How Digital Is Saving the Music Industry

How Digital Is Saving the Music Industry

File-sharing turned the music industry upside-down, severely damaging artists’ chances for financial solvency — but now digital royalties from Internet radio are saving musicians.

Non-profit Soundexchange reported Internet radio royalties topped $1 billion since 2000, with profits picking up steam in recent years with the explosive popularity of Pandora and other streaming radio sites. For example, this quarter profits topped $108 million, up from around $15 million a quarter in 2004.

And the actual number is likely higher, since some sites like Spotify pay royalties directly to labels and artists without going through Soundexchange.

This is good news, but it doesn’t mean the music industry is close to completely recovering from the hits it took after the digitalization of music mangled CD sales. Despite paid digital download services like iTunes, artists are still scrambling to make up for lost revenue by beefing up touring and merchandising efforts.

And if a provocative blog post by NPR music intern and millennial Emily White reflects her generation’s prevalent opinion, it is a pipe dream to imagine young music lovers paying for tunes at a time when there are free downloads and prolific file-sharing options at their fingertips. The best hope for musicians looking to make profits off their recorded music is digital royalties and other revenue streams based off streaming and other Internet-based services.

There are a number of different ways musicians can boost their bank accounts by embracing the digital dissemination of their music. First, for established artists, there’s the Radiohead approach.

Radiohead decided to distribute their own album online and let users pay what they could. Even though the band sold fewer copies of the album “In Rainbows” than they had in the past, and they left the price up to their fans, they ended up taking home more money than they did on other albums because they did not have to pay their label. They made more money even though 60 percent of the downloaders did not pay anything. Stars like Lady Gaga are also moving away from their record labels to embrace the Web as a business strategy.

That approach will be more difficult for artists without an established fan base, but there are other routes to profitable digital music distribution. Internet radio sites like Sirius XM use Soundexchange to give artists respectable royalties for their music. If these sites continue to grow in popularity, artists will benefit from a switch away from traditional radio, especially if they are not songwriters, since traditionally only songwriters and labels receive radio profits.

Internet radio sites’ royalties are very different from “on-demand” sites like Spotify, which pay extremely small amounts of money to labels for each song they play. The financial merits of having songs up on Spotify are the subject of debate, and it’s likely not a valid path to economic success for independent artists, although it could offer helpful exposure.

Then, of course, there’s iTunes, which accounts for most paid music downloads. Artists are not going to make as much money from iTunes as they did in the golden era of CD purchases, but profits coming in from Apple and, to a lesser extent, Amazon, may pad their coffers to supplement touring and Internet radio royalties. The rising popularity of on-demand streaming sites and Internet radio may cut into iTunes’ profits, though, which would put a damper on musicians’ money-making potential online.

Musicians are still dealing with fallout from the music industry’s seismic changes, but the upswing in revenue for Internet radio suggests the Web may present opportunities to recoup losses in a more substantial way in the future.

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