#SXSW REWIND : Venture Capitalist Admits Artists Can Not Make A Living Streaming

The grand irony here is that the panel which asked the question “”Will Artists Make Money on Big Music Platforms?” not only reported that artists could not, but also suggested that artists needed to focus on selling concert tickets and merchandise. You know, things artists did BEFORE the internet.

We admire the honesty of Hany Nada, Managing Partner GGV Capital who bluntly and glibly admitted during the SXSW Panel “Will Artists Make Money on Big Music Platforms?” that he believed that they would not be able to do so. He also added that he the point of digital streaming platforms such as Pandora, Spotify, and others was promotion to help the artists tour, sell t-shirts and offer other non-digitally distributable “experiences” to fans (why is this sounding more and more like prostitution?).

At least Mr.Nada is honest, which is refreshing given that the man has more integrity than most of the executives at that streaming services who claim the problem of royalties is one of scale and not sustainability. Mr. Nada (ironically named in this context) may be well intentioned and honest but he is also grossly misguided.

Mr. Nada’s statement and philosophy that streaming sites should be viewed by artists as a promotional platform more so than a financial one are an admission of the failure of these unprofitable start ups to serve musicans. As such, let artists decide if there is a value proposition in these companies that benefits the artist and allow them to opt out. Not every album should be on streaming services. Not every artist should be on streaming services. And if streaming is nothing more than promotion with little value proposition, than artists need to rethink their relationships and strategies regarding those businesses.

To be fair, it’s not just Mr.Nada who has promoted this philosophy. It appears that many of the music streaming company executives on panels at SXSW alternate between two talking points. First is that these services will support musicians when they scale (which we can find no evidence of). And second, when pressed on the first point, that streaming platforms offer promotional value for artists to make money in other ways. Oddly, other than “t-shirts and touring” no one seems to have any idea how to translate an artists participation on streaming services into a sustainable revenue stream.

In almost every way streaming companies represent the worst of both the old boss and the new boss.

So here’s the take away, which was put forth by a series of questions from the floor that largely went unanswered.

1) If artists can’t be expected to make a living from streaming music why should streaming executives make a living from streaming businesses at the artists expense? These are essentially, artists subsidized corporations.

2) As artist’s are bringing the audience to the platform, why should the platform profit, but not the artists? Test this theory, No Music = No Business. Done.

3) Artists have been able to sell t-shirts and tour long before the internet and without streaming platforms, but streaming platforms can’t exists without the artists music. Again, No Music = No Business. Done.

4) Given that the streaming music thought leaders believe that the”new revenue model’s” for musicians are “touring and t-shirts” when are the streaming company executives going on tour to sell t-shirts to support their businesses? We find it odd that the executives running companies that are not profitable are giving business advice to musicians.

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15 thoughts on “#SXSW REWIND : Venture Capitalist Admits Artists Can Not Make A Living Streaming

  1. Well the bullshit argument we’ve seen for some time now, that merchandising leads to some sort of financial stability, is starting to finally wear itself thin, but what doesn’t ever get reported is that merchandise doesn’t support songwriters or producers or any number of people affected by the loss in revenue from streaming or “free” music options. The “face” that you see bringing you the music has a lot of unseen people behind it.

    Last year (and yes I’m an exception) I purchased over $1k in music, plus I have a monthly Rhapsody account, and I support an Internet radio station called Radio Paradise. I also attended many concerts and smaller gigs. How many T-shirts (or other merchandise) did I buy? Zero. So what money really went to the artist or songwriter…my music purchases.

    The other argument I see is that free leads to paid. First it was free tracks lead to paid albums…and then even in 2009 Lefsetz is quoted as saying free streaming would lead to paid streaming…a revolution he called it. Has that happened yet? It’s been 5 years.

    You don’t have to be an economist to figure out that streaming can’t support the entire music industry…and neither can supplemental t-shirt sales.

    We’re seeing a consolidation of streaming/music services right now. Spotify has raised a $200mill line of credit towards an IPO and is going to be on a buying spree. Beats is also acquiring and raising more capital. Apple will enter the fray soon. Google Play…YouTube are really likely to merge into some hybrid service. In 2 years there will likely be only 5-6 truly competitive platforms for getting music and you can bet you won’t see any more startups popping up because they won’t be able to compete with the kind of money involved right now.

    Take Spotify’s own statistics on conversion and multiply that out and the money just isn’t there…not to mention that to date they can’t even sustain their own business model.

    That said…regardless of how you spin the message of artists in control of their own destiny…what control? They don’t have any tools they create. They don’t control the method of distribution, promotion, sales, you name it. All tools available are made by tech people for their own benefit (profit), with maybe the exception of Cash Music, which as a non-profit is having trouble keeping funded…which is a real shame.

