While sales of physical media have been declining since 2001, the rising revenue from streaming has almost compensated for the losses and delivered an overall turnaround in 2015, today constituting the largest source of revenue (IFPI 2021). With more than 440 million paid subscription users worldwide (ibid.), streaming is the dominating modality of (traceable) music consumption. Current catalogues of the market-leading streaming platforms such as Spotify, SiriusXM Pandora, Apple Music, Amazon Music, or YouTube Music offer up to 70 million music tracks (Spotify 2021). To sum up, music streaming has managed to scale up the music business both in terms of content accessible and users reached.
But how is this situation still (or even more?) profitable with more players to support? The payments made by streaming companies for individual streams are extremely small—on average about USD 0.004 per stream (see Pastukhov (2019))—and often even negligible in sum per artist. Moreover, this amount is paid to the owners of the master recordings, which are typically the record labels, which then pass on only a small fraction to the artists. A reason for this practice is that revenue from streaming is often not explicitly negotiated in contracts, particularly in those signed before the technology existed. Hence, record companies benefit from licensing their back catalogues as it allows them to keep the largest share of the royalty payments to themselves. Also, recent efforts to present more justified and “fair” money distributions models, e.g., by distributing subscribers’ fees according to their individual listening preferences, as implemented in Deezer’s user-centric payment system (Deezer 2021), are not improving the situation as again the money is not paid directly to the artists, but the producers and publishers. Furthermore, despite the technical possibility to trace all plays of individual tracks, information about play counts across various platforms remains opaque for music creators, especially on platforms driven by user-generated content like YouTube on which content identification focuses again on the needs of big rights owners and neglects independent artists. These shortcomings themselves led again to the establishment of disruptive businesses like Kobalt or UnitedMasters that combine the roles of independent labels, rights management, and publishing companies, providing easier access to platforms and increased transparency of the process in a unified interface.
Record companies can now focus their attention and marketing strategies to a few distribution channels instead of dealing with a variety of different outlets. Artists and repertoire (A&R) is not part of their core business anymore, as new trends and talents are observed on social media platforms and co-opted based on hypes. As streaming is not generating much revenue, alternative sources of income like live performances, merchandise, sponsoring, and licensing of tracks need to provide a stable financial foundation for artists. At the same time, record labels increasingly demand a share of this profit in exchange for managing and promoting artists.
While record labels have once more found their position at the center of the business at the expense of artists and music creators, the question of profitability of the streaming platforms remains. Based on the annual reports of the various platforms, it appears they are not (yet?) operating profitable businesses. Their value seems to lie elsewhere, namely, in the potential for commercially exploiting their user basis, not only by charging for the service, but in fact by providing a data basis for marketing analyses sold to brands and advertising (Zuboff 2018). This might explain why, for instance, Spotify is partly owned by an intricate structure of the biggest record companies and rights holders, consisting of Universal Music Group, Warner Music Group, Sony Music, and, most recent, Tencent (Ingham 2020; see also Eriksson et al. 2019).