A look at the factors driving a resurgence within the UK music industry.
By Oliver Ayre – May, 2013
According to PRS, in 2011 the UK music industry generated revenues totalling approximately £3.8 billion (PRS, 2012), almost ten percent of the UK’s current £36 billion creative sector (GOV.UK, 2013). In the first quarter of 2013 the industry recorded 1.4% growth in combined physical and digital album sales over the previous quarter, the first growth seen in this area since late 2009 (BPI, 2013). These figures alone suggest that the UK music industry is by no means struggling, however, for growth to continue the industry must continue to develop in accordance with the countries social, political and technological climates reflected in the UK’s media outlets and habits.
This text will examine three key areas important to the survival of music as an industry in the UK. The three areas are: digital sales, radio and legislation. The digital sales section looks at the various distribution models available as well as the impact of streaming services and piracy on sales and the various other factors that contribute both positively and negatively to the amount of digital sales in this country.
The radio section will examine the ways in which it has contributed to the current state of the UK music industry. The section will look at how digital radio and certain radio stations, BBC 6 Music in particular, have helped the UK music industry promote its cultural identity and the benefits of this.
The concluding section will focus on some of the particular pieces of governmental legislation that are aiding the music industry in its growth and expansion namely the Digital Economy Act 2010 and the Live Music Act 2012.
On 8th April 2013 the Official Charts Company announced the billionth digital single sale in the UK since counts began in 2004 (CMU Daily, 2013). The announcement also concluded that there are approximately three million downloads each week making the UK singles market roughly 99.6% digital (BPI, 2013). With these kinds of figures it is not hard to see that digital music has definitely found its foothold in the market and there are a number of reasons why this change has occurred, namely: the proliferation of legal avenues to acquire digital music, the rise of portable music storage devices and government clamp-downs on piracy. However, there are a number of issues that still need to be tackled for this development to continue.
In the early days of digital music formats the music industry seemingly deemed them inconsequential due to their negligible quality when compared with a CD. However, as technology advanced, quality rose and consumers became aware of the ways digital content could be spread across the Internet for free. This caused an exodus away from physical music, slowly at first, quickly gaining momentum as more music became available online. The industry began to fight against the tide in a bid to preserve the old systems but as we now know this was a losing battle from the beginning and caused a large number of labels to go bust. In recent years however labels have finally turned the tables and begun to support the flow of digital music through a select number of digital retailers and streaming services, which in Q1 2012 allowed labels to reach the tipping point whereby download and streaming income now accounts for more than 50% of label income (BPI, 2013). For growth like this to continue and possibly even overtake the rate of decline in physical sales record labels need to continue their support of services such as iTunes, Spotify and YouTube instead of using music to hold them to ransom as was the case in the early days of Spotify.
In the UK streaming has quickly become an integral revenue stream for both artists and labels. Although there are still those that bring up the fact that artists are not necessarily being paid well enough, for the industry, the streaming distribution model could insure some financial stability for many years to come due to its ‘long tail’ economics.
The Long Tail, a term coined by Chris Anderson in his 2007 Wired article, explains why streaming and other digital retailing methods are the most appropriate to attain success in this digital age. The article, later extended into a book, looks at the way hit songs have been created in the past purely by the lack of choice available in high street music retailers; the lack of choice occurring due to the overhead costs of physical media sales. Anderson goes on to explain that now we have relatively fast internet speeds and services such as Spotify, who currently offer over 20 million tracks (Spotify, 2013), we have the freedom to explore and buy more music than was ever available to us before. Due to the change over to these digital stores, with little to no overhead costs, retailers, labels and artists are, for the first time in years receiving a constant stream of income from legacy material that physical retailers could not afford to stock because of low sales. So although sales for hits will continue to be high through demand created in other areas eg. Viral advertising, radio etc. sales are also increasing across all material, old and new, because however niche, it is now easily possible to find an audience, even an audience of one, somewhere in the world (Anderson, 2007).
