Innovation

How indie labels innovate in the new music streaming economy

Vinyl and streaming services are on the rise. Learn how the music business has evolved, how DIY labels pioneered the startup model, and how much artists make from record sales and streaming.

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Image: iStock / Wachiwit

There's no business like show business. Unless you're broke.

And if you're a professional musician, says music professional and Castle Face Records founder Matt Jones, you're likely pretty broke.

After nearly a decade on tour, in 2005 Jones settled into a gig co-running Pirates Press, a San Francisco-based vinyl press that created high-quality records for bands like the White Stripes and Rancid. Pirates Press was also one of the first labels in the world to bundle a digital download with vinyl records. "People want the convenience of a digital file," Jones explained in a 2006 email, "but records are artifacts, and people want the artifact too."

SEE: Intellectual property: A new challenge in the cloud (Tech Pro Research)

Vinyl record sales spiked in the past decade, as have streaming services. In the new music economy, Jones said, there is cause for both optimism and concern. "Touring bands and indie labels never made much money, so they had to be entrepreneurial," he said, referring to the do-it-yourself scene of the 1980s and 1990s. "Bands formed labels, figured out distribution mechanics, booked tours, and cultivated media relationships all on a lean budget. Punk bands perfected startup business values long before startups were cool."

For consumers, at no previous point in history have there been so many low-cost consumption options. Major record labels continue to pump out hits, Vinyl sales are on the rise, and Google, Apple, Amazon, Pandora, and Spotify all offer free and premium streaming services.

LISTEN: CBS This Morning on Spotify (CBS News)

Though few artists make much from streaming services, Jones said, they do make money from touring, merchandise sales, and from publishing. Music publishing, the process of licensing the intellectual property of a song to a brand or film, he said, can be incredibly lucrative.

"Today there are more opportunities for more people to make less money [in music]," Jones joked. "If you're talented and hustle you can find a niche. But it might only be a niche."

In addition to the tech challenges that face all ecommerce SMBs, at Castle Face Records Jones now manages album release schedules, finagles deals, and works to expose his artists without devaluing the product. He spoke with TechRepublic about the business of music from an indie label's perspective.

Technology changed the business of music dramatically in the past decade. From the perspective of a small business owner how has the industry evolved?

There have been a ton of innovations just in terms of what people use to book shows. In the misty memories of when I was a teenager people still called [venues] and asked for shows. Then there was the MySpace era, which while convenient, ended up being kind of an [organizational] mess. I will say I'm really a big fan of Bandcamp and what they've achieved in terms of proper compensation to artists, a sense of community.

I think the whole industry has a lot [of moving pieces] to support. It's top heavy. My speculation is that technology ultimately has driven down the [value of music]. I have a mantra that I am worth a penny. A penny a play seems crazy to ask for in comparison to what [streaming services] are offering, which is 4/10ths of a cent per play, at best.

More people are making money on vinyl. That's cool. I'm happy that people are buying records. I am a serious fan of ... industrial technology. Manufacture what you see a need for in the market.

SEE: Research: Digital Transformation 2017: Strategy, Returns on Investment, and Challenges (Tech Pro Research)

Vinyl and digital seem to be particularly complementary mediums. How do the two technologies work in concert?

I'm a fan of the digital download as an insert in the vinyl. Listen to it first on the vinyl when you're in that mode, and you've got it for the gym too. Offering two things for one is like a club-builder move I think.

Can you explain the mechanics of streaming?

The mechanics of our digital sales and streaming is one of the more depressing Excel sheets I encounter. We do digital sales accounting usually a year after the record's made money. We get paid a little bit from the distributor for the catalog's digital sales and streaming together, but they're on three month terms. It's kinda way spaced out and really a pittance. [Streaming] makes a very small difference in the general scheme of things.

Are particular streaming services—Google Music, Apple Music, Amazon Music, Spotify, and Pandora—better than others, from a creator's perspective?

No because I [would] opt out of all of the above if given a chance. Jackals. How hard is it to sell an mp3? Hard ... apparently, given the horrifying s*** show that iTunes has become. In abstract terms, that Spotify pays ever so slightly more [than the competition] does not subtract from the fact that they set the artist recompense so laughably low.

SEE: Five ways small companies can get ahead through technology sharing (Tech Pro Research)

Can you explain who gets paid and how?

It's always been our label position to give those [publishing] rights to the artists. Mechanical sales we do a 50/50 split after breaking even. Digital is 30/70, label/artist. 10% of the stuff made the band gets for free; they can buy the rest for cheap. Digital sales ... is just depressing to look at.

What does the future of the business look like?

Pulling the camera out a bit I think that like many growth industries, the vinyl boom market will have some contractions in the coming years. The fixed costs of production has marched up pretty steadily over the years, but there's a bit of inflation too.

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About Dan Patterson

Dan is a Senior Writer for TechRepublic. He covers cybersecurity and the intersection of technology, politics and government.

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