Mattias Hjelmstedt hi-res photo taken at his Utopia Music office, 2019

Onchain Melodies: Striking the Right Chord in the Music Industry

How the music industry has changed and where it could be headed; 

As the CEO of a start-up that spans the music and tech sectors, I constantly hear the word “disruption”. It is probably the most overused buzzword of the last decade.

Much of the tech media has become fixated on a simple narrative of the visionary entrepreneur on a mission to “disrupt” an industry.

At the same time, a lot of innovative companies can’t seem to grasp why adoption of their technologies remains low.

In my view, if you want to take part in an industry, you first need to understand its history — you will usually find that there are good reasons why it has developed in a certain way.

From Beethoven to Spotify

The fundamental structure of the current music industry has been hundreds of years in the making.

At first, composers sought to copyright sheet music. Fame and adulation were all very well for the great composers of the 1800s, but even Beethoven’s got to make a living.

So, it wasn’t surprising that Germany was at the forefront of music publishing in this era and the first international agreement involving copyright, the Berne Convention, was signed in neighboring Switzerland in 1886.

In the 20th Century, as radio and recorded music became mainstream, the music industry that we know today began to emerge, involving record companies to manage the musicians, publishing companies to deal with the songwriters, and collecting societies to gather the royalties.

Fast forward to the 21st Century, however, and the way we listen to music has profoundly changed, with music emigrating from our home stereos to MP3 players and ultimately, to our smartphones.

Digitization has introduced a myriad of new ways to consume music. This began in earnest in 2003, when Apple released iTunes.

Although Apple was not the first company to have the idea, the combination of the iPod and iTunes was the elegant marriage of hardware and software necessary to bring digital music into the mainstream.

Where CD singles had previously cost around $5, suddenly you could legally buy individual songs for $.99. This led to the erosion of the preeminence of the album, and the rise of personalized playlists, carefully curated by a friendly algorithm.

The final piece of the jigsaw was put into place when broadband and 4G internet access became widely available, leading to the emergence of on-demand music streaming services such as Spotify, which were the logical conclusion of the digital transition.

Indeed, streaming has become so ubiquitous now that it is hard to believe that Spotify first launched only a decade ago in 2008.

The move towards ever greater and more versatile access to music has ultimately been driven by consumers and it is easy to understand the appeal: instant access to millions of songs for a flat fee without any constraints.

History tells us that any industry that tries to resist this type of change will not last in the long term.

The way consumers engage with music has fundamentally changed and there is no going back. In the pre-digital era, people listened to music in a limited number of ways — they bought an album, listened to the radio, or went to a concert.

Nowadays, consumers expect to be able to listen any song, in any order, in any place.

In the last decade, music streaming services have rapidly expanded, finally overtaking cd sales in terms of revenue in 2017 — but that is not the full story. Statistics show that largest music listening audience by far can be found on social media platforms such as YouTube and Facebook.

The value gap

But while the number of listeners continues to increase, global revenue from recorded music has fallen around 20% from 2006 to 2016. So how can the audience have grown while revenue dropped?

Music Industry Revenues data from 2017

To explain this, we need to go back to the late 1990s, when social media was in its infancy.

At the time, governments introduced liberal “safe harbour laws” designed to protect fledgling internet start-ups while they were growing.

These rules meant that small websites run by start-ups could not be held legally accountable for content uploaded by users, as long as they took measures to take down copyrighted material when notified.

The fledgling start-ups of the late 1990s became the tech behemoths of the late 2000s, however, and YouTube amassed a user base of billions, many of whom listened to music on a regular basis.

This has gave rise to the so-called “value-gap”, whereby on-demand streaming services like Spotify and Apple Music returned $3.9 billion to the music industry in 2018, from a combined listenership of 212 million.

Conversely, upload video services like YouTube returned only $553 million in 2018, despite having a larger music listening audience of 900 million.

After getting sued by music publishers in 2011, YouTube entered into some blanket agreements which allowed copyright holders to collect a percentage of ad revenue when their music is used in a YouTube video.

However, this was like putting a band-aid on an open wound: difficulties in tracking music use, particularly if the track had been modified or performed as a cover version, meant that widespread unauthorized music use has continued, leading to the vast gulf between those who are playing music and those who are paying for it.

All told, it is estimated that the music industry loses a staggering $45 billion a year in unclaimed revenue. This is money that has slipped through the cracks as music consumption has rapidly expanded to all corners of the internet and our mobile devices in the past decade.