    Unless a major shift happens in the next two years and new sustainable revenue sources are found, the industry will see a collapse, but by that time the damage will have been done and you’ll be lucky to see any truly independent artists surviving.

  2. If you want to be on streaming services I think it should be only for catalog titles. Maybe at least 3 years after a title is initially released.

    • We have seen that business before, it was called record clubs. There was a constant tension between the artist and the label (especially the ones that owned the club) about how long a record could be held back before it went to the club (12 months at most).

  3. Reblogged this on Nights on Venus and commented:
    Well there you have it… someone actually coming out and saying that no, artists cannot make money through the streaming services, which we already knew. Better start working on that design for a killer T-shirt. If you’re a musician/recording artist, there’s really only one thing to do here: pull your entire catalog OFF the streaming services. No music, no business.

  4. “Make your money on touring and t – shirts. “ This is an old tired line that has been used over and over by the parasitic businesses ( Google, Mega Upload, etc…) whose business models depend on using other peoples work without their consent and paying for none of the content creation. It also is now used by streaming companies like Pandora who use the legal system to enforce court decrees that force musicians to supply their work at rates they did not and would never agree to given a choice.

    First off one has to realize that it takes a great deal of money to produce quality recorded music. Many players are involved for many hundreds of hours, and much money is spent on gear and payments to outside parties. It costs far more to create a recording than prep for a show. And in the past, record sale money was used for development and promotion. Like it or not, it costs a lot of money to tell people who you are. Then consider that nearly everyone in the entire population listens to music, and many do on a daily basis. In the past record sale money or various royalty payments would fund the large costs of creating music and developing artists.

    But consider that while most people listen to recorded music, only a small percentage attend shows or buy merch. And those that do attend shows do so very in frequently. So what these people are suggesting is that you somehow fund all recording and development expenses from live show or merch sales. So how can that happen? Somehow you need to increase concert revenue. But there lies a problem. In Economics there is such a thing as a supply – demand curve. Simply put, if you want to sell more of an item you would need to reduce your price. If you increase your price the quantity you sell will drop.. The thing is “demand” is largely effected by people’s taste. At a given price , X number of people will purchase that good. So if a band wants more people to attend their show, they have to decrease their price. But then they drive down revenue. If they attempt to charge more per ticket, they have fewer attendees and drive down revenue once again. The fact is there are only a small number of people interested in live shows. The same can be said for merch. And people are not somehow going to attend more shows or spend more on a given show simply because a group of parasitic businesses suggest it could happen. Supply and Demand is what it is.

    It would be useful to have some data showing how much music the average person listens to in a given year and how many concerts the average person attends in a given year. Even without that data to help this point, it is pretty obvious that on average people listen to far more recorded music than attend shows in a given year. The idea that the tiny percentage of regular concert attendees can be made to subsidize the cost of recorded music is downright silly.

    And lastly, what gives these people the right to tell musicians if they have a right to make money from what they produce? Yes, the legal system has turned against musicians in very recent years. But musicians and other content creators rights to their work is still officially in our constitution and they still have a right to claim those rights.

    • Well it isn’t simply the legal system…it is that the music industry on the whole (not just majors but independents, etc.) don’t own any actual standardized tech. They don’t control any aspect of distribution, marketing, promotion…nothing…the gatekeepers are all tech guys not artists or musicians…and they know rights holders need them more than they need the media. I know a lot of people think…well we’ll just take our ball and go home, but all that does is a) lose public support for your cause and b) they have all the cash to ride it out…and all we’ll see is a spike in piracy.

      We need a shift in power that balances both sides a bit.

      • we don’t agree. we need to move beyond the extortion of “or else they’ll steal it” as a rationalization to devalue artists out of existence.

      • The solution is quite simple.

        DRM.

        Digital Rights Management for the artist. So they can protect and profit from their content.

        Every technology company would have to get full permission from the artist before ever profiting off their content.

        Now both of these solutions have been destroyed by the technology company.

        Sadly, over the years, I have seen more artists coming out against DRM than being for it.

        The technology companies have been remarkably successful in getting artists to repeat their talking points. Some “artsists” were and are paid as shills, while all too many others hopped on the anti-DRM “let’s sell t-shirts now!” bandwagon, simply because they thought it was cool.

        Until artists realize how cool DRM, Natural Rights, Human Rights, and the Constitution are, I expect their fortunes will continue to decline, as they must find second and third jobs to create the music that provides the essential soul and thus funds the billionaire lords of the cloud.

        Long story short, technology companies have become giant copying and spying machine which scoff at Natural Rights and the US Constitution.

        Until more artists realize that the US Constitution was penned by poets for poets, and step up to defend it, there will be little, if any progress.

  5. My question for Mr. Nada would have been: What is a non-touring composer/songwriter/recording artist to do? I don’t recall seeing Bernie Taupin t-shirts in the merchandise booth at Elton John shows.

