The Beatles, Streaming And The End Of The Record Label Business Model

So the Beatles are finally coming to streaming…well much of the Beatles’ catalogue is at least.  Is it a big deal?  Kind of. The Beatles were late to iTunes and they’re now late to streaming.  Fashionably late though. No so soon as to be left standing awkwardly waiting for something to happen and not too late to miss the real action.

The Beatles are unique enough, and important enough to dictate their own terms and set their own timetable. For streaming services the Beatles catalogue is strategically important in the way it was for iTunes in that it helps communicate the value proposition of all the music in the world…well most of it. For the Beatles it represents the opportunity to reach younger audiences that sales are currently missing (which in large part explains why the catalogue is being made available on free tiers too).

It’s All About Targeting

20 years ago everyone pretty much bought the same product, the CD. Now though the music consumer landscape is fragmented and siloed. The fact that Adele’s ‘Hello’ simultaneously delivered stellar performance across audio streaming, video streaming, download sales and radio illustrates that there are many highly distinct groups of consumers that do one but not the other. This what Universal will be banking on with bringing the Beatles to streaming: they’ll be hoping that most of the future prospective buyers of Beatles albums are not streaming. For as long as this elongated transition phase continues, this sort of approach can work.

What Happens When The Bottom Falls Out Of the Catalogue Business?

The business model of record labels has long depended on revenue from back catalogue propping up the loss-leading new artists, on whom labels have to spend heavily to break. That model works as long as back catalogue sales are vibrant. But cracks are now showing in that model. Labels, especially the big ones, are increasingly spending even more heavily on a smaller number of big bets. For major labels many of these are either manufactured or laser targeted pop acts that grow big fast but like genetically modified crops, soak the nutrients out of their fan-base soil and are less likely to have long term careers. This means breaking artists are costing more to break and have less long term revenue potential.

That double whammy in itself would be bad enough, but there is an even more important structural factor at play. Catalogue sales depend on people buying classic albums, reissues and retrospectives. The secret is in the term ‘sales’. The model does not translate the same way to sales. Getting someone to spend $10 on an album for old times’ sake that they might listen to a handful of times but value having in their collection is very different from earning $0.20 or so from the same number of listens. But that is the way the world is heading. Older music buyers (i.e. from late 30’s onwards) are the lifeblood of catalogue sales.

That model works for older consumers that grew up buying music and thus have the habit. But what happens what happens when the first millennials enter their late 30s? Which is exactly what is going to start happening from 2016 onwards. As each new cohort of aging millennials passes 35 a smaller percentage of them will have ever regularly bought music. Thus from 2016 onwards every year will mean an ever smaller number of catalogue buyers coming into the top of the funnel.

The long term implications are clear. While this will not be anything like an instant collapse, the impact will be progressively more painful as each year passes. The old label model of developing a vast bank of copyrights will become less and less relevant.

So Beatles, welcome to streaming, this will be your last new format hurrah.

17 thoughts on “The Beatles, Streaming And The End Of The Record Label Business Model

  1. Pingback: A Journal of Musical ThingsThe Rumours Were True: The Beatles Will Start Streaming Tomorrow - A Journal of Musical Things

  2. All inclusive subscription streaming is uncalled for giveaway of music originated by Daniel Ek’s Facebook supported bluff.
    Stupefied and desperate UMG caved in and digital MEDEVIL has started.
    Now everyone works very hard (Apple, Google, Pandora and dope creator Mr. Ek) to compress $200B of obvious to a starnger music goodwill to just $20B of ads and subs hopefully before 2025.

    Switching just Radio and streaming to discovery moment monetization mode will deliver $100B music business before 2020.
    Renaissance of the lost, resurrection of musicians or both is well overdue!

  3. I agree on all points nearly 100%.

    Welcome to the new age of artists taking control of their music, their sound, their merch, their events, their fans…and did I mention the 15 other reasons why ever artist must develop and deploy their own direct-to-fan marketing program?

  4. Good analysis – seems the quest to find a music business model similar to the one being sucked in by the ice age is growing slimmer and slimmer. I was in LA recently and saw an imerging trend of vinyl record players for sale in a boutique store. For a moment I thought “this seems familiar”. It remains to be seen though whether that trend becomes something more than a nouveau fad. It’s obvious that artists must take on the unenviable role of small pocket moguls with little hope of owning a bigger piece of the music pie. Oh well might as well get used to this involuntary music by-pass: so much music so little money. Thanks Mark

  5. If CD pricing on Amazon is any indication we are well on our way to serious problems for catalogue purchases. Just tonight I went to look for a Van Morrison CD and found the pricing for many of Van’s catalogue titles over $40 for new, non-import garden variety titles.

  6. All good. But I would argue that a vast bank of copyrights is just as important as before. Beatles tracks as example, will now generate some M of streams every year without any more “best of” / “remastered” repackaging.

    Merry X-mas Mark! 🙂

  7. Hi Alex – yes I agree they will still generate meaningful revenue (this wouldn’t have happened otherwise). But the difference between the revenue from catalogue streaming and catalogue sales will be much bigger than for front line releases because a) many reissues are priced at a premium b) a new frontline release is likely to be listened to more by an individual than someone rediscovering an old classic they used to listen to a lot in their you.
    And happy Christmas to you too.