The service currently leading the charge in the streaming market is YouTube who have an audience of around 22 million a month in the UK (BPI, 2013). Although YouTube’s audience figures dwarf those of Sweden’s Spotify it is Spotify that is often championed as the front-runner due to its extensive catalogue of over 20 million songs all organised by artist and album making Spotify, in most cases, more simple to use and access than pirating the songs. Since its launch in 2008 Spotify has amassed a total of over 24 million users, 6 million of which currently pay for the service (Sloan, 2013). Paying users of the service pay between £5 and £10 a month which when applied to its 6 millions paid users totals in the hundreds of millions region, which is a substantial sum of money that will be injected back into the industry through artist and label revenues. Since 2008 Spotify has reportedly paid out approximately £350 million to artists alone and expects to match that amount again for this year.
With approximately 28% of British music fans already purchasing and streaming legally (BPI, 2013) this figure is only set to increase as Spotify have recently agreed a deal with car manufacturer Seat to begin shipping their cars with integrated Spotify streaming capabilities. Deals like these are currently being struck between digital content providers and car manufacturers all over the world, which lead ABI Research to forecast that by 2017 50.9 million ‘connected cars’ will be being sold worldwide, every year (ABI Research, 2011).
The first of the two primary aspects that require some attention in the digital music market can be summed up by the hunter farmer analogy. The hunter farmer analogy takes a simplistic view of the main methods by which the music industry conducts its business.
The farmer is slow but methodical and plans ahead for the future by rotating his crops. The hunter lives in the moment, they are fast, precise and have a very high level of concentration, if only for a short period of time.
The music industry used to be run in the style of the farmer; careers were cultivated slowly and methodically with longevity in mind. The industry, working in this manner, produced artists such as: The Rolling Stones and The Beatles who sold large quantities in their prime and still continue to command great sums of money when performing and in record sales to this day.
According to Dallas McLaughlin of Digital Avenue Recording this all changed in approximately the late 90’s/early 00’s when the industry’s ‘farmers’ were replaced by ‘hunters’ (McLaughlin, 2010). The hunters sought to produce music and develop artists who could spring up over night, record extraordinary sales in a short period and receive lucrative endorsement opportunities therefore maximizing profit in an industry, which at first glance appeared to be dieing at the hands of digital piracy. The approach worked well in the beginning as labels were able maintain high sales figures and ignore the issue of piracy for a little longer as long as new artists were turned around quickly. The negative effects of this approach however are now starting to set in, some years later, as labels are realising that their artists are being forgotten as quickly as they appeared which in turn hurts their long term capacity for continued sales. Another negative side effect of this is that due to the high turnaround rate for new artists audiences are starting complain about the lack of originality in new material that is produced, which alienates fans and damages sales.
Although a small number of artists have risen to prominence that are generally expected to have some career longevity, Adele being an example, this is currently seen as a surprising anomaly rather than the way in which the industry should work. To stem this practice labels need to take the plunge and slow down release schedules so as to allow artists more time to develop their product instead of rushing this aspect of the process and causing the negative effects outlined above.
The second great issue limiting profitability in the music industry is music piracy. Since the invention of digitally encoded music, piracy has been a problem primarily because making a copy of a digital file was often easier and cheaper than buying it from a reputable vendor. Early Internet piracy hotspots were very difficult to suppress as such operations often resided in countries where prosecution was avoidable and laws more lax. It quickly became apparent that as use of the Internet and digital music increased more education was required on the laws and ethics surrounding these relatively new technologies.
With the closure of sites such as Napster and Megaupload, the rapid growth of streaming, its ease of use and better education on the negative effects, piracy does seem to be subsiding however there is still another barrier that needs to be negotiated i.e. the constant battle between labels, artists, consumers and Internet service providers.
