It’s a human instinct to fear the unknown. While some people approach new things with bravery and an open mind, others cower away from new experiences. There’s proof of this all throughout American History, such as the evolution of the cell phone. In the beginning, everyone saw the cellphone as a want not a need, yet here we are a couple decades later: a society solely reliant on technology. This heavy technological presence helps propel other businesses to continuously update their products, to compete not only with other American companies, but worldwide. With the transition of mass communication from the television to computers and now to our smartphones, it opens doors for more and more innovation. These doors were broken down in the music industry through the technological revolution, which transformed the business model. Through all the new music streaming companies that have emerged due to the digital downloading, it raises the question of what the new distribution of profit looks like. Although, Record Companies have taken a serious hit due to the evolution of technology, the benefits of creative freedom this has resulted in for artist is undeniable. However, it would be naive to assume that all the profits, even from their independently produced music, go directly to them, which raises the question on what the breakdown is and if it’s fair for each party.

The recording industry, primarily the major companies, used to have a position of strength in their contracts with performing artists. The Internet now provides alternatives to these artists. This is illustrated by the recent dealings of the British rock group Radiohead. At the end of 2007, the group “did not renew its contract with EMI,” but instead they started offering their new album, “In Rainbows,” on its website for downloading (Alexis Koster). The price was whatever the buyer wanted, for a limited time. The experiment has been a “financial success” for the rock band, with about 1 million downloads, bringing the rock group “about $3 million” in revenue, which was more than any of their previous albums (Koster). This flipped a switch in the eyes of many figures in the industry, because this was a band that took matters into their own hands, which made other artist think “why don’t we do that?”. 

To truly understand the liberation that comes alongside digital downloads, you must first have an understanding of record labels and contracts. In a video produced by The Economist, Willard Ahdritz, Founder & CEO of Kobalt, draws an interesting analogy: “If someone makes a record for a major record label the label still owns the record, comparable to if you take out a mortgage to buy a house, and you pay the bank back for it, the bank still owns your house” (The Economist). The arrival of MP3s, song files easily shared over the Internet, threatened that control. Artist saw this as a green light to capitalize on this new direct access to the consumers. For years the major record labels tried to delay the growth of digtal music sales in various ways, known as “refusing to license large parts of their catalogs” to download services and imposing conditions such as “Digital Right Management” which limited the duration of availability to music files (Koster). However, it wouldn’t take long before someone took the reins on the new phenomenon of digitally downloading music. 

One of the first businesses to emerge into this new market was Napster. This software was originally created by a 19-year old college student, Shawn Fanning, and was then taken over by Silicon Valley investors (Molteni and Ordanini). Napster made music available a la carte, one song at a time. This proved a great relief to fans tired of having to pay for a full album just to get their hands on one or two good songs. In 2007, Forrester Research reported, a study predicting that “within five years the music industry will lose $ 3.1 billion” to piracy and the newfound independence of musicians (Cohen). Even if Napster was driven out of business, there were new, even more intractable sharing systems on the come-up foreshadowing the rise of big companies such as Spotify and Apple Music. 

 An article published in the New York Times, by Ben Sisario, directly relates to my personal involvement in my research project. Sisario reveals that since the company began, the costs of paying record labels and others for “licensing rights has been by far its biggest expense”. Spotify has grown extremely fast, becoming a household name among young people. It has even brought a “once-reluctant Apple into the business of selling music subscriptions” (Sisario). To no surprise, Apple Music has rapidly become Spotify’s biggest competitor, with a whopping 27 million subscribers, in just 2 years. These two companies generating this much popularity in such a short time span is a prime example of the heavy influence of social media and the contagious diffusion that it fosters.  

In terms of finance, the shift in profit has been somewhat substantial. An important factor regarding digital downloads was piracy via illegal downloading. In 2007, 20 singles were illegally downloaded for each album, creating a “2 to 1 ratio” in terms of revenue (Chesbrough). Thus, for every 1 song sold legally, 2 copies of it were downloaded illegally which can easily put a dent in profits. Now as technology has evolved and more legitimate companies have taken over downloading and streaming music it’s easier to get a read on profits. Over the past 4 years there’s been an increase in digital sales driven by streaming music services, which at “$1.4 billion were up 39 percent” since 2012 (Reynolds). This category includes revenues from subscription services such as Spotify, streaming radio like SirusXm, and non-subscription streaming services such as YouTube. Therefore, this serves as proof that through a controlled and legal manner, the industry has the potential to continue to increase revenue. 

A relatively new company, Kobalt, has emerged with the hopes of introducing an artist to a free market. They help artist distribute music like a record company, yet allows the artist to retain the rights to the music, although they charge a fee for the services the artist wants them to provide, such as working the booth during a recording session. As a company, they work by the motto “artist don’t need to give away their rights to earn money,” to constantly remind themselves to be just and fair while producing music (The Economist). Their goal is to allow a record label to be an option not an artist only way of surviving in the business. 

In reality, there are still a plethora of benefits for an upcoming artist that signs with a huge Record Label. Even with the emergence of Kobalt as a contender in the music industry, it really only helps already established artist receive their full profit from their songs. The company hasn’t successfully been able to “break a new artist” into the music scene, which deters newer artist from wanting to sign (The Economist). In contrast, to larger record labels, such as Capitol Records, who have the time, resources, and staff to work with an artist for as long as necessary until they have a good single or even an entire album. A perfect example for Capitol Records is Sam Smith. When he first came he only had his songs, so they helped him create and promote his first album because they had that kind of resources. The music industry tries to uphold a facade of diversity, three major record labels own “well over half of the western world’s music, which once again gives Record Labels a heavy influence in the market and of course clout (The Economist). Although this may be true, the music industry is evolving to more than the ability to make good music. The “clout that follows big brand names” also has potential to be obtained by new artists via social media (HipHopDx). Proving that it may take more work, but it’s possible to become a successful music artist without selling out to big business. 

While the shift in artists’ reliance on record companies has drastically decreased over the past years, this isn’t necessarily a bad thing. On the one hand, big name record labels have the ability to work with the artist one on one, and have connections to promote their music. On the other hand, the ability to create a name for themselves is possible without selling the rights to their music. This speaks to the Millennials, because we are definitely a “go and get it” generation which is possible in the music industry through social media and other free sites that can promote your music. Therefore, it’s truly up to the artist what they value most about becoming a star, whether or not they choose to keep the rights to their music, yet all artists across the board benefit from the exposure that accompanies digital downloading/streaming music. 
