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Why the Music Industry Needs a Revamped Relationship With Artists, Entrepreneurs

Variety logo Variety 12/6/2016 Zach Katz
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As 2016 comes to a close, an air of positivity surrounds the music business that few would have thought possible a decade ago. Thanks to the rise of Spotify, Apple Music, and their peers, revenues are seeing an upward trajectory.

Ensuring that this positive trend will continue into the future, however, requires an understanding of three key points: 1) The traditional music industry can claim little credit for the rebound in its fortunes, 2) many artists and songwriters remain suspicious about what it means for them, and 3) an industry that has traditionally seen success as a zero-sum game needs to focus on creating a win-win for all concerned.

As for credit-grabbing, there’s an old saying in the business that success has many fathers, but failure is an orphan. It’s not uncommon for executives to claim responsibility for another’s success. But in the case of streaming, this would be dangerous self-delusion. The credit for the streaming revolution belongs overwhelmingly to the digital services that have invested hundreds of millions of dollars in creating new ways to listen to music. Despite significant investments over the years, not one established music company has successfully created a digital music service. That implies that the industry, at the very least, should practice a little humility, and that humility, in turn, should inform the way the industry approaches both digital services and, more important, its artist and songwriter clients.

It is no secret that many music-makers don’t believe streaming will work for them. There has been a steady stream of stories in the media of artists and songwriters revealing just how paltry the rewards can be. So far the industry’s response to such legitimate concerns has tended to be dismissive. I think we need to be honest in acknowledging that any change in business model is bound to create winners and losers.

Just one example: In the old days, a songwriter who contributed to an album a track that was never released as a single could still make a tidy sum, since fans paid upfront for all their listening — the ninth track on an LP earned as much as the lead single. This is no longer the case.

It’s time, then, for the music industry to modernize its relationship with the people who make the music. That means giving artists the creative autonomy they need to be the best artists they can be. In business terms, it means a relationship based on a clear split of revenue in which all costs and revenues are laid out transparently. As to what that share should be, given streaming services are licenses of music, and revenues from music licenses are generally split 50/50, that would seem a logical benchmark going forward.

Naturally, those companies used to old-style record deals based on a typical 15% royalty will object to such an increase, but the fact is that cost structures built around the old model are no longer justifiable.

It is not the job of artists and songwriters to pay the overheads of music companies. In the modern world, it’s up to music companies to trim their costs to a level their clients can bear. This is especially important at a time when artists are clearly expected to bring — and actually do bring — more to the table than ever before.

This is ultimately the big-picture point: Music companies need to wean themselves off the old idea that they can be successful only if someone else is unsuccessful: that they can win only if someone else loses. This may have made sense when market share or chart positions were the key metric — after all, there can only ever be one No. 1 each week — but times have changed, and chart hits are a much less important part of the streaming business.

Instead of viewing success as a zero-sum game, music companies need to focus on creating a win-win world which incentivizes digital-music entrepreneurs to invest in the future of music — a future, that is, in which artists and songwriters fully share in the fruits of those new digital platforms.

Zach Katz is president of repertoire and marketing at BMG U.S.

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