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Nielsen Holdings NV
When the first iPods hit store shelves a decade ago, the music industry was dominated by five giant record labels. Most musicians who didn’t have a deal with one of them were doomed to obscurity and day jobs. Apple (AAPL) has since gone on to sell 320 million of the music players, and the once-dominant labels and retailers have been upended by the shift to digital. EMI Group, one of the four remaining big record companies, is being sold off in pieces. “Major labels as we knew them aren’t necessary, the same way the cart and horse became relatively unnecessary but people still need to get around,” says Amanda Palmer of the punk-cabaret duo The Dresden Dolls.
Scores of smaller companies have sprung up to help enterprising artists produce and distribute their tunes. Although nobody has reached Lady Gaga-level stardom without big-label backing, plenty of musicians succeed on a smaller scale on their own. “There was a set way that you got big as an artist or a band or got noticed back in the day,” says Maika Maile, the 22-year-old lead singer of There For Tomorrow. The Orlando pop-punk act has used a YouTube (GOOG) series to give fans a look into band members’ lives. “That old model pertained for decades,” Maile says. “For the first time in a long time, it doesn’t.”
In some ways the music business has never been more concentrated; last year Apple controlled two-thirds of digital music sales. Yet it’s easy to build an online music store, and more than 400 companies have sprung up to distribute songs and help artists get them into iTunes, Amazon (AMZN), and other big retailers. More established players such as TuneCore, ReverbNation, and CD Baby offer music from thousands of independent acts, while smaller companies serve almost every conceivable niche market. Jamaica’s Reggaeinc is home to the island beat, music fans in Finland have Meteli.net, and My Clubbing Store is calling itself a French dance music hub.
Among the fastest growing of the new online stores is Bandcamp. Hundreds of thousands of artists showcase their songs on the site, and another 25,000 join each month, co-founder Ethan Diamond says. A veteran entrepreneur who sold his last company to Yahoo! (YHOO), Diamond started Bandcamp in 2008 with a former colleague, Shawn Grunberger. Artists can plug Bandcamp’s player into their websites to stream albums and sell or give away downloads. Some offer a free song in exchange for signing up for a mailing list.
Palmer used Bandcamp to release a set of Radiohead covers played on the ukulele and brought in $15,000 in minutes, she says. Singer Sufjan Stevens’s sales on Bandcamp put him on Billboard’s chart of top-selling albums last year. Artists have sold more than $7.3 million on Bandcamp in the past 12 months, Diamond says, with the company taking 10 percent to 15 percent. “I wanted the entire focus of this to be on helping artists be financially successful,” he says.
The 12-employee startup is competing to inherit Myspace’s mantle as the go-to site for artists aiming to get music directly to fans. Myspace, once home to millions of acts, has seen its audience decamp en masse for Facebook, leaving “a huge vacuum,” says Aram Sinnreich, founder of media consultancy Radar Research. “All those bands needed someplace to go.” Still, he says, Bandcamp may have to find new ways to make money besides taking a cut of download sales as streaming services such as Spotify offer access to millions of songs for free or a small monthly fee. “The decade of download-driven business is coming to an end,” Sinnreich says.
Even as total music retail sales have plummeted 40 percent over the past decade, demand for songs has exploded with new cable networks and a glut of online programming, says Shawn LeMone, vice-president of film and television at ASCAP in Los Angeles. The business of licensing songs to accompany film and video, called production music, is “one of the only strong growth areas in the music industry,” LeMone says. There are hundreds of production music libraries today, up from a few dozen 20 years ago, serving a $500 million annual market, estimates Debra Young Krizman, head of the Production Music Assn., a trade group.
Among the biggest players are the publishing arms of Sony (SNE), Universal, and Warner, which own exclusive rights to huge libraries of songs. A host of new entrants such as Music Dealers and YouLicense have jumped in to aggregate tunes by little-known performers that they typically offer on a non-exclusive basis. Three-year-old Jingle Punks, which operates an online database of about 50,000 tracks, splits with its artists the licensing fees—anywhere from $500 to $80,000—that video producers pay to use songs. The licensing business is profitable, the New York City startup says, and revenue should approach $5 million this year. The company sees technology as the factor that will help it stand out from rivals. Its software lets Jingle Punks track song usage across the globe, making it easier to collect overseas royalties. “Every minute of music we play in a TV show is worth some [part] of a dollar every time it airs,” says Chief Executive Officer Jared Gutstadt, a musician and former music editor for MTV (VIA). “We follow those dollars.”
For all the new opportunities small artists have, the music business is still built on hits. The top 500 releases each year account for a greater share of music sales than ever, says Eric Weinberg, president of entertainment at Nielsen (NLSN). “It’s easier to reach the audience, but it’s harder to get heard above the fray,” he says.
SoundOut, a two-year-old British service, combines listener feedback with computer analysis to find hits. SoundOut pays thousands of listeners a few cents to write brief reviews. The company compares those reviews with data on thousands of other tracks to give each song a “passion rating” and other indicators of how well it’s likely to do. SoundOut’s 60,000 part-time critics have produced nearly 8 million reviews of 85,000 tracks. Two major labels in Europe are using the service, SoundOut says, and at the end of September, CBS (CBS) launched an online radio channel called Tomorrow’s Hits Today based on SoundOut’s data. The idea makes sense because music companies can’t afford to do much research on their own anymore, says Catherine Moore, director of the music business graduate program at New York University. “Big labels used to do research,” she says, “and a lot of those jobs have gone.”
The bottom line: More than 400 small companies have stepped in to help indie musicians market their tunes as the industry’s giants stumble.