The good news: the transition to online sales of music is going faster than I and many others anticipated. The bad news: musicians are making less money.
CD sales continure to decline year over year: in 2005 retail sales were down another 8 percent, according to the Recording Industry Association of America (RIAA), following an anomalous uptick in ‘04. And the global music market saw an overall decline of 3 percent, according to a report by the International Federation of the Phonographic Industry (IFPI). But legal online sales are rising fast. The IFPI report says record company online revenues tripled last year, and now account for 6 percent of the global take. The IFPI believes legal downloads are now holding their own against free file-sharing. Half of the money comes from the mobile market for ringtones, full track downloads and the like.
So although I thought Clay Shirky might have been under-estimating when he predicted 10 years of chaos for the music industry, maybe things will sort themselves out sooner rather than later.
But musicians still aren’t winning. The people making real money are the aggregators. Content creators continue to see the value of their work fall as it becomes commoditized, and as their negotiating position gets weaker and weaker. I wrote recently about how iTunes can make things worse for indie labels, and about how digital distribution drives down musicians’ pricing power. Now comes an article in Nashville’s excellent Music Row magazine (subscription only), showing how labels are adapting to the digital economy by taking even more from artists than they used to.
Writing in the February/March issue, music lawyer Michael Milom lists the new ways record companies skim (skim? more like scoop) from artists, including:
- Classifying mobile downloads as “promotional”, i.e. the artist gets nothing.
- Control of the artist’s “official” web site.
- Taking a cut of live revenues. This had previously been one of the few relatively safe sources of money for artists, since they often net nothing or close to it from sales of recordings.
- Increasing the expenses considered recoupable from the artist.
- Reducing royalties paid on product licensing revenue. Previously the standard split was 50-50; now, says Milom, artists get as little as 12 percent.