Recent events in the global music industry have clarified a simple fact – the power dynamics between the major record companies and the independent music sector, and with artists, are changing.
A paradigm shift is occurring.
Over the last couple of decades the major record companies have become ever more homogenized until we have been left with just three – Sony, Warners and the biggest of them all, Universal.
These companies specialise in the industrialization of music. That is not a criticism per se, it’s a fact. Their business model is predicated on scale. Yes, they invest in music and yes, they develop talent but their raison d’etre is simple – to shift as many units to as many people as possible.
The majors’ global market share is often disputed. Given their tendency to include turnover from independent labels they distribute, it is at best a grey area, but between 65% and 70% would be a fair estimation.
This dominant position in the market gives them leverage.
As music consumers transition away from physical formats and downloading towards streaming, the majors have used this leverage to negotiate favourable deals with all the key players, reputedly taking big advances or guarantees and in some cases equity stakes in companies wanting to enter the streaming market. To access the catalogues controlled by the majors these companies have had no choice but to play ball. After all – no music, no offering.
The major record companies, it seemed, held all the cards and could manipulate and orchestrate the marketplace to do whatever they wanted.
The launch of Apple Music last month threw into stark relief the way majors and independents approach commercial negotiations. It was clear that Apple had agreed terms with the three majors in advance of the launch. The indies by contrast argued with Apple over the company’s plans to offer a 3-month free trial to all new users of the service. The issue was that Apple would not be paying any royalties to music rights owners during this free trial period.
Why then were the majors prepared to accept this clause while the indies fought so hard against it? After all they have said about free music not working for them, why fail the industry they purportedly lead? Why did it take Taylor Swift and the independent labels to point out the iniquity of this? Why have the market leaders abdicated their role?
Ever since the majors started demanding advances and equity from digital music companies the nagging question has always been, “where is the artist’s share?” “Where is the share of independent labels that are distributed by majors?”
It’s a question that has never been satisfactorily answered. And louder and louder voices are asking why.
The independent music sector by contrast cares passionately about the artists it works with. Independents and artists are natural allies – indeed, they are often the same people. That’s why Worldwide independent Network (WIN), the umbrella organisation that represents independent music trade associations around the world, introduced The Fair Digital Deals Declaration last year, a statement of commitment made by independent record labels to treat their artists fairly in agreements relating to digital exploitation of artists’ work in recorded music agreements with third parties.
Individually independent labels are no threat to multinational corporations. But together they have power. Growing market share for sure, but more importantly they are vocal and through well-organised, well-aligned entities such as Merlin, which negotiates and manages digital agreements on behalf of 20,000 plus independent music companies around the world, and WIN and Impala, they now speak with a strong collective voice.
You Tube found this out last summer when they attempted to force the independents to accept a less than favourable deal for their new audio streaming service. A high profile campaign played out primarily in the world’s media led to a volte-face and a much-improved deal on the table.
Perhaps the most important outcome of this most recent argument was the confirmation by Apple that independent music is fundamental to its brand.
And this acknowledgement is seismic.
The major record companies have dominated the market for decades. They have been at the heart of all of the key decisions affecting the global industry and have dictated the shape of the business. Their sheer size and depth of catalogue has given them immense power.
But that is changing. Their market share is shrinking; their ability to dominate the global market is weakening. The independents, and artists who choose not to work with the majors, can now achieve worldwide reach and engagement with music fans through digital distribution and social media, they have strong representation at the highest levels and their share of the market is increasing.
Multinational corporations have now acknowledged the importance of independent music and have made it very clear that without it they cannot offer their customers a compelling proposition.
Independent music now has a seat at the top table and is a growing force. As the industry evolves the indies, together with artists, are playing an increasingly influential role in shaping it’s future. No new digital business should now dare contemplate entering the market without having first taken account of their views and without having negotiated a level playing field deal with them. Independents are now ready to take their place on the front line.
Alison Wenham, Chairman & CEO of The Association of Independent Music (AIM)