‘We’ve got more money swirling around’ / how streaming saved the music industry

Thanks to the success of Spotify, big stars from Ed Sheeran to Fleetwood Mac are cashing in, while even artists in niche genres such as Danish cloud rap are flourishing, sometimes without record labels. Is this unexpected revival here to stay?

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Clockwise from top left, streaming winners Jones, Ed Sheeran, Stormzy, Little Boots and Skepta. Composite: Getty Images, PA & WireImage

Sam Wolfson

Tue 24 Apr 2018 13.13 BST Last modified on Tue 24 Apr 2018 17.03 BST

‘It was a disaster,” said an executive called Per Sundin when asked to reflect on his career during the 00s. “A truly terrible time. I fired more than 250 people. They were dark days: we’d be invited to dinner somewhere and my wife would say to me: ‘Don’t tell anyone what you do for a living.’”

What ignoble occupation had Sundin chosen? Arms dealer? Cigarette manufacturer? CEO of Enron? Not quite: he was the head of Universal Music’s Nordic operation. The “disaster” he was talking about was working for a record label when CD sales were in decline.

Sundin’s fatalistic outlook was reflected across the music industry. Despite the fact that artists such as Adele and Rihanna were selling millions of records, music companies seemed perennially glum. As revenues declined, they lashed out, fighting legal battles with teenagers who illegally downloaded music and investing in propaganda campaigns to try to teach pesky young people the value of intellectual property. At one point, they worked with the animator Aardman to create a free iPhone game called Music Inc, where you attempt to manage a band, but always fail because of online piracy.

For decades, a job in music had been some of the most fun you could have as an adult. Labels were charging up to £20 for a CD, raking in hundreds of millions of pounds. And they typically received the lion’s share. When Guy Hands, a private equity manager, arrived at EMI in 2007, he wondered why hundreds of thousands of pounds were being spent on floral arrangements until he realised that “fruit and flowers” was accounting slang for drugs, sex workers and other items otherwise difficult to put on an expenses claim. Parties, hedonism and drug use were part of the job.

Then, in the space of a decade, the music industry essentially collapsed – in the US, music’s biggest market, annual revenues fell from $14.6bn in 1999 to $6.3bn in 2009. Some artists still did OK, particularly those who focused on live shows, merchandise and brand endorsements, but labels had to dramatically cut costs. At EMI, Hands did away with the slush fund as well as almost half the workforce. At the label Per Sundin ran, the majority of the team was laid off. The expense accounts, the marketing budgets, the joy of taking a punt on a weird band of misfits in the hope something magical might happen – it was all over. Chart music became safer; the bestselling records of the 2010s have all been by middle-of-the-road acts with lots of “nan appeal”: Adele, Ed Sheeran, Michael Bublé and Take That.

It’s a world where Nordic cloud-rappers and South American reggaeton artists are watching their bank balances grow

Jones performing in Leeds. A steady income, thanks to streaming. Photograph: Andrew Benge/Redferns

People were talking about the decline, maybe even the end, of the music business. But recently things have started to change. In 2015, Universal Music Group, the biggest player in the music industry, posted revenues of more than $5bn, about $1bn of which came from streaming. Today, it was announced that streaming music revenues had surpassed income from the sale of traditional formats for the first time last year. And earlier this month, we learned that British music company revenues grew faster in 2017 than in any year since 1995, with labels experiencing a 10.6% rise in earnings year-on-year. British companies enjoyed a 45% increase in subscription streaming revenue in just one year – from £239m in 2016 to £347m in 2017. Spotify went public this month, with the company now valued at $25bn. And Apple Music says it is catching up in terms of paying users, especially in the US.

So does that mean we’re back to the glory days of Britpop, private jets and swimming pools full of cocaine? It doesn’t seem that way. There is money sloshing around, but it is not ending up in the places you might expect. Certain genres of music and types of artist are experiencing a boom, while others remain destitute. It’s a world where Nordic cloud-rappers and South American reggaeton artists are watching their bank balances grow, whereas young, hyped guitar bands are struggling.

The balance of power has shifted in all kinds of unexpected ways. What has happened, in the space of a couple of years, is the biggest change to the industry since the launch of Napster. Where is all the money ending up? “Five years ago, the kinds of artists we work with wouldn’t see a penny until their album came out – and even then the album would have to do really well to make any money back,” says Sahil Varma, who works in A&R for a mid-sized London based independent label, 37 Adventures. “Now, you’re making money from day one.”

He gives the example of Jones, a soulful singer-songwriter signed to the label. She is not a big artist; she plays mid-sized venues in London and her debut album failed to make the Top 200. But on Spotify she has been streamed more than 70m times. “That equates to revenue of hundreds of thousands of pounds. Five years ago, with such low sales, she would have been dropped the week after her album came out. Brands have started looking at Spotify plays, too, so she is doing some stuff with Barbour. Now she has a steady income.” Varma says there are thousands of artist like Jones, who just a few years ago would have had to get other jobs.