  8. Pingback: Streaming, The Beatles, And The Record Label Business Model's Demise - South Carolina Music Guide

  9. The Van Morrison thing is obviously an anomaly. It seems many of his albums are no longer in print, so 3rd party sellers are price gouging.
    In reality, prices have never been lower for catalog CDs. You can get them brand new, sold by Amazon for $3.99 – $5.99.

  10. As someone in the business I think the idea of streaming hurting catalog is completely wrong. The numbers will sort themselves out in the long run and show who is correct, but here is my thinking.

    The entire industry under streaming only models in the future is moving away from a very abnormal business structure (by many other industries business standards anyway) to one that more closely resembles the vast majority of businesses.

    The music business has always operated based off of this equation: Big up front investment, with the plan being that big immediate income will follow.

    An album that has 1 million dollars invested, and brings in $800,000 in the first quarter of release is considered a business failure.

    That album in the old paradigm would probably break even after a year or 2, but still not be considered a success by most. Over 10 or 20 years it would probably have made a tidy profit from catalog sales.

    Compared to most businesses and their models this is a completely alien, and crazy way of looking at it.

    Most businesses operate like this: Invest 1 million dollars. The plan is that 1 million dollars will return $200,000 per year. Over 10 years this brings in 2 million dollars, which averages out to roughly 10% a year return on investment. Depending on if the initial million invested in WHATEVER (think industrial equipment, other durable goods, inventory, etc) still has an asset value of 1 million, or has depreciated, or any number of other factors how you do the accounting can vary greatly as to what the “real” profit/ROI is.

    Let’s assume it’s equipment that enables this investment to pan out. Invest 1 mil, get 2 mil in profit after a decade, the machines are still worth 500k, AND have another decade of use left in them before they’re assumed to be worthless. So 2.5 Million in “value” after a decade from a 1 million dollar investment. That’s sound business right there.

    That’s 90% of businesses, and how they operate. The music business is going to have to begin operating like this too, because that’s how streaming works.

    You will invest 1 million in an album, with the hope that perhaps it brings in $500,000 in the first year, and maybe $300,000 for the next couple years (total $1.100,000 after 3 years maybe), and then $100,000 for another 6 years, for a total of $1,700,000 after a decade. Although streaming a new hit will occur more when it is new than when it is 5 years old, the income stream will mostly just be spread out over a longer period o time. Then hopefully it’s an album that retains listeners for 20 or 30 years.

    If you ran the numbers on how many times I’ve listened to certain Beatles songs (MOST of them really) in my life, at .5-1 cent a play, they would have made WAAAY more from me being paid per play than from purchases I’ve made. I’ve still got decades of listening to them to go too. They might make 3 or 5 dollars (or more) a tune off of me throughout my life, which is the equivalent of me buying multiple times. It’s just going to be spread out over 80 years is all. But you don’t hear Wrigley’s Gum complaining I didn’t give them $1000 up front for a lifetime supply of gum do you? They’re happy with the $.50 or whatever every now and again over decades… Why shouldn’t the music industry be happy with that too?

    There is nothing “crazy” about operating a business like this. This is how most industries already operate. I have NEVER understood why the music business has this wrong headed idea that an album SHOULD make you a return instantly upon release. It’s just a straight up abnormality in the business world. It will require a rethinking and restructuring, but in the long run will probably actually stabilize the industry and make it less topsy-turvy as income will be more steady, and less of a roller coaster of big ups and downs. There will still be the potential for hits too. An indie album with 150K thrown at it could still make 2 million in its first year, but that same album might have made 20 million during the CD era being the same level of hit. Now it may take a decade or 2 for that album to make it’s 20 million… But there will continue to be residuals for decades after that too.

    What will be interesting to me is that “flash in the pan” artists will no longer be as viable. Think Milli Vanilli. It made a TON of cash in the old paradigm, but an identical situation in the streaming era would not be nearly as profitable as they’d only get high first year or 2 revenue, and then very little afterwards. 1 hit wonders that do have staying power will still be viable though as that one hit may be played by someone a few times a month, or year, for 40 years.

    Now to answer critiques proactively, I am aware many other businesses other than the music industry DO operate on the “hit” model. Apple is a great example. They invest heavily, release a product, and if it doesn’t make a huge profit in a short period of time it is a failure. Many “hit” businesses are very present in the public mind… But they aren’t really the vast majority of businesses when you think about it. General Electric, or food producers, or Colgate toothpaste, or whatever… They mostly operate with small ROI per year over a long period of time. Some companies like car companies are a hybrid of the 2 models. They DO depend on hit models to really make the bacon (Prius! Mustang! etc), but they also make long term investments in manufacturing infrastructure they plan out over decades.

    It will be a huge shift in how the business operates, but in truth I think non-ownership models could ultimately be just as, or more profitable, in the long run… Provided enough people get moved into paid subscriptions. It’s all up in the air at this point, but I think things will sort themselves out ok.

  11. Pingback: Matthew Moran, Jesse Cannon, A Failing Record Label Business Model: December 2015 Roundup - The Music Entrepreneur

  12. Pingback: The Beatles, Streaming And The End Of The Record Label Business Model – Salisbury 6th Form College – 'A' Level Media Studies Blog

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