The following guest post comes from Budi Voogt, founder of EDM label Heroic Recordings.
Streaming is huge. Bigger than ever. And growing.
Everyone’s on Soundcloud, YouTube, Spotify, or some other source where listening to tracks is just the click of a button away.
This surge has drastically impacted the music industry, by making content easily accessible (often for free), facilitating interaction between creators and consumers, and by giving creators the freedom to share and collaborate. Yet the impact of streaming is not nearly at it’s peak.
The next level is about how to successfully monetize it. Something that if done right, will truly change lives.
This realization hit home when I was rounding off our label’s second quarter royalty payments a few weeks back. It’s the time when we look at all the revenues we generated by selling or streaming music, via sources like iTunes, Beatport, Spotify, Bandcamp and others.
To make this a clearer story, I’ll elaborate on our distribution strategy first.
Heroic Recordings pushes mostly electronic music. We believe that that music should be accessible, everywhere, for everyone. We’re actively engaged in the music blogosphere and are very fond of free downloads. Especially when in exchange for social currency, such as Facebook likes and Twitter followers. However, we also believe in the intrinsic value of music – as our artists and us have to pay the bills. So we also sell – distributing to all major online music stores; iTunes, Beatport, Spotify and so on.
Yet we have to make an active choice on where we lead our customers. On whether in a new release’s marketing efforts, we direct them to Beatport, iTunes, a free download or elsewhere.
The trade-off we have to make here is between the quick growth of social-currency via free downloads, versus extra revenue via distribution sales and streams. In a perfect world, we’d go for free downloads all the way – as growth is the quickest way to move up in the game as a starting indie. However we can’t give it all out for free – as the income, even if still relatively minor, covers costs and investments. The big hurdle to pushing our fans to buy via online stores though, are the absurd prices they charge. Beatport asks nearly $2 for an MP3 and even more for a WAV, iTunes $0.99 for a single. Now don’t get me wrong, music has value, and artists and labels put in hours which make a tune, even if an MP3, valuable, but those prices simply do not reflect reality anymore.
Five years ago charging $1 would have been reasonable, but with a target demographic of EDM lovers aged 15-25, mostly students, and the accessibility and variety of music via streaming (Soundcloud, YouTube, Spotify) and piracy (torrents, file aggregators), we don’t believe $1 is market value.
The solution we’ve found is to make all of our content available via Bandcamp, charging fans just $0.50 for a track – but allowing them to pay more if they want. And we get to keep their email addresses. It’s where we direct all our traffic, and is a platform which fans experience to be closer to the ‘source’ than when shopping from an intermediary like Beatport or iTunes. Still, we’re also distributing to all the online stores, as it’s all about being easily accessible. There is just little reason for us to send traffic there, as besides being overpriced, they’re all about chart positioning – and competing against the majors and bigger indies, whom can much better facilitate high rankings (via big existing fanbases, marketing budgets and sometimes even illegal chart-pushing activities) is time not spent best.
To come back to the point, when rounding off our latest quarter’s royalty statements, we found the following; 42% of income came in via Bandcamp, 29% via iTunes, 14% via Beatport and 13% via Spotify.
With no efforts to direct traffic to anywhere else than Bandcamp, they all generated revenue. But the most interesting here is Spotify, which made as much as Beatport did for us – while we’re a label focused on electronic music, and Beatport is the primary marketplace for DJs and electronic styles.
We ran the numbers; 170 streams on Spotify lead to a $1 net royalty, meaning $0.006 a play. Not bad at all. After a 10% administration deduction, 50% of that goes to the artist. In other words, just about 380,000 plays on a track brings in $1,000 in net royalties for an artist of ours. How cool is that. And the best thing is – this requires little effort nor expense on the user’s end. Because both subscribed and free Spotify users contribute to this revenue. While not huge, these figures will become much more significant when you include YouTube and soon Soundcloud revenues. Our label’s hooked up with a YouTube partner network, and via them, 800 plays on our channel leads to a $1 net royalty. And with Soundcloud just launching their advertising model and partner program, on which we’re soon joining in, monetized streaming promises to become very significant.
I see the bigger picture being this; digital overtook physical, with MP3s and downloading replacing the necessities for CDs. Soon, streaming will overtake downloading. Soundcloud’s the perfect example – reporting 175 million unique users per month. Sure, there will still be people that buy CDs, vinyl or files (particularly DJs), but it’s definitely where things are headed on the grand scale. The rate will be determined by the accessibility of good internet, smartphones, how soon the music industry determines a true balance point between charging for these services and paying for use of music, and the extent to which copyright law will move to support all this.
This outlook put a big smile on our faces here. We fit perfectly in our own 15-25 year old EDM loving target demographic, and frankly, we stream all day. Soundcloud is our label’s primary medium, and we’re all running Spotify accounts – streaming from a huge catalog at 320kbps. None of us really download, perhaps incidentally for DJ sets, but that’s it. So to expect our fans to do so is absurd.
That is why those Spotify numbers are so exhilarating. With YouTube income catching up, and soon Soundcloud joining the mix, it is only a matter of time before monetized streaming becomes a real core income stream for our artists and us. Without screwing anybody in the process, or charging unreasonable prices.
Bring on the future.