Call for major record labels to change for digital age
- 2 January 2014
- From the section Business
Over the past 20 years the music industry has had to deal with plummeting CD sales, online piracy and new ways of listening to music via the internet.
Now the industry is being polarised by music streaming services.
Companies such as Spotify and Deezer provide vast catalogues of tunes which users can stream for free, interspersed with advertising.
To get rid of the adverts you can pay a subscription of around £10 ($16) a month.
But a number of musicians have criticised the size of the payments that artists receive for their songs being streamed on these services.
Radiohead singer Thom Yorke withdrew his solo music from Spotify in October, calling the service "the last fart of a dying corpse".
But others, such as English singer songwriter Billy Bragg, see Spotify as the future of the music industry.
"I think railing against Spotify would be like railing against cassettes. Saying I don't want my music on cassette [because] it's not 12 inches by 12 inches.
"It's another method by which people get access to music. It's the beginning of a new music industry."
Spotify says it has 24 million active users, 6 million of whom are paying subscribers.
Mark Williamson, director of artist services at Spotify, said that the company has paid $1bn (£611m) to the rights holders of songs in the past five years.
"What is even more incredible is between 2009 and 2012 we paid out $500m to the industry and in 2013 alone we paid out another $500m.
"The amount of money we're paying out to the industry is by no means small," he says.
But Billy Bragg points out that services like Spotify are not the reason musicians are receiving small cheques in exchange for streams of their songs.
"If there is a problem in the whole Spotify situation it's the analogue royalty rate that the majors insist on retaining for digital plays and digital streaming."
There are three major labels now - Sony Music, Universal and Warner.
Billy Bragg thinks that the reason musicians are not seeing good returns from Spotify and other streaming services is because these labels are signing deals with musicians that are stuck in the past.
"The recording industry is still fixed on what we call an analogue model - that's a reference to the way we used to record."
He agrees that to physically produce a record the labels did a lot of work and in exchange took between 85-92% of the royalties.
The artists would get 8-15% of the wholesale price.
"Digital sales aren't based on physical production, but unfortunately the analogue royalties that the record labels offer bands still reflect the old physical production model rather than the digital model," he says.
Fred Bolza, Sony's director of innovation and strategy, told the BBC that the image of a record company is outdated.
"There is a disconnect between an external perception which is still [us as] a cartoonish baddy, versus what we have done over the last 10 years.
"We have really matured, grown as a business, we have added skill sets from outside. All this soul searching, all this disruption has had a positive upside."
He admits that the royalty rates in the digital age are "difficult".
"It's something we're working on and that we're conscious of. It takes some time for these things to flow through.
"Of course, things are never a problem until they reach a certain scale.
"Now they're reaching a certain scale - we are hitting a point where we have to address and look at how all that works."
When asked whether Sony was signing deals with new artists that gave them more money for different things like streaming, Mr Bolza says: "the nature of certain deals is that they are starting to change."
"While I accept that there is still road to be travelled down that route, I think things are changing," he adds.
'Do it yourself'
The American musician Moby agrees that record labels will have to change.
"If we go back 50 years the recording contracts that musicians were signing were horrifying. A lot of musicians were getting 2% royalty rates.
"In the 1980s and 1990s royalty rates became pretty fantastic, moving up to 15-20%.
"Now big record companies… are trying to justify their survival and keep their lights on.
"They're trying to milk every last dollar or pound from the musicians on their label."
But he adds that ultimately musicians do have a choice.
"If [you] don't like the big record companies, go and do it yourself. There is a lot of precedent of musicians having success with that now."