Austin Staubus from ItsNoRequests shares some insight into the changing paradigm of the major labels. As Spotify and Apple Music continue to grow in size and scope within the music industry, they may soon add signed artists to their resume.
It’s going to happen whether labels like it or not. In the future, artists will sign directly to streaming platforms like Spotify and Apple Music. They won’t sign to the Universal, Warner, or Atlantic’s of the world. They won’t need to. They won’t want to. In fact, it makes sense for platforms like Spotify and Apple music to sign their own acts. I’ll explain why in my brand new “Industry Insider” column this month for the good folks at EDM.com.
Currently, it’s estimated that Spotify pays out approximately 70% of its revenue to major recording labels. Apple Music even more. According to a report by the Trichordist in 2016, Apple pays out $0.00735 per song stream compared to Spotify’s $0.00437 per stream. That’s a big chunk of change for both platforms. What if the house that Daniel Ek built no longer had to pay out labels those exorbitant royalties? Spotify would become immensely profitable. Every business seeks to maximize profits. Spotify is no different. Eventually, Spotify will aggressively (it’s rumored they already are) pursue talent and sign artists, putting them in direct competition with major labels. The economics make sense for Spotify and Apple Music.
Does it make sense for the artist to sign to Spotify or Apple Music?
Absolutely. Platforms like Spotify and Apple Music hold all the playlist power. They have all the leverage. Major labels like Universal, Sony, and Atlantic are all subject to Spotify and Apple Music’s personal taste. Despite their cozy relationship with major labels, Spotify and Apple Music have the final word on what gets playlisted and what doesn’t. If you’re an artist, who would you rather sign to? The answer is obvious. We’re fast approaching a music climate where playlisting is all that matters. Playlists like “New Music Friday”, “Rap Caviar”, and “electroNOW” are how records are broken now. Traditional blogs are dead, Soundcloud is bleeding out, and Apple Music is trying to play catch up ball with Spotify, who’s ahead by 30 million paying subscribers according to Business Insider. Artists and managers who are forward thinking will sign to platforms like Spotify and Apple Music, because they possess the power to playlist their records.
Of course, the argument against these two points is that Spotify and Apple Music depend on labels to maintain their global licensing agreements. Competing directly with labels for sought after talent could disrupt those delicate partnerships. It’s in Spotify and Apple’s interest to keep people on their platforms listening and searching for new music. If they can’t reach licensing agreements with labels, there will be no music to stream. Large catalogues of music will be taken down and the incentive for users to stay on the platform will diminish. This is an especially scary scenario for Spotify, who plans to go public this year or next.
Despite the points against, it’s likely that Spotify and Apple Music will quietly begin signing and developing their own acts in the near future. It’s easy for Spotify and Apple to test drive records. Insights like skip rates, save rates, and play counts help Spotify accurately predict whether a song will be a hit within a finite amount of streams. This gives them incredible leverage over labels who have traditionally put up big marketing dollars on projects that amount to their best guess. Labels that adopt a data driven strategy will last. Those that continue to be resistant to technology will eventually lose out to Spotify and Apple Music.
Perhaps in a big way.
I’ll be back next month with a brand new “Industry Insider” column.