Labels and artists currently want to earn more money and for ISPs to stem piracy on their networks. Consumers do not want to pay for music but continually demand more of it and ISPs want access to music catalogues to be able to launch various streaming services of their own. As it stands this dispute resembles the ‘prisoner’s dilemma’ found in Game Theory, a branch of mathematics that examines strategic decision-making.
The prisoner’s dilemma is a classic game scenario in which two inmates are interrogated separately and offered different prison sentences dependant on decisions they make. In basic terms the game states that if they remain silent they both receive long sentences, if one betrays the other he is set free whilst the other serves a lengthier sentence or if both betray each other they receive slightly shorter sentences than if neither spoke. This applies to the music industry as each party is fighting to achieve their ideal outcome (make the most money / least time in prison) however, the inevitable compromises required for this to happen would make betrayal everyone’s most attractive option. Game theory, however, tells us that if each party were to agree to a coalition and the required compromises they would be more successful in the long run as aspects of their individual businesses will be become easier due to their more genial relationships and any income decreases would be made up by their combined increase in productivity (Page, 2006). By taking these teachings into account the industry could potentially regain much of what has been lost due to piracy however collaboration does appear to be the only option to make progress in this matter.
DRM, which stands for Digital Rights Management was one of the primary methods used to fight piracy in recent years. DRM schemes generally stopped individuals from being able to copy digital audio files, rip them onto CD’s and computers or sometimes degraded the quality of a file if it was copied (Smartt, 2011). DRM systems have largely been retired around the world now as they often stopped people who legitimately bought music from exploiting it in ways they were legally allowed to and the technologically literate often very quickly found ways to circumvent the protection. DRM also proved to be difficult to implement for many rights holders as although it protected their work, if it stopped consumers from exploiting the content legitimately they were legally required to provide a work around which was often costly and time consuming (IPO, 2013).
A number of lobby groups however still argue that DRM systems are necessary as they are the only way to properly protect the rights holders of content which is partly why, as is explained in a later section, the Digital Economy Act 2012 was created.
Moving onto radio, Rajar recently announced that in the first quarter of 2013 47.3 million adults (over 15’s), approximately 90% of the adult population in the UK, tuned in to listen to the radio for at least five minutes a week (Rajar, 2013). In the same period we, as a country, clocked just over 1 billion listening hours across approximately 548 national and local radio stations (Ofcom, 2012). Radio is obviously an important part of our entertainment media in the UK and as most stations play music in some form or another it is also an important part of the music industry, which relies on radio for promotion as much as radio relies on the industry for content.
Although it has long been believed that radio airplay for an artist will positively correlate with an increase in sales, evidence to support this notion is in fact very minimal and vague. After the mainstream introduction of the consumer radio player in the early 1900’s there was a noticeable drop in music industry revenues, which only recovered by the late 30’s when radio and record companies joined forces and began to release combined radio/gramophone players (Liebowitz, 2004). Since then there have been a number of ‘payola’ scandals whereby record companies would pay stations to over-play their record/s which in turn did cause a false pattern to emerge of: more airplay equals more sales (Regal. 2005).
In 2011 artists could earn £14.78 from PRS (PRS, 2011) and £4.02 from MCPS (MCPS, 2011) per minute of radio play on Radio 1 alone. When the hundreds of other stations that could potentially play a track are accounted for the amount of earnings for an artist could be quite substantial. These earnings can become even greater due to the UK’s Official Chart. The chart, compiled weekly by the Official Chart Company, accounts for all physical and digital sales of a track or album in one week. The chart is often then the first place radio controllers look when compiling their playlists. A song in the BBC Radio 1 A-List can receive anywhere from three to five plays a day on the station. These royalties accumulated from radio are therefore important to the industry as they keeps money moving directly into the hands of the creators, without whom there would be no music industry to speak of.
