Artists Should Seek Financial Stability in an Unstable Market

Feb 15, 2017

There’s an old Chinese curse that goes “May you live in interesting times.”

Anyone involved with any aspect of the music business for the last decade knows exactly what that means.

We’ve watched music formats shift from physical to digital in a massively uncontrolled and disruptive way. And while we’re now on the other side of that upheaval, it would be a mistake for anyone in the music business to think that things have fully stabilized

While streaming will likely be the dominant format of music consumption for the foreseeable future, this doesn’t mean there won’t be seismic changes to the streaming landscape (and with it, business model) as it matures.

Just look at Spotify. The service dominates the market with an estimated 40% of the worldwide streaming population. Yet Spotify’s future is by no means guaranteed.

It’s carrying a massive amount of debt and is seeking an IPO to balance out its bottom line. But it must demonstrate a “path to profitability” to get investors to participate.

The tech blog TechCrunch recently reported that Spotify’s IPO plans may be delayed until 2018, and between now and then it needs to settle new long-term licensing deals with the major labels. Complicating these negotiations is Spotify’s desire to lower its royalty payouts even further to appease investors (likely offering labels equity in return for lower rates).

Some even see a very real risk of bankruptcy, or a sale in lieu of IPO.

Spotify is not alone. SoundCloud is also struggling to turn user numbers into dollar signs despite its high-profile popularity with music fans. And Pandora faces similar struggles, despite growing revenues.

The point of all this is that the music business in the digital age is defined more by disruption than by stability. While digital as a format seems a fairly good bet, the expression of that format in terms of the business model for both the services offering music and the musicians they pay is hardly secure.

This leaves artists who rely solely on royalties for their income in a precarious situation given all the forces outside their control that can impact their earnings.

Already, 70% of songwriter’s income comes from government-regulated rates that can change at any time. Now add these market forces to the equation, and you have a very uncertain financial situation.

Artists should act now to create financial stability in the face of this unstable environment. Those with a history of royalty earnings can take control of their financial future and protect themselves from these uncertainties with real financial security today.

Don’t get comfortable or settle for today’s status quo. Don’t wait until the next industry disruption threatens your financial status. Instead, start considering ways to diversify your income in ways that protect you for the long term.

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