Call for major record labels to change for digital age

Billy Bragg performing at Glastonbury Billy Bragg thinks streaming services are the future of the music industry

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."

Find out more

Peter Day reports on the music industry for In Business on BBC Radio 4 at 20:30 GMT on Thursday 2 January

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."

'Soul searching'

There are three major labels now - Sony Music, Universal and Warner.

A Spotify employee walks out of a news conference in New York The money musicians get from Spotify depends on their contracts with labels

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.

Start Quote

Big record companies… are trying to milk every last dollar or pound from the musicians on their label”

End Quote Moby Musician

"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."

Peter Day reports on the music industry for In Business on BBC Radio 4 at 20:30 GMT on Thursday, 2 January.

More on This Story

Related Stories

More Business stories

RSS

Business Live

  1.  
    08:04: IAG - Willie Walsh BBC News Channel
    Willie Walsh

    IAG chief executive Willie Walsh points out the turnaround in Spanish airline Iberia, which was a drag on IAG from 2011 until the summer. "These are fantastic results, particularly the performance in Iberia, which I think has been a concern for a lot of people over the past few years", he tells BBC News. Iberia made an operating profit of €50m in 2014 compared to an operating loss of €166m the year before.

     
  2.  
    07:48: Lloyds Banking Group

    The bank has now written to owners of 2.7 million past PPI policies inviting them to lodge a claim. That is one reason why it is expecting a further 600,000 fresh claims this coming year.

     
  3.  
    07:42: Lloyds Banking Group
    Lloyds logo

    How much in total has the PPI scandal cost the bank in the past few years? An truly extraordinary £12bn. Not all of that is compensation. The administrative costs of sorting out the payments have been expensive too.

     
  4.  
    07:30: IAG results
    British Airways planes

    IAG raised its 2015 profit forecast by over 20% to 2.2bn euros for 2015, compared to the 1.8 billion euros it had said it was targeting. It says it has been helped by lower fuel costs. It expects to increase its capacity as well.

     
  5.  
    07:27: Lloyds Banking Group

    The bank has had to set aside another £2.2bn to cover the continued cost of repaying customers who were mis-sold payment protection insurance (PPI). That was on top of the £3.1bn the year before.

     
  6.  
    07:21: Lloyds Banking Group
    Antonio Horta-Osorio

    The massive payment to chief executive Antonio Horta-Osorio includes £1m in basic pay and an £800,000 bonus. The rest of the £11m comes from the payout of a "long term incentive plan" which gives him shares in the bank as a reward for steering it out of near insolvency.

     
  7.  
    07:19: IAG results

    Meanwhile, IAG's operating profit for the year to 31 December 2014 is £1.03bn, a 95.3% jump on the previous year.

     
  8.  
    07:15: Via Twitter Kamal Ahmed BBC business editor

    tweets: Breaking: Lloyds CEO Antonio Horta-Osorio total remuneration package will total £11m after shares rise by 193% since 2012.

     
  9.  
    07:10: IAG results

    British Airways owner IAG made a profit before tax from continuing operations of £828m, it says.

     
  10.  
    07:06: Lloyds Banking Group

    The dividend will be 0.75p per share, totalling £535m, which will go to three million shareholders. And that means £130m goes to the government.

     
  11.  
    07:02: Lloyds Banking Group

    The annual results are out. It has announced pre-tax profits of £1.8bn - up from £415m a year ago - and will indeed resume paying a dividend to shareholders.

     
  12.  
    06:50: Lloyds Banking Group BBC Radio 4

    William Wright of capital markets think-tank New Financial tells the Today programme that it was turning out to be a turbulent week for banks: "We've seen continued tax scandals at HSBC, continued restructuring at RBS, all change at the top of Standard Chartered - next week no doubt with Barclays we are going to see more restructuring."

     
  13.  
    06:41: Rising rents
    Houses

    Demand for rental properties is still driving up rents in the private sector. So says Sequence, a network of 300 letting agencies. It reckons that the average monthly rent outside London rose by 5% in the past year - and in London by 7%. "Large cities in particular are seeing a lot of activity as employment increases," it says.

     
  14.  
    06:28: Lloyds Banking Group Radio 5 live
    Lloyds Bank bank branch

    Lloyds is expected to announce profits of around £2bn, but banking analyst Alex Potter tells Wake Up to Money that the dividend resuming is the real indicator for a return to health. "Actually, an awful lot of [investment] funds haven't been able to buy Lloyds shares at all while they haven't been paying a dividend, so, actually just the allowance of those potential shareholders onto the [share] register again is going to be a pretty good thing."

     
  15.  
    06:19: Pension tax relief

    Will Labour suggest cutting pension tax relief for high earners? It seems this may be proposed by Ed Miliband when he speaks later today on how Labour might cut university tuition fees.

     
  16.  
    06:09: IAG results Radio 5 live
    British Airways plane

    We should look forward to hearing strong results for British Airways owner IAG, according to aviation consultant John Strickland. "We should expect to hear a big jump in profitability", he says on Wake up to Money, because the firm is "in a very solid state".

     
  17.  
    06:00: Ian Pollock Business reporter, BBC News

    Good morning. It's Friday. Always a good day as far as I'm concerned. Oh, and the Land Registry's house price figures for England and Wales will be out later this morning.

     
  18.  
    06:00: Good morning Tom Espiner Business reporter

    Some interesting stories coming up today. Expect full year results from Lloyds Banking Group, which is expected to resume paying a dividend to shareholders for the first time since the financial crisis in 2008. British Airways owner IAG is to post its full year results too.

     

Features

Try our new site and tell us what you think. Learn more
Take me there

Copyright © 2015 BBC. The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.