As the music industry’s traditional structures continue to fall away, new models are building upon unsteady foundations. Some of the new companies that stepped onto the playing field in previous years fought in 2012 to stay in the game. Major music companies merged and reorganized while digital startups gained more and more attention. Digital Music News reported that 1 in every 43 venture capital dollars was spent on music related businesses last year.1 One example, The Echonest, a music data and analysis company, popped up from under the radar and secured over $17 million in funding. With success stories from Amanda Palmer, Kickstarter pushed funding into uncharted territory, creating viable new streams of capital for musicians. Here are ten examples of trends and events that marked the music industry in 2012 and that will continue to have an impact on the months and years to come.
1) Electronic Dance Music was the dominant new genre of 2012. Flooding the mainstream market and pop audience, the EDM industry is reported to have an annual worth of approximately $4 billion.2 Acts like Skrillex, Swedish House Mafia, Deadmau5 and Avicii drew herds of fans to specialty and major festivals across the globe. In 2012, Dutch producer and D.J., Tiesto, earned over $22 million.3
2) Live music revenues have continued to rise since 2010. The Coachella Valley Music and Arts Festival, for example, expanded from one weekend to two in order to satisfy the higher demand. Meanwhile, recorded music sales continued to stall. 2012 was also the first year during which digital albums outsold other formats and channels including physical copies and distribution outlets.4
3) Streaming services faced some negative publicity last year yet they continue to accumulate more users and subscribers. Reports detailing Spotify’s poor payouts to artists sparked conflict between copyright holders and the online tech sector. Meanwhile, on Capitol Hill, Pandora turned to litigation in an attempt to lower intellectual property costs via the Internet Radio Fairness Act. Rumors about a similar Internet radio service by Apple spread across the media outlets, sinking Pandora’s stock.
4) Crowdfunding emerged as a new fundraising method for small businesses and musicians. Amanda Palmer set a precedent when she raised over $1 million in only one month using Kickstarter. IndieGogo and PledgeMusic are also important crowdfunding websites for musicians. As it currently stands, artists and businesses in the U.S. cannot trade equity for online donations. That may change this year when the JOBS Act goes into effect and relaxes equity regulations for small businesses.
5) Venture capitalists and angel investors are increasingly present at music conferences such as MIDEM and South By Southwest. A study by the National Venture Capital Association, PricewaterhouseCoopers, and Thompson Reuters indicates that total financing across all sectors dropped 10% in 2012 while financing of music companies rose by 34%. A separate international survey, quoted in Digital Music News, put Sonos at the top of the pack, raising $135 million. Deezer and Spotify trailed closely behind.5
6) EMI Music was acquired by the Universal Music Group for almost $2 billion. The sale represents a continuing consolidation among the major music companies. Now, only Universal, Sony and Warner remain. The European Commission finalized the deal nearly one year after the acquisition was announced in November 2011. The approval by the EC came with the stipulation that Universal would sell off one third of EMI’s assets.
7) The publishing sector continues to tap revenues and is taking better advantage of market inefficiencies and licensing holes. Technology helps and is increasing the market share of independent companies like Kobalt Music and Rights Flow, now under Google. The “Do It Yourself” model continues to gain traction here too, as control decentralizes and moves away from traditionally powerful entities. In what could be a sign of the times, and a threat to the PROs, Sony/ATV/EMI Publishing withdrew its digital catalogue from ASCAP and BMI, recently preferring to negotiate market rates directly—and with good results, driving collections from Pandora up by as much as one-fourth.6
8) Two young ladies dominated the charts for recorded music sales in 2012. Taylor Swift’s album, Red, was the year’s strongest debut. Adele’s 21 was the year’s highest selling album for a second consecutive year on iTunes – an unprecedented accomplishment by any artist.7 The singer continues to break records after being the first female artist to win six Grammy Awards in one night.
9) South Korean rapper, Psy, crossed international borders and entered the U.S. mainstream with his viral hit song, “Gangnam Style.” In November 2012, the music video became the most-watched YouTube video in history.8 He quickly signed a management deal with Scooter Braun, who discovered Justin Bieber and Carly Rae Jepsen. Until now, K-Pop acts have experienced difficulty breaking into the U.S. market. If Psy continues to make progress as a cultural crossover, it will be an impressive achievement.
10) Dr. Dre is 2012’s top-earning musician according to the Forbes’ list: “The World’s Highest Paid Musicians 2012”. The artist, producer and entrepreneur earned $110 million between May 2011 and May 2012, mostly due to his Beats headphone line.9 The success of this merchandise venture exemplifies a creative strategy to maneuver the shifting music industry – and it proves that there is still money in the music business. Dr. Dre, Jimmy Iovine and Ian Rogers plan to introduce a new streaming service called Daisy later this year.
Many have agreed that streaming represents the future of music consumption, but the debate over how its meager profits are allotted is widespread and impassioned. Online radio services like Pandora and interactive streaming applications such as Spotify argue that their businesses help musicians and copyright owners. But musicians, songwriters, record labels and publishers have expressed concern over being devalued and undercompensated for their work. Some see streaming as a race to the bottom. Billboard Magazine named 2011 “a year of tectonic shifts” and described 2012 as “a year of consolidation and contention.”10 In the wake of ongoing changes and conflict, perhaps we can hope that 2013 might be a year of compromise and cooperation.
By Emilie Bogrand
1. Resnikoff, Paul. “1 In Every 43 Venture Capital Dollars Is Now Flowing Into Music,” Digital Music News, Jan 22, 2013. http://www.digitalmusicnews.com/permalink/2013/20130122investment
2. IMS Consumer Report 2012. Rep. Ibiza International Music Summit, 24 May 2012. Web. <http://www.internationalmusicsummit.com/ims-consumer-report-2012>.
3. “Electronic Cash Kings.” Forbes. Forbes Magazine, n.d. Web. <http://www.forbes.com/special-report/2012/0802_top-djs.html>.
4. “US recorded-music sales recovery stalls in 2012, but live sales just keep on rising,” Music and Copyright, issue 474, Jan 23, 2013.
5. Resnikoff, Paul. “1 In Every 43 Venture Capital Dollars Is Now Flowing Into Music,” Digital Music News, Jan 22, 2013. http://www.digitalmusicnews.com/permalink/2013/20130122investment
6. Christman, Ed. “Sony/ATV’s Martin Bandier on New, ‘Quite Reasonable’ Pandora Deal,” Billboard Magazine, Jan 18, 2013. http://www.billboard.com/biz/articles/news/publishing/1510417/sonyatvs-martin-bandier-on-new-quite-reasonable-pandora-deal
7. “Adele’s 21 is the top selling album on iTunes US for 2 years in a row,” News for Adele’s official website, Dec 13, 2012. http://www.adele.tv/news/430/adele-s-21-is-the-top-selling-album-on-itunes-us-for-2-years-in-a-row
8. Lipshutz, Jason. “PSY’s ‘Gangnam Style’ Becomes Most-Watched YouTube Video in History,” Billboard Magazine, Nov 24, 2012. http://www.billboard.com/biz/articles/news/tv-film/1082949/psys-gangnam-style-becomes-most-watched-youtube-video-in-history
9. O’Malley Greenburg, Zack. “The World’s Highest-Paid Musicians 2012,” Forbes, Nov 28, 2012. http://www.forbes.com/sites/zackomalleygreenburg/2012/11/28/the-worlds-highest-paid-musicians-2012/
10. “Music Biz 2012: A Look Back At A Tumultuous Year,” Billboard Magazine, Dec 14, 2012. http://www.billboard.com/print/1483916