    Let me see if I have this straight. The streaming sites will promote me using my product, not necessarily with my permission for which THEY get ad revenue. I get nothing, and the people who might be interested in buying my product are already getting it for free.

    Even if I wanted to tour, how am I supposed to fund getting t-shirts made, CDs printed, gas for the van and roadies to set up my show? How am I going to fund someone to bring me miniature bread backstage so I can declare it a catastrophe? The dream is dead.

  6. My digital distributor touts streaming services as a discovery platform. I couldn’t agree more. The problem is, once someone discovers my release on Spotify, there is little to no chance that they’ll ever buy the music. Why would they, when it’s there for them in its entirety whenever they want it for free? I’m trying to keep afloat by pushing pre-orders on both vinyl and itunes. It’s turned into a race: Sell as much music as I can, before Spotify takes away my ability to do so. Against my distributor’s wishes, I’m gonna skip deliverring to Spotify from now on. I gave it the old college try, and it just didn’t work.

  7. “Trichordist Editor: we don’t agree. we need to move beyond the extortion of “or else they’ll steal it” as a rationalization to devalue artists out of existence.”

    Which is not what I’m saying…

    What I am saying is that the strategy of “taking your ball home,” rarely works. Sure, it may temporarily get the attention of the tech companies, but what it really does is turn public opinion against you. Right now the successful narrative put forth for the past 10+ years has painted a picture that pits the greedy music industry against the tech industry and users who can’t see beyond the excess of celebrity.

    Right now what’s more important than your art is the publics infatuation with tech. If you take your ball home my mother-in-law won’t understand the politics and strategy behind it…she’ll just see all her favorite music vanish and she won’t blame Google. She’ll see the news reports of just how much money these companies have paid out and think…you should be able to survive on that…because she’s not an economist.

    From an article I wrote in 2003 in response to heavy handed tactics by the RIAA:

    “The sad fact is that we, the consumer, are not only beginning to see the erosion of our current digital rights, but our future rights as well. So why has the tech community been unable to rally the consumer behind our cause? Three reasons:
    1. Those who understand technology, don’t have the political clout, financial backing, or experience on Capital Hill that our opponents have. For all our technical prowess and supposed intelligence, we’ve failed to get organized.
    2. The tech community continuously fails to explain to the general public in clear and concise “real-world” metaphors, the damage that would incur if the RIAA were to get their way.
    3. The media, outside of many tech publications, is biased towards the RIAA because they get a large portion of their revenue from the industries the RIAA represents.”

    I say to you now…this is the very position you find yourselves in. This of course was pre-Google IPO, pre-Facebook, pre-Twitter, pre-iPhone…and the iTunes music store with heavy DRM had just launched. My how that changed quickly.

    My greater point is that I believe the proper strategy is to:

    a) return power to the arts by building solutions owned or that serve the arts…that aren’t developed by tech for tech with a goal of IPO or acquisition. We keep asking Google to solve problems it has no interest in solving. This is what I’m working on here in the UK.

    b) a face needs to be put to the music industry that isn’t the typical one that we see…we need to take away the celebrity straw men and put forth the fact that the music industry employs millions of people that will suffer if all of this collapses…these aren’t people who make music…they make music possible.

    I’ve worked in and around…covered and written about tech culture and social media for over 20 years. I’ve managed huge social networks with hundreds of thousands of participants. I’m pretty good at reading the collective attitudes of people online. Pulling catalogues will not solve this and in fact will simply open the door for tech to say…see…you can’t negotiate with these people. It will give them all the ammo they need to dismantle copyright for good into something that benefits them only…and when politicians, who often side with rights holders, can’t stream their Earl Scruggs tracks in Senate hearings…they will turn as well.

    I get your perspective and I sympathize with it…and I’m working hard to correct it. I agree there wouldn’t be any of these platforms if you guys didn’t make the art they are based on…but there is a militant middle that isn’t a zero sum game. And there is a bigger issue of piracy on the horizon that no one is talking about…but it’s coming…I’ll leave that for another time.

      • Again…I do get your point, and we’re on the same side. For 9 months I’ve been building a solution for rights holders to get more control and make new revenue they never had access to before…a not-for-profit open source project that I’ve self funded because I believe in saving this art form from destruction (I was a music major before I was a tech guy).

        We are on the same side…but we also come from different worlds and I have a long history in tech…the side that has basically sewn up the entire music business by keeping the music business on a leash. You and I basically believe in the same outcomes…but we have different approaches.

        We won’t necessarily convince each other over whose strategy is correct here in comments, but we want the same outcome.

        My philosophy is building something that doesn’t belong to the tech giants but to the artists…but tech has to use it if they want your music…at the same time it’s beneficial to them, to artists, and to users.

        But ultimately…we are allies and should always be looking at ways to help each other…because my own belief is we have around 2 years to turn this around (maybe less) and its game over.

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