Technology and the Music Industry: A Complicated Relationship

Technology and the Music Industry: A Complicated Relationship

As we try to wrap our collective heads around the onslaught of new disruptive technologies, writers often look to how they will define the future. But in today’s post I decided to look at how technology has shaped parts of the past and specifically at the interplay between technology and the economics of the music industry. As a classically trained musician this intersection has been of interest to me for as long as I can remember. And as this quick histography hopefully will show, the music industry has had a long and complicated relationship with technology.

It all started with the commercialization of sound recording and personal playback devices. Following Thomas Edison’s invention of the phonograph in 1877 came the vinyl and gramophone, innovations that fundamentally altered the way society consumed music and which laid the foundations for the era of on-demand content. As these technologies took root across the world, artists suddenly gained a new medium through which to reach larger audiences. Before