This was always the promise of the streaming revolution. When Spotify launched in 2008, it pledged to defeat music piracy and ensure that artists got paid for their music – but it quickly emerged that what they were willing to pay artists was a couple of thousandths of a penny for each stream. There is a big debate over exactly how many thousandths – the latest survey by Digital Music News suggests that Apple Music pays $0.00783 and Spotify pays $0.00397. However, Rolling Stone has reported that artists and labels with greater clout in the industry are getting better rates. When I ask Tim Dellow, at the indie label Transgressive (home to Foals and Flume), he says that they are “on a par” with the majors. What remains true is that the biggest artists will have more favourable deals with their labels, allowing them to see a bigger percentage of royalties, just as in the CD era.

Whatever the specifics, we are talking about tiny amounts of money, especially compared with CD sales. Initially, artists revolted, with, for example, Thom Yorke removing his solo album The Eraser from Spotify in 2013, after its producer, Nigel Godrich, complained the service favoured established acts and didn’t support new artists. Some of the biggest artists in the world – Taylor Swift, Adele, Beyoncé – followed suit, withholding their releases from streaming platforms either temporarily or indefinitely. Smaller artists signed to big labels were essentially powerless to choose whether their music went on to the service or not, and complained that labels were raking in big profits from Spotify while artists were seeing scraps.

But, over time, it has become clear that the fraction of a penny you receive from a stream can’t be seen in the same context as the royalty on a CD sale. The money an artist made from a physical album was a one-off payment; within weeks of it being released, this revenue frequently dried up.

On Spotify, every time a listener wants to play the song, the artist gets a tiny bit of money. If a listener adds the song to one of their own playlists, that can mean it will be repeatedly revisited over a lifetime. If it gets added to one of Spotify’s curated mood playlists – Acoustic Spring, for example – the artist can expect tens of millions of plays. Acts whose biggest hits came well before the streaming era are banking huge new revenues from their existing catalogue. Fleetwood Mac have 11 million monthly listeners; that’s more than Stormzy, George Ezra or Harry Styles. They will collect a huge cheque every month without doing anything.

There are ways to exploit the system, too. “Almost every track we release, we then release in an acoustic version a few weeks later,” says Varma. “The acoustic version will end up on different playlists to the main version – ones such as Sunday Chilled, and often it will get more streams.”

Some bigger artists have taken this “moneyball” approach to extremes. Not content with the 1.7bn streams his song Shape of You has had on the site, Ed Sheeran released an acoustic version (74m streams), a reggaeton version for the Latin market (69m), a version with a Stormzy verse (50m), a Major Lazer version for dancehall playlists (48m) and three further dance remixes (32m streams).

When just the remixes of one Sheeran song get more streams than some artists will have in their entire career, you can see why big labels are excited. Analysts say the biggest artists, such as Sheeran and Drake, have received in excess of $50m from Spotify before other streaming services are factored in. Sheeran’s label, Warner music, took $1.3bn from streaming alone last year.

“Our catalogue has become so much more valuable,” says Alec Boateng, the co-head of A&R at Atlantic Records. “That means we’ve got more money swirling around the whole company, allowing us to invest pretty heavily in A&R and development. We’re patient with artists – and being patient can be expensive. The new income makes us feel a bit more comfortable spending time working with an artist to develop them.”

The way that A&Rs are finding new artists is changing, too. Today, every major label has at least one analytics expert, whose job it is to follow trends on the streaming platforms and flag up any unsigned artists who are performing well. It means that a kid from nowhere who uploads a song to Spotify that does well can find every label in the world descending on them, trying to sign a deal.

“If you walked into any major label meeting this week, the thing they’d be talking about is how ‘Spotify-friendly’ an artist is,” says Varma. “By that, they mean: can they get on Spotify’s playlists, such as New Pop Revolution or Chilled Pop?” Artists such as Nils Frahm, a relatively obscure German composer, gets more than 2.5m monthly streams from appearing on playlists such as Peaceful Piano and Songs for Sleeping.

Albums have got longer because listening to a 20-track album generates twice as much revenue

Music used to be dominated by audiences with the most spending power – so middle-class, middle-aged people, buying albums at Tesco as part of their weekly shop, often decided what topped the charts. Now, Afrobeat, Danish rap, hundreds of genres of niche electronic music and particularly British urban music are flourishing commercially, without having to make any concessions to the mainstream.

Fleetwood Mac … collecting huge cheques without doing anything. Photograph: Mike Segar/Reuters

“Before, you had to get on mainstream radio, have a certain style or sound,” says Boateng. “It’s allowing for a more diverse proposition for British music and a wider range of people who are stars. A generation are coming through and feeling free.”

