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How The Music Industry Can Increase Its Overall Revenue

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Amy Sussman/Getty Images

by Dan Runcie

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growing the overall pie

The music industry has too many zero-sum games:

–  Record labels compete for market share

–  Artists compete for chart positions and playlist placement

–  Consumers pay a set price for an all-you-can-eat buffet of music

Despite the industry’s growth in the streaming era, success can feel limited. Musicians are some of our most powerful cultural icons, but only a handful have captured the true value of all their influence.

Superstars like Jay Z, Madonna, and Rihanna are doing it. Nipsey Hussle had the mentality and was on his way. But these are all exceptions to the norm.

The challenge is three-fold. It’s how the current system is designed, which impacts how performance is measured, and which then dictates innovation. And while “web3 fixes this” is a common narrative for the solution, there’s more to it than that.

how the system is designed

Last year, Andreessen Horowitz partner Chris Dixon posted a thread about why recorded music revenue (when adjusted for inflation) hasn’t grown alongside new technologies. He compared it to gaming, where revenues have skyrocketed due to in-game purchases made in free-to-play games like Fortnite and Roblox. His point is that the music industry focused too much on how to monetize and protect its content, and hasn’t focused enough on how to monetize things the content enables.

The comparison is thought-provoking and has some truth to it, but there are a few points to mention. First, it was much harder to share a bootleg copy of a video game than a song. If gamers could have shared peer-to-peer files to play Nintendo 64’s Goldeneye 007 via Napster as easily as they could with an mp3, there would have been more lawsuits than James Bond movies.

Second, video game revenue includes more of its broader ecosystem. Gaming’s top line revenue number includes someone who bought NBA 2K23 on PS5, a new Fortnite skin, or an in-app feature in Candy Crush. Meanwhile, recorded music revenue doesn’t include revenue from live performances, product sales, or other areas that are directly related to an album’s release. These areas often fall under other industries, which limits the perception of how much money is really made.

Live Nation is breaking revenue records, largely due to musicians performing on stage. This needs to be brought into the overall narrative.

how performance should be measured

Profitability would be the best measure of success for the music industry. If all the business lines are included—music, live, merch, product sales, NFTs, multimedia, etc—then what’s the overall revenue minus costs?

But companies don’t share that data unless they have to. No record label wants to admit that a highly-regarded album was actually a setback. No events promoter or artist wants to admit that they are not selling enough tickets. This isn’t the film industry, where movies are required to disclose budgets for filming permits or tax benefits. Instead, the music industry often relies on album sales, which is limiting.

A few years ago, former Forbes editor Zack O’Malley Greenburg shared how Michael Jackson made $134 million in revenue in the two years after *Thriller.* It added more context to the highest-selling album of all time! It would be great to know the cost of Thriller as well, but it’s still a step in the right direction.

This line of thinking can also help artists, especially hip-hop artists, think bigger than first-week album sales. Sure, Chance The Rapper was mocked after the sub-par commercial and critical performance of 2019’s The Big Day. But he owns his masters and publishing, so he took home more money than a lot of other artists who brag about going #1.

how this shapes innovation

Once the perceived benchmarks of success are linked to outcomes that matter, it’s easier to position products that solve the right problems.

For instance, several NFT platforms and marketplaces are designed to help artists better monetize their music. I’m glad these platforms exist. If artists want to release on their terms and bypass digital streaming services, then they should have the option to do that. If their fans want their music badly enough, they will pay for it.

But if music tech founders want to help artists to capture more of their influence, they should help artists find ways to monetize how talent in other industries does. That can include product sales in real life (or in a video game or the metaverse). That could also be artists creating their own digital environments and inviting fans to them.

We’re not that far off. Innovation is happening in all these areas. The major record labels and many artists are bought in. Despite the cooling of the market, it’s still a great time for real products and services to emerge. It’s an exciting time for all the builders and creatives out there.

 

Dan Runcie

Dan Runcie

Founder of Trapital

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