From Records to Playlists
A closer look at the music industry
In the not-so-distant past, the music industry revolved around buying albums in physical formats like vinyl records, cassettes, and CDs. However, as the world transitioned from physical to digital, piracy took over.
Websites like Napster made it really easy for people to illegally download and share music. This ofcourse left the music labels in a rather perilous position.
In the midst of this chaos, iTunes emerged as a beacon of hope. It provided a legal platform where music enthusiasts could purchase and download individual songs, offering an expensive alternative to piracy.
However, as time went on, the music industry witnessed a seismic shift in consumer behavior. Downloading music gradually took a backseat as the concept of streaming emerged as the new frontier. Music streaming platforms like Spotify and Apple took center stage, offering an extensive library of songs that could be accessed on-demand, anytime and anywhere.
All this has brought us to a time when close to 67% of all global recording music revenues come from streaming sources. (IFPI)
So how does the music industry work?
When it comes to the global music industry, we usually talk about three key players: the artist, the music label, and the streaming platform. However, in India, we have an additional key party to consider.
Music Streaming Platform
So, here's the deal: the film producer buys a song from the artist to use in a film. Once they've got the rights to the music, the producer sells it to a music label. Most of the deals with the music label involve a royalty element, distributed to the artist.
Once the music label has the rights to the song they have to figure out ways to monetize it. This could be through social media platforms like Youtube, live performance rights, and ofcourse music streaming platforms like Spotify.
Spotify pays the music label based on a few things: streams, adverts, and paid subscriptions. Spotify ofcourse earns primarily from its paid customers.
So who has bargaining power in the industry?
Well, obviously, if you're Taylor Swift, you've got that power! Established artists tend to have more control over their music and the terms they negotiate with labels. Take Taylor, for instance. She recently took matters into her own hands and re-recorded parts of her older albums, which she didn't own. She did this to gain control over her music. Since she couldn't buy back her old songs, she's simply re-recording and releasing them as the "Taylor version."
However, it is worth remembering that globally close to 70% of all music is owned by three labels (Sony, Universal Music, and Warner Music). So, it’s only natural that these large labels hold significant bargaining power, especially when negotiating with music streaming platforms.
A music streaming platform would struggle if it lost one of these labels as that would mean losing more than a million songs. The same holds true in markets like India. More music definitely helps negotiate better deals with platforms. Labels like T-series and Saregama seem to benefit from their larger catalogs.
The Promise of the Indian Music Industry?
The music industry in India has got some serious potential thanks to digitization. Reliance Jio started this by providing affordable internet back in 2016.
Smartphone penetration has also been increasing over time. More than a billion people in India are expected to own one by 2026. (Deloitte estimates)
This means more phones, more internet, more streams, and more money for labels!
One fascinating aspect to consider is the diverse range of musical content required in India. As smartphones become more accessible to people in the rural parts of the country, the demand for music in regional languages is only expected to increase.
Life of a song?
Songs, much like any artistic creation, can vary in their longevity. Some songs withstand the test of time, resonating with audiences even after a century, while others fade into obscurity within a matter of weeks. The question about the “life of a song” is especially interesting from an accounting perspective.
Indian music label Saregama recently revised its policy, extending the accounting life of a song from 6 years to 10 years. This may indicate their belief in the continued revenue-generating potential of songs over an extended period.
Notice the change in Profit that this accounting policy creates. The book value is also ofcourse impacted. On the other hand, its competitor Tips has chosen to charge the entire content cost of a song in the quarter of its acquisition, acknowledging its immediate financial impact without attributing prolonged accounting value.
Got to love how they are proud to highlight that they are the only listed player to write it off immediately.
I honestly am not sure, what the “right” treatment is. Sure expensing it immediately is easy to understand and track, but it would be hard to argue against someone who claims that a song is an asset that has a life greater than a year.
What’s next in the music industry?
Just a year ago, the buzz was all about NFTs. Artists were exploring ways to monetize music by cutting out the middle man, offering unique digital ownership and collectibles to fans. This innovation has the potential to reshape how music is monetized, and even music labels saw opportunities to tap into this emerging trend. Saregama for instance, mentioned that they are exploring NFTs in multiple concalls in 2022.
While NFTs continue to make waves, there's another development that some find both fascinating and, well, a little scary— AI-generated music.
Music labels may view AI-generated music as a double-edged sword, as it offers the potential for expanding their catalog and generating revenue, but it also raises concerns about artistic authenticity, creativity, and the potential impact on the livelihoods of artists. It raises ethical and legal concerns, such as copyright management and the potential impact on employment for musicians and producers.
I guess that’s all for now. I leave you with a song I’m currently obsessed with!
Disclaimer: The information provided in this article is based on the best of my knowledge and research, and I have made every effort to ensure its accuracy. However, I cannot guarantee that all the information presented here is entirely error-free or up-to-date. Therefore, I cannot be held accountable for any consequences that may arise from the use of this information. Furthermore, it is important to note that any references to specific companies, such as Saregama, Sony India, Zee Music, Tips, or others, should not be construed as investment advice or recommendations. It is always advisable to conduct your own research and consult with a qualified professional before making any investment decisions.