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The Stream of Innovation in the Music Industry

Paul Brindley has been a close observer of innovation in Britain’s music scene for 30 years. As a musician, he thrived in the 1990s, when CD sales were high. Now, as co-founder of London-based company Music Ally, he operates in a different universe, pairing musical artists with modern technology.
Music industry changing digital music journalists

November 17, 2017

Music Ally advises major record labels, as well as music platforms such as Spotify, and tech giants such as Google and Microsoft. But when asked about a model of innovation today, Brindley singles out the ‘independent music community’ AEI (Art Empire Industries). “If anyone is innovative, it’s AEI. It’s hard to know what to call them as they are constantly reinventing themselves. I guess they are a ‘music-related company’,” Brindley said.

AEI’s many transformations illustrate the qualities required to succeed in the modern music industry. They know how to use technology, take advantage of YouTube’s vast potential rather than complaining about it, and are adept at spotting young entrepreneurial talent.

The origins of AEI date back to 1996, when founder Diluk Dias teamed up with the fledgling drum and bass website drum&bassarena run by James Cotterill in Sheffield. Together, they built a multi-award-winning global brand with live video streaming. AEI’s next, radically different incarnation, came when Cotterill, now a partner, came up with the idea of selling ringtones. Diluk Dias initially laughed at the concept, as did everyone else in the industry. But a year later Dias owned a new car and a new house and the company was making millions. Ringtones were the first digital format people paid for and, although Apple ended the gold rush by installing ringtones on iPhones, AEI had made a lot of money and acquired an invaluable schooling in data analytics.

YouTube provided two more successful businesses in AEI’s constant evolution. First, Dias formed a partnership with the teenager Luke Hood who was setting up the dubstep YouTube community UKF in his spare time. Within a year it was a seven-figure business with millions of followers. Then, AEI was approached by Billy Woodford, the founder of NoCopyrightSounds (NCS) to help build a channel on YouTube and Twitch. The idea was to allow users of NCS to access its catalogue of music freely with no copyright issues. It caught the mood of the times and has more than 1.5 million followers.

AEI’s embrace of YouTube is a good example of their approach to innovation. Dias refuses to gripe about YouTube’s ‘value gap’, whereas much of the industry is campaigning for change. In some ways, the anger is understandable. Around 46% of on-demand music streaming is from Google’s video website, but the promotion of advertising over paid subscriptions depresses market prices. Meanwhile, despite notice-and-takedown orders, the supply of copyrighted music on YouTube continues unabated. More often than not video played on YouTube delivers nothing to the artist.

But Dias has an entirely different perspective on YouTube. He recently told an audience at the Music Ally’s Sandbox innovation summit that he was “Getting pretty ******* bored of the vilification of YouTube. It’s like moaning about the weather, or moaning about Brexit … We are living in a time of abundant opportunity and tech companies are putting music front and centre.”

Dias said the industry should stop seeing YouTube as a monetisation channel alone. Instead, they should perceive it as a way of taking a large audience and driving it somewhere else. He pointed out that for every £1 AEI makes on YouTube, it drives £10 in value elsewhere, such as premium subscription streams or gig tickets.

For young artists, such a high-tech, fast-moving world can be intimidating. But Brindley says they have no choice but to move with the times. “Someone in the band, or a manager, has to think more like an entrepreneur running a start-up than a traditional rock band,” he said. “Groups are getting picked up by labels once they’ve created a buzz. Nowadays they need data to show they are generating attention. Bands who know what they’re doing on social media and are comfortable in the digital world are more likely to get signed.”

Gigi Johnson, Director of the Center for Music Innovation at UCLA, says there are parallels with the pre-internet music industry in that bands still have to build a community of fans, but digital technology has created a different marketplace. “Bands used to have to get through a narrow doorway by building reputations through live performances and hawking their recordings around to labels. Around 4% of artists got into the pipeline. Now the doorway is much wider and there’s a gigantic amount of music being produced, but it’s tough for most artists to make enough money in the streaming and touring world,” she said.

Fortunately, a lot of the data and analytics tools that make it easier for bands to market themselves are relatively inexpensive. Using data from YouTube, Spotify and Facebook helps artists to understand their fans. “Tools like Next Big Sound, in Pandora, show artists where in the world fans are listening and how to find look-a-like fans. A lot of marketing is about locating top fans and letting them do the work for you,” Johnson said.

The music industry suffered 15 years of financial decline between 1999 – when Napster launched its music-sharing platform – and 2014. Around 40% of revenues were lost in this short period, according to the International Federation of the Phonographic Industry (IFPI). But there are signs of renewal. Last year’s IFPI data showed a 5.9% rise to US$15.7 billion. The main reason was a huge increase in streaming revenue, which rose by 60.4%. Streaming from sites like Spotify and Apple Music contributed most of the US$7.8 billion in digital revenue in 2016 which, in turn, now accounts for 50% of total revenue. Other formats for music remain marginal. Despite a precipitous rise in vinyl sales, for example, it remains a niche market with just 6% of global revenue.

Clearly, compared to the days of a US$12 CD, the streaming world can be hard to monetise for all but the biggest artists. Spotify’s accounts show they pay a fraction of a cent per stream. But, despite the paltry sums, Brindley follows the example of Dias in refusing to bemoan the state of the industry. “Artists have to find new ways of ‘monetising engagement’ whether it’s through live
performances, or creating a website, or something else. That’s why AEI’s collaborations with young entrepreneurial artists are a good model to study,” he said.

Artists today need to be on the lookout for the next technical innovations. One talked about for a while is virtual reality (VR). A handful of artists are already streaming live concerts in VR, opening up concerts to fans in remote locations, or with disabilities. Two companies to watch are the UK’s Melody VR, which has set up a lot of deals with rights holders, and the US company Wave VR, which is concentrating on music-related experiences on a social platform. “VR technology has enormous potential beyond live concerts. You could learn to play music, or join a famous band, in VR” said Gigi Johnson. “To date there are lots of pilots, but there isn’t enough equipment. It seems likely it will first be brought into arcades and malls rather than people doing VR in their own homes.”

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Much of the innovative thinking in the industry, Johnson says, focuses on new financing models. She points to Royalty Exchange, which allows rights holders to auction a portion of their royalties through an online bidding process. Another new approach arose in 2013 when the industry veteran Irving Azoff set up Global Music Rights (GMR), which offers clients high-level analytics and data solutions to track down royalties. To date, however, GMR serves a select, invitation-only client base, leaving minnows to fend for themselves.

For these smaller artists, salvation could come on the form of blockchain technology. Blockchain is a distributed ledger that can validate and register transactions without the need for a central authority, permitting a more direct relationship between creators and fans. In theory, composers and artists could cut out middlemen and get direct compensation every time their songs are played. The blockchain company PeerTracks, for example, says it will enable artists to instantly claim 90% of sales income.

“A lot of this is about future economics and tech companies are heavily invested waiting for the next big thing to happen,” said Gigi Johnson. “So much of the explosion in innovation in the music industry is around technological processes now. But artists still need to be focusing on their art. To do so, they need to surround themselves with tech-savvy people. And hire a good lawyer.”


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