Even artists who had been written off by the industry are finding an afterlife on streaming. After her much-hyped debut, the BBC Sound of 2010 winner, Little Boots, failed to make the Top 40 with her second record and was dropped by her label. Now she releases her own music to a small but committed fanbase.

“Before, I might have sold a ton of records, but none of that money went to me after I got my advance and I had very little say in how the money was spent,” she says on the phone from Los Angeles, where she now lives. “Now, when I release something, I have to pay a percentage to my distributor, but most of it ends up with me. It’s not a huge amount, and I think it should be higher, but I have control and I have transparency. If I know I’m going to get 5,000 streams of a track I can do the maths and say: that’s this amount of money, so I can spend this amount of money on a new EP and project how much I’ll make back. I’m like a boutique business.”

Indeed, streaming has allowed artists such as Chance the Rapper, Skepta, Stormzy and Novelist to release music without signing to a traditional label, with hundreds of smaller artists successfully following a similar path. Are labels not worried that streaming, while providing a short-term bump, will make them obsolete?

“It’s definitely a challenge for labels to persuade artists that signing a record deal will be useful to their careers, but I think that’s a good thing,” says Boateng. “It makes us clear about what we’re trying to achieve. Because artists can see that they’ll earn a certain amount of money without any involvement from a label, I make an understanding with an artist about what I’m offering. Helping them make the best music they can make, challenging them, introducing new creative relationships – that’s where the value lies. Sometimes you’ll get an artist who isn’t interested and they might walk away, but then others, who ambition-wise are thinking a bit more globally, they can see what we bring to the table.”

I wonder if this all sounds too good to be true – can streaming really be making things better for small artists, big artists and labels? Boateng says there aren’t really any losers, but some music managers and label staff I speak to say that if you don’t fit neatly into Spotify playlists, it can be a lot harder to make an impact. This is particularly true if you’re an unusual indie band whose record someone might once have bought as a status symbol, but not listened to that often. Spotify’s hip-hop playlist Rap Caviar, described by Vulture as “the most influential playlist in music”, has 9.3 million subscribers. The service’s Punked playlist, described as “vital, angry new music from the bleeding edge of modern punk”, has fewer than 5,000.

Little Boots … ‘I’m like a boutique business.’ Photograph: Joseph Okpako/Redferns via Getty Images

There are lots of small ways Spotify has changed the way music is made. The intros of songs have become shorter to stop listeners skipping a track with a slow buildup. Albums have got longer, often clocking in at more than 20 tracks, simply because listening to a 20-track album generates twice as much revenue as listening to a 10-track one. Acts with global appeal obviously perform much better than those who are only popular in one country, which means region-specific sounds can lose out. The creation of so many activity-based playlists (music for running, music for relaxing) has also proven challenging for artists who make abrasive music. “It’s undoubtedly easier to programme ‘mood-based’ tunes than music that’s unignorable, interruptive and commands your full attention rather than passively soundtracking another activity,” says Dellow.

In practice, this has meant that electronic and urban artists are performing better than they would without streaming whereas local alternative acts are struggling. A band such as Pale Waves, fifth on the BBC Sound of 2018 tastemakers poll with lots of radio play and written about extensively in the music press, have 428,000 monthly listeners. 6ix9ine, a Brooklyn “SoundCloud rapper” who is barely played on UK radio, has 6.1 million.

For Dellow, whose label signs mostly alternative acts, this just means they can’t give up on other revenue streams, including physical sales. “In a sense, we have two markets: those who were previously just listening to music on the radio and not going to shows or buying albums – and that’s great, and they’re easier to reach now – but also a market of diehard obsessives who I’d love to see still supporting an artist with a purchase if they’ve been repeatedly streaming and enjoying a release.”

Few insiders would air their worries about Spotify on the record, citing the sensitivity of the relationship. The shadowy decision-making process by Spotify playlist compilers is a concern, with so much power concentrated in the hands of a few, often unidentified, people. Spotify, which has 3,000 employees, refused repeated requests for an interview. (“No one from the team is available,” its publicist said.)

Varma strikes another note of caution: although previously artists weren’t making much money from record sales, they were able to develop a financial connection with their fans through touring or merchandise. Now that’s being lost. “Streaming often has no bearing on whether people want to buy tickets or a physical album,” says Varma. “The audience is pretty passive for most huge streaming acts. For Jones, we found out that many people streaming her didn’t even know who she was; they were streaming her on a playlist alongside 50 other songs.”

Still, even the insiders I speak to who do express reservations say that the overall benefits of streaming outweigh the negatives. There is a sense that streaming has created a more democratic music industry; one in which artists can make money with or without a label, and where the spending power of a genre’s audience doesn’t affect how much money can be made.

Even Sundin, that despairing Nordic label boss, thinks things are changing. “Thanks to [streaming] – especially Spotify, I would say – we were taken out of the dark times,” he said in a trade press interview. “We went from bad boys to something much better.”

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