Sales and earnings aside there is great support and evidence that radio is still an integral part of artist promotion. A prime example of this is the BBC’s 6Music station that over the years has been credited with launching the careers of a number of artists including Laura Marling and Lianne La Havas. Until 2010, when the BBC recommended closing the station as part of financial cutbacks, 6Music received only a modest listenership however when the closure was proposed there was a particularly strong backlash from the music industry. Supporters within the industry such as: David Bowie, Elbow, The Kaiser Chiefs and Radiohead were particularly vocal in defending the station and the importance of the alternative music it championed. Since then listener figures have increased massively to 1.8 million listeners a week in the first quarter of 2013 (Rajar, 2013).
The BBC 6Music remit also gives some insight into the way that the station positively effects the industry by stating that it must provide a showcase of both the best new and old material as well as live concerts and sessions (BBC, 2012). So, although the station is not necessarily financially essential to the music industry its cultural impact is equally important in promoting the best elements in the industry.
As the UK’s largest all-digital station BBC 6Music is also important in promoting digital radio uptake. In the first quarter of 2013 digital radio listening finally reached the half way point, with over 26 million people in the UK listening to radio programming via digital means ie. DAB, DTV and Online (Rajar, 2013). As explained earlier, although the notion that radio airplay equals sales is often disputed digital radio offers similar benefits as streaming for the music industry.
Due to digital radio signals being compressed using various audio codecs more stations are able to broadcast in the finite amount of frequency transmission bandwidth in the UK. By allowing more stations to broadcast digital radio is able to replicate the long tail effect of streaming by providing listeners with a wealth of extra choice in the music they consume. Again in the same vain as streaming the long tail of digital radio also allows artists and record labels to earn performance royalties for older tracks that mainstream stations do not play because they are no longer as popular to the majority of the listening population.
This next section focuses on some of the important government legislation in place in the UK that helps to protect and benefit the music industry. The main acts examined will be the: the UK transposition of EU Directive 2001/29/EC regarding copyright overhauls and the Digital Economy Act 2010 (DEA) both of which primary serve to place certain responsibilities in the hands of Ofcom and Internet Service Providers to stem music piracy on the internet. This section will also examine the Live Music Act 2012 (LMA), which made changes to licensing laws for live music allowing a large number of small venues to host unlicensed music concerts to help stimulate the live music scene in the UK. Although piracy was touched on previously this section will also specifically focus on how legislation is being used to fight it and benefit the music industry in other ways.
In 2001 the European Union passed directive 2001/29/EC to overhaul copyright law across Europe and make allowances for new digital technologies and E-commerce. In UK law the directive was integrated with the Copyright Act of 1988, which the government felt already met most of the requirements of the original EU directive. The amendments to UK law now made it a criminal offence to, in any way, circumvent DRM systems and also tried to make ISPs share more data on pirated material in circulation on their networks with rights holders (Harrison, 2010). The ISPs however failed to meet deadlines in amending their operations policies, which prompted the Digital Economy Act.
The Digital Economy Act of 2010 was a bill, often criticized for being somewhat ill conceived, that amended and introduced laws and policies that could primarily help fight digital piracy whilst also helping to ease the nationwide switchover to digital radio in the UK. With regards to piracy the act proposed that ISPs and media content owners would work together to deliver a ‘three strikes’ system to persistent copyright infringers. The warnings would be followed by a graduated reduction of the offenders Internet connection quality and possibly eventual barring from the Internet entirely by a particular service provider (Harrison, 2011).
The Digital Economy Act has however been a bone of contention for ISPs and content owners alike. ISPs such as BT and Talk Talk have both made court appeals for re-examination of the bill as they argue that it is effectively holding them responsible for the content on their networks and therefore piracy, something they strongly deny (Harrison, 2011). Content owners have also raised concerns over the bill, as it would require them (i.e. Record labels) to foot the cost for issuing the notices to offenders.
