We all love music. This story can only be understood by first understanding two things – How has music been commercialised historically, and what is the business model of streaming services.
The Business of Music
Music and musicians have typically earned their bread through public performances. Rich benefactors paid them for concerts, and sometimes, professional organisations paid for public concerts to which the general public was invited.
In the video below, you will notice the absence of something important – there are no mics. Everyone does their thing and we listen to the sound as it is. This is how mehfils were conducted.
When recording technology became available, it was a watershed moment for the music industry. Suddenly, ordinary people could listen to famous musicians, and musicians/singers could reach an exponentially (much higher) larger fan base.
Vinyl records were played on gramophones.
These led to cassette tapes, which could be played in tiny walkmans for personal listening, or on large stereo sets for parties.
For the first time, it was also possible to record and mix songs from one tape to another.
But how were music creators making money?
There were two revenue models – fixed pay and royalty, much like today. Some studious used to have music directors and singers on monthly payroll. Some used to have album based contracts with them.
OK, what happened next?
Cassette tapes gave way to compact discs (CDs) which held more music with better sound quality. Like tapes, they could be played on personal devices or large stereo systems.
Enter: The Streaming Service
All this time, however, people had to pay to buy CDs before listening to the music, or they could wait for the song to play on radio.
In 1999, Napster changed that. It allowed users to do Peer to Peer (P2P) sharing of mp3 music files. This meant that one person could buy a CD, rip the mp3 file from it, and share that file with thousands of online users. They would all get to own the song for free.
Obviously, the recording industry did not like this website at all. Within two years, in 2001, Napster closed operations after being sued relentlessly by the music industry. But the idea of online streaming of music had sown.
But the future was set
Apple introduced iTunes in 2003. This service allowed the user to pay for and add a song to their iPod for good.
Until this time, users owned their mp3 files. The files were on their local devices and could be heard without the internet. They could be transferred on hard drives or other storage devices.
In 2006, Soundcloud allowed musicians to upload their music directly. In this format, the music could only be heard on the cloud. It could never be transferred to the device of the listener. This was the end of that at-will-no-internet-required listening.
Today, it is very hard to download an mp3 song and keep it on a hard drive.
Spotify, Apple Music, and Google Music are the major players in the streaming industry, but Spotify has been, and continues to be, the market leader by a very large margin.
78% of music listeners now use live streamed music. This is more than two generations of listeners who have never downloaded music on their personal devices. Online streaming is the only way they know to listen to music.
How do the creators make money?
In this model, the creators are unfortunately, on a royalty-only model. Earlier, the recording studios would do the production, distribution, and marketing. The artists would be paid a fixed fee and a royalty.
Now, most artists have to produce their own music, renting their studios, then doing the distribution through streaming platforms, and also the promotion.
They then get paid for each time that their song is played/streamed by someone.
While music companies still exist, their revenues and profits are dipping and since they don’t own distribution, which is key to margins, their business model is under pressure.
