddenly brought sound into their homes. They no longer had to walk to a venue; the music came to them. Radio started as a platform to broadcast live performances—an orchestra or a band playing in the radio station around a hanging microphone. But that only lasted so long.

Then in the ’30s and ’40s, records became mainstream, and the radio station owner realized that, instead of paying a band, you could drop a few quarters on this little black, vinyl disc and then play music all the time.

That changed the economics of listening. There were court cases to prevent records from being played on the radio, and some records were printed with the words “for home use only, not authorized for radio play.” Swapping records for artists standing around a studio mic was a huge disruption—and arguably had as big an impact as streaming does today.

Of course, records became 8-track tapes, then cassettes, then CDs. And each step of the way, it changed how we listened to music, how we engaged with it, what we paid for it, and how that money got spread among the players. Then, we got to the Internet and suddenly we could listen to all types of music, whenever we wanted, on demand, from all over the world. That changed the economics of listening again. But it was still tethered to the home.

Seventeen years ago, Apple changed that with the iPod and then again with the iPhone. Then we had thousands of songs at our fingertips no matter where we were, untethered from the home.

Now, an iPod seems old-fashioned, because we are streaming music in real time on our phones. This is live, real-time access to the proverbial celestial jukebox. Adding to that, we have Alexa and other services that allow us to talk to our music! What used to be a one-way experience is now two-way.

Were these changes revolutionary, or simply evolutionary at each step? The streaming story is not a story of decline or failure. It is a story of something different. It’s a story of evolution. Streaming seems like a huge, earth-shattering change to our profession. But there’s another way to look at it. Perhaps we should think of it as part of the evolution of the industry and of you as creators. All of these changes that I just described seemed monumental in their day—as momentous as streaming seems today. But we managed to get through them.

And who here isn’t a fan of evolution? After all, without evolution we wouldn’t have opposable thumbs. And without opposable thumbs we wouldn’t have Hendrix or Clapton or Yo-Yo Ma or Alicia Keys. So let’s agree that evolution can be a good thing. If we are smart and adaptable in this time of drastic evolution, we’ll figure it all out.

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