Streaming Services Showing Profits for Record Labels

After years of clear decline in music sales, there seems to be new hope for record companies in the form of streaming services such as Pandora, Spotify and iTunes Radio. Preferred formats for recorded music have changed throughout the years from records, to CDs, and then digital downloads. However, in recent history many people, including most Americans, have ceased paying for music altogether, causing an unprecedented decline in revenue for the music industry.

Now, for the first time since the decline began in the early 2000s, there seems to be a glimmer of hope in the form of subscription streaming services. Both online radio versions, such as Pandora and iTunes Radio and services such as Spotify and Deezer pay record labels a fraction of a penny each time a song is chosen.

A close look at music labels’ worldwide revenues show that streaming services are beginning to show profits for labels in regions that had been showing steady declines. Perhaps more exciting, these streaming services are beginning to show profits in sectors that had rarely seen any before. The Economist sites a Swedish record label that has begun showing profits from its music streamed in Brazil and many indie labels that are having far more sales than would have been possible with physical media.

And record execs are not the only ones to take notice. As upgrades in cell phone service, cloud storage and other technological advancements have begun to popularize paid streaming, investments in these services of more than $1 billion have begun to pour in. Currently 4-5% of US music consumers are using paid streaming services. If this grows to only 10%, we can expect game changing profits for record companies once again.

Sirius XM Loses Lawsuit on Pre-1972 Royalties

A federal judge in California ruled yesterday that Sirius XM satellite radio is liable for copyright infringement because, up until this point, it has not paid royalties on recordings made prior to 1972. This particular case was filed by members of the band The Turtles. Sirius and other such companies have argued that they are not responsible for these royalties because, according to federal law, copyright applies only to recordings made on or after Feb. 15, 1972. However, it was argued by The Turtles that their copyrights are still protected under state law.

The New York Times reports that besides California, the group filed suits in Florida and New York, for over $100 million dollars. And the implications of this verdict may be even wider. Several major record companies have now filed suits of their own against Sirius XM and Pandora Media. In addition, music industry groups are lobbying Congress to change the laws governing pre-1972 recordings such as Sound Exchange’s promotion of the Respect Act.

It’s too soon to know the precedent that this particular case will set for US and state law. However, as Sound Exchange estimates that $60 million in royalties from pre-1972 recordings are left uncollected every year, there is potential for large ramifications.

Japanese Music Market Slow to Adopt Digital

As reported by the New York Times, although much of the world has adopted digital files as a preferred way to listen to music, in Japan, it is likely you’ll encounter fans leaving CD stores with physical albums and accompanying merchandise in their bags.

According to Lucian Grainge, the chairman of Universal Music Group, “Japan is utterly, totally unique.” The country remains staunchly invested in the physical market, evidenced by the drop of digital sales from almost $1 billion in 2009 to a mere $400 million last year. And to compound the issue of the sinking market , physical sales have been on a downward slope for a decade. The loss of around half of Japan’s overall music market’s value since 2000 has resulted in major concerns.

Some music business executives feel change is difficult for two reasons. First, the Japanese consumers’ love for collectible goods and artist merchandise that accompany CD sales will prove to be a hard obstacle to overcome. Second, the rights holders to the majority of popular music in Japan seem to be resistant to change and have been slow to license new services.
However, Spotify’s chief content officer, Ken Parks, is hopeful about the adoption of streaming services in Japan, which are commonly perceived as the music industry’s best hope for new revenue. “When the decision makers finally feel that the heat is intense enough that they have to do something different, they will,” Mr. Parks said. “I think we are approaching that moment in Japan.”

Despite the variety of opinions, it is the collective hope of the global music business that Japan manages to sustain its physical market, while expanding its digital market to increase revenue.

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