Exclusivity and Its Limits
Major labels are pushing for the end of exclusive deals with streaming services as they are quickly realizing such a practice hinders the potential profit of their artists’ biggest albums and creates incentive for brand name artists to no longer renew their contracts.
A New Economy
Since their launch last year, streaming services Tidal and Apple Music have been paying record labels for the exclusive rights of their music to entice new subscribers. Apple Music pays artists such as Drake, Pharrell Williams, and Future large amounts of upfront money while Tidal gives an ownership cut to artists like Kanye West, Beyonce, and Rihanna — all in exchange for promotion of their platform to compete in a Spotify-dominanted industry.
It has proven to be a successful marketing strategy for both companies, with Apple Music and Tidal generating a combined total of about 20 million new subscribers just in the past year.
Artists always utilized their labels for distribution and, indeed, were bound by an exclusivity clause in their recording contract. As streaming services have taken over the distribution of music, they have reached out to big name artists. Such artists have enough power to sway their labels and cut their own deals. It is leading to a shift in power in the industry, determining a turf war on how music will be released and heard and leading to more cavalier attitude by top artists towards the labels.
2016’ s biggest three albums illustrate the waning influence of the labels in distribution. Earlier this year, Drake signed a $19 million dollar deal with Apple Music to promote their streaming service by offering his new album Views exclusively on their site for a one week period. During this week, Views was streamed more than 250 million times by users and sold over 1 million copies on iTunes. The album then continued to grow as it became available on multiple platforms such as Spotify and Tidal.
In August, Frank Ocean released his album Blonde exclusively on Apple Music and iTunes and grossed 276,000 equivalent sales while debuting at No.1 on Billboard’s 200 chart. It was later expanded to multiple streaming platforms as well. In April, Beyonce released Lemonade, which grossed 653,000 album sales while also earning a No.1 spot on Billboard’s 200 chart. The album was later available via Apple Music as paid digital download only.
While major labels benefit from the sales of these albums, they don’t partake in the artists’ initial upfront fee from the streaming platform. This is true even when they are listed as the distributors, like Drake’s Views (distributed by Cash Money Records, owned by the Universal Music Group) and Beyonce’s Lemonade (distributed by Sony’s Columbia Records). But Frank Ocean’s Blonde was distributed through his own independent label, much to the chagrin of Universal Music: immediately after this exclusive release Lucian Grainge, Universal’s CEO, sent out an email to all branch executives of the company demanding the end of exclusive deals with streaming services. UMG, the world’s biggest music company, is the first major label to ban such deals, viewing the practice of restricting an album’s accessibility during its launch as detrimental to its bottom line. Drake, Taylor Swift, Kanye West, Coldplay are UMG artists as well.
It is easy to see that the conflict over first releases has the potential to unravel decades of standard music industry practice. UMG’s top artists, for instance, will have to decide what to do, and this is not an obvious choice. If they abide by the label they may be preempting the distribution of streamed music, the top dollar value in recorded music today. If they flock to the streaming services, they may have to jettison their relationship with the label and hurt the industry, for labels are in business of signing new acts from the proceeds they make from megastar releases.
The issue is also complicated for other reasons. Conceivably, breakaway artists could benefit substantially from upfront fees and higher royalty rates; however, such exclusivity deals could upset and turn away fans that do not have access to multiple platforms. The proposition could be a losing one for artists long-term.
Streaming distribution worldwide could be a concern too. Not every country has streaming services. In Japan, Germany, and France, three of the top five markets, the predominant format is still the CD. Labels have done well moving product across borders, and the Rest of World accounts for three-quarters of all the recorded music business. An online focus that ruins a label-artist relationship is not in the interest of the artist.
Competition for Exclusives
Another factor is intra streaming service competition for exclusives. Spotify has recently failed to promote music that was previously released exclusively through Apple Music and Tidal. When Spotify is the secondary release platform, the music is not likely to make its promotional playlists, top searches, or be featured content in the the site.
Two examples make the point, one by Katy Perry and the other by Frank Ocean. Perry’s single Rise released in July, hit number 11 on Billboard’s Hot 100 after being released exclusively on iTunes and Apple Music for one week and featured in NBC’S US Olympic coverage, then fell dramatically in rankings. It failed to appear on Spotify’s playlist, “Today’s Top Hits” as well as “New Music Friday” which are the service’s two biggest playlists with collectively ten plus million followers. The song didn’t appear on any Spotify-managed playlists until early August when it charted at No. 176 on Spotify’s “Global 200” playlist. Frank Ocean had a similar experience. After debuting Blonde exclusively on iTunes and Apple Music, it was then released on Spotify one week later, but it was nowhere to be found on featured playlists or advertisements.
For the labels, Apple Music is the lesser of two evils, because it places fewer restrictions on the terms of its exclusive deals than Spotify does. Spotify may have more subscribers but Apple is better because it does not do free music and uses ad supported services that can bring in more revenue to both the artist and the label. Drake and Frank Ocean, and their labels, were paid for the exclusivity deal. Beyonce and Adele went exclusive only with paid downloads, not streamed albums. Spotify involves its free service, not just its premium subscription service, in its exclusive deals.
Exclusives also encourage piracy, depriving potential monies to the original creators. This year, the IFPI (International Federation of the Phonographic Industry), reported that a third of Internet users rip streams, a 10% increase from 2015. In July, nearly a billion Internet users visited the top thirty stream-ripping sites. Earlier, a U.S. federal judge ordered Mp3skull.com pay $22 million in restitution to the RIAA (Recording Industry Association of America). The problem is becoming endemic, and mobile apps such as “TubePlayer” now target YouTube likely the most important music discovery site of them all. Even if action can be taken by YouTube if notified, this is cumbersome to do and likely a little and too late.
Overall, the exclusive rights crisis is reshaping an already fragmented industry. Label contracts are being rewritten. Top artists break with employers to suit themselves. Streaming services gain a promotional upper hand in the distribution of music. All of this is happening while consumers have more access than ever to tools that allow them to seize streamed product without paying for it.
If sense is to prevail, it must start at the top, with artists understanding the full implications of their actions. For them, as discussed in the article, what is good here and now may not last. Moreover, the old record label system helped independent artists, by taking from the rich, so to speak, and giving to the poor. Perhaps the day will come when the streaming services will invest in indie artists, but in the meantime their focus on exclusive celebrity releases hurts the labels and acts as a disincentive to the signing of new and untested talent.
By Ashley Cook
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