Technologic: What Happens Next in a Music Business Rewired by Innovation and Disruption?

SiriusXM’s $3.5b acquisition of Pandora indicates a period of consolidation of resources and influence in the power struggle between big tech and the major labels. Ben Gilbert explores the ramifications of the deal and takes a look at how the near future could play out for the music industry.

The power struggle between the major labels and the technology firms behind the stunning enforced overhaul of the music industry over the last 20 years promises to define Web 3.0 in this field of entertainment. While the era of innovation and disruption heralded by new forms of digital production and consumption continues to simmer, a semblance of stability seems to have been established by the key players standing at opposite ends of the court. The key question now centres on the long-term impact to the traditional “gatekeepers” of labels, artists and rightsholders in the face of a challenge that has already rebuilt the industry infrastructure in less than two decades.

SiriusXM now the “world’s largest audio entertainment company”

It’s a recurring question but one that, despite deals such as SiriusXM’s headline-making recent $3.5b acquisition of Pandora, moves at an enduringly ponderous pace, seemingly riddled with boardroom strategizing and widespread uncertainly. The satellite radio company’s decision to buy the online streaming service is designed to cement their position within the two respective worlds and has led to some grandstanding self-proclamations about the formation of the “world’s largest audio entertainment company”.

Reporting the news, Ringer.com outlined the underlying significance of the move, most notably on US audiences, explaining: “Sirius has proved more adept than any other company in turning radio, a previously free service, into something more than 36m people pay more than $100 per year to enjoy. Combined, the two companies will potentially have more than 100m users and the only audio platform with significant penetration in cars, living rooms and mobile devices at the same time.”

MIDiA Research examined the enormous economic potential that the partnership will look to exploit in a deal that ringfences Pandora’s 70m monthly active users from the continued threat of Spotify and Apple Music. Speaking to Synchtank, Zach Fuller, who pointed out that radio actually commands more revenue globally than recorded music, suggested the deal is intended to push the average age of Sirius’s traditionally older userbase much closer to that of Pandora, where 31% of users are under 35.

Will this lead to more collateral damage on the music industry?

Fuller expects their future proposition to be driven by celebrity-endorsed radio shows and personalised playlists. “Pushing playlists is in the interests of streaming services as it gives them greater control over what gets discovered and thus put into personal collections. This leverage over consumption increases their bargaining power with rightsholders,” he said. To some, the final observation holds a wider truth. Can tech deals and alliances like this actually inflict even more collateral damage on traditional quarters of the business?

“Pushing playlists is in the interests of streaming services as it gives them greater control over what gets discovered and thus put into personal collections. This leverage over consumption increases their bargaining power with rightsholders.”

– Zach Fuller, MIDiA Research

The recent launch of Spotify for Artists seemed to confirm the creeping suspicion that streaming services view their relationship with the industry in evolutionary terms. The company, which is valued at approximately $35b, has seen its stock price rise progressively since April. While chief executive Daniel Ek insists the company have no designs on becoming a label, he also believes further change is necessary and inevitable. “That’s because the future is markedly different from the past. The old model favored certain gatekeepers,” he commented in a letter to investors in March.

Spotify’s move to sign direct licensing deals with handpicked independent artists cuts out the major labels entirely, arguably setting a precedent with significant potential ramifications. “Although the deals are modest – with advance payments of tens or hundreds of thousands of dollars, according to several people involved – the big record companies see the Spotify initiative as a potential threat: a small step that, down the line, could reshape the music business as it has existed since the days of the Victrola,” commented The New York Times.

How does Spotify for Artists impact the digital landscape?

In an interview with Synchtank, David Turner, who produces a weekly newsletter, Penny Fractions, analysing the music streaming business, predicted how he saw the relationship between artists, rightsholders and technology companies playing out in the coming months. “Spotify’s recent moves on the side of distributors and other music streaming services should keep people’s eyes open for more artist first and friendly moves. It’s now clear that all of these platforms should be trying to convince an artist to go with them over the competition and the first to make real concrete moves that can improve artist’s bottom lines will see meaningful, not PR-driven, shifts that do affect their business.”

“It’s now clear that all of these platforms should be trying to convince an artist to go with them over the competition and the first to make real concrete moves that can improve artist’s bottom lines will see meaningful, not PR-driven, shifts that do affect their business.”

– David Turner, Music Journalist

“The same is true of labels. This is the time now to show their worth. Labels are making money, signing acts, and now it’s time to build and nurture the next generation of artists that will be selling out stadiums and selling tons of merch and not just looking at streaming numbers and saying that’s good enough,” said Turner.

But he also struck a cautionary tone at suggestions big tech was wrestling control from the labels or on the brink of hammering “a stake in the heart of the music industry”. “We’re about to enter into a mode of further consolidation within the entertainment industry and so it makes sense that music is also seeing this. The leverage that the music industry holds over any other similar industry is that catalogue is centred in only a handful of players so until a major label is bought by a tech giant, all of these companies, no matter how big, will have to play ball with the music industry even if they have no desire – see the last 10 years of YouTube,” Turner commented.

He concluded: “What’s funny is that tech optimism and a desire to put a stake in the heart of the music industry is oddly blind to this fact. Spotify can claim they’ll get an in with new artists but the amount of time it would take for them to build a catalogue that could even compete with a Merlin, let alone a major label, would see them run dry of all their investor money.”