This is not merely a problem of legislation, it is also a problem of how to monitor, track and report music use in the digital age.

Music insdustry statistics on streaming leaders based on users.


Quantifying music consumption

Looking forward, regulatory changes on the horizon will address some of these problems.

In particular, the loophole related to uploaded content may finally be addressed by the latest EU legislation on copyright, which will compel sites like YouTube to take responsibility for user-uploaded content which infringes copyright.

While this may take care of some of the legal concerns, an equally important challenge is how to track music consumption.

After all, if we don’t know what music is being played, then we don’t know who should be paid.

The process of quantifying and remunerating consumption was always somewhat inexact, relying on actors such as radio stations and music venues to self-report which songs they were playing.

This was augmented by a system of spot checks, whereby paid listeners — often students — would go to music venues and write down the names of the cover songs they could identify.

Despite the obvious inefficiencies, the system worked well enough to be sustainable in the analogue era.

Music revenue statistics & data since 1977

(Source: RIAA)

A vision for the future: one pay, one play

Digitization, however, has introduced far too many data points for the existing procedures to cope with: the music industry still has analogue business practices in a digital world.

Automation will likely play a key role here: I foresee a future where music consumption can be accurately tracked and remunerated in a real-time, secure and anonymised fashion.

The ultimate vision would be that as soon as a song is played on a digital streaming service or in a public venue, it is securely logged and the artist and other rights holders are immediately remunerated — one play, one pay.

Up until now, if an artist releases a popular song and suspects they are not being properly compensated, they need to hire an army of media and copyright lawyers to get the bottom of it.

This often involves multiple composers, performers and copyright holders — and when you introduce covers, sampling and remixes into the equation, you end up with a complex web of legal procedure that needs to be navigated to get paid.

If you a top-selling artist, you might be able to justify these costs. But if you are a small or emerging artist, this could be the difference between whether music is a viable career or not.

So we have an industry with multiple stakeholders whose interests are not always fully aligned, who interact through a complex web of legal contracts.

This should spark the interest of anyone who is familiar with the strengths of blockchain technology for example, which comes into its element when trust and verification are required.

Indeed, if we can create an ecosystem which allows all the music industry’s stakeholders to cooperate via “smart contracts”, which are automatically triggered when a particular song is played, we can radically reduce administrative overhead in the industry.

By properly tracking and compensating music consumption in this way, billions of dollars of extra revenue could be generated while making the music industry fairer and more transparent for everyone.

Searching for Sugar Man in the digital age

While more data will be key to simplify how musicians get paid, it also has the potential to change how and where music is marketed.

The documentary film Searching for Sugar Man details how the American folk musician Rodriguez became a star in South Africa without realizing it in the early 1970s, when pirated versions of his album were widely circulated and sold without his knowledge.

The film documents the quest of two of his South African fans to track him down, who ultimately discover that he had no commercial success in the US and had quit the business in 1976 for a job in construction.

Upon discovering his dormant fame on another continent, Rodriguez came out of retirement to tour South Africa and Sweden in 1998, performing for thousands of fans.

Amazingly, this kind of phenomenon still occurs today, particularly to smaller local artists who publish their music online.

Access to greater data will enable artists to pinpoint their fans with greater accuracy than ever before, allowing them to optimize touring schedules and target their marketing budgets.

Publishers will be able to monitor trends to see which artists are finding an audience in which regions and make more informed investment decisions.

Ultimately, we will have a more transparent industry in which the tastes and passions of music lovers, rather than industry gatekeepers, decide which music gets financial backing and that can only be a good thing.

In the past 15 years, most of the technological advancements in the music industry have greatly benefited the consumer, while posing challenges for an industry that has struggled to adapt to the dizzying pace of change.

I predict that the next wave of technological advancement will bring as many benefits to artists and the wider industry as it does to consumers.

To achieve this, leadership that goes beyond the brash bravado of the stereotypical tech evangelist will be required.

To make a genuine impact in the coming decade, we need people who understand the unique dynamics and history of the sector.

Only then can we bring artists, publishers, record companies and collection societies together to create a music industry that is fit for purpose in the digital age.

Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of Richtopia. Examples of analysis performed within this article are only examples. They should not be used in real-world analytic products as they are based solely on very limited and dated open-source information. Assumptions made within the analysis are not reflective of the position of Richtopia.


This page was last edited on March 27, 2019.