Although the DEA, passed in 2010 and yet still not fully enacted, is unpopular In certain sectors the steps it proposes are necessary to the music industry if it wishes to tackle piracy head-on. The conflict over the bill also relates back to the prisoners dilemma discussed earlier in the essay as no one industry body wants to be responsible for fixing the issue of piracy and will therefore opt to take their second best option (betrayal and shorter jail term) which allows them to remain independent of other bodies and immune to betrayal by other bodies, but in the same financial decline they are currently in. Although both of the pieces of legislation mentioned above have been unpopular with at least one party it is promising to see that as the EU Directive was not properly met another bill was created to make sure progress was made rather than ignoring the matter.
The Live Music Act of 2012 was created to make amendments to the Licensing Act of 2003, which required venues to start acquiring licenses to host musical concerts. The LMA has since relaxed these regulations in an attempt to stimulate live music in the UK, something the 2003 bill was supposed to do. The new regulations primarily focus on allowing venues with under a 200-person capacity to host musical performances between 8am and 11pm without first acquiring any licenses other than those pertaining to the sale of refreshments (Spice, 2012).
The reason for the LMA was to remove some of the negative effects that were found to have occurred as a result of the 2003 Licensing Act. Although the Live Music Forum, a government supported body for monitoring the effects of the Licensing Act, found the implementation of the act to have a neutral effect on the live music industry as a whole, it did have a pronounced negative effect on grassroots level performances by making the organization of events difficult and expensive (Harrison, 2011).
There is no denying that the LMA is in the best interest of the music industry as it enables money and talent to easily flow into the industry at the grassroots level and with the UK’s live music industry being valued at £1.6 billion, over half the value of the entire UK music industry in 2011 (PRS, 2012), it is a good place to stimulate further growth as the funds to do so are already in place.
The benefits of the LMA are best summed up by Jo Dipple, the head of UK Music: “The global success of our industry is dependent on a flourishing network of small venues, where tomorrow’s headliners can learn their craft and develop their career. Allowing these venues the freedom to host live music is a huge boost for British artists and means more opportunities for developing talent, as well as enriching our local communities and the economy overall.” (Dipple, 2012 cited in Spice, 2012).
From the research presented in this essay it is clear to see that the music industry is far from dieing but is instead metamorphosing into its next form that will fully embrace the accelerated speed at which technology, culture and fashion now move.
“Music retail is volatile only so much as it’s in a perpetual state of flux, an eco-system so fragmented and complex, it defies generalisation. We now live in a post-digital era, where multi-format consumption morphs to reflect whichever offer is most relevant to each individual at any given time.” (Godfroy, 2013)
Although piracy will always be an issue to some extent, with the proliferation of services such as Spotify and YouTube, there seems to be little point in pirating music as they have made access to vast amounts of music cheap and easy. If an equally simple DRM system can developed this will also aid in the war on piracy, however such a system would need to strike a balance between allowing digital music fans the freedom to legitimately duplicate files on their media players and hinder illegal copies being made and distributed on the internet.
As far as re-invigorating industry revenue streams, currently considered relatively weak in some areas due to dwindling physical sales, streaming does seem to be the answer due largely to its long tail economics. Given time for the different types of deals and offers to emerge and settle in, the unlimited shelf space, zero distribution and packaging costs mean that streaming will be able to continue making money all the time the UK and the world demand music. With the advent of in car streaming systems, which are now being fitted by the millions, streaming income will only continue to grow and benefit the industry.
Radio will likely remain one of the primary means of promotion for music, regardless of its financial impact on record sales. However, as the borders blur with the likes of Spotify and other streaming services careful steps will need to be taken by station controllers to make sure that radio maintains its cultural impact on the industry, inspiring audiences and providing a platform to promote artists brands as well as their music.
New legislation such as the Digital Economy Act and the EU’s hard line stance on the matter will greatly help in the fight against piracy. However, agreements between the record labels, publishers and ISPs need to be made to allow them to operate as a unified and effective force. The Live Music Act has and will continue to help new talent to enter the industry from a grassroots level and help make the hosting of small, local music events to be less financially and bureaucratically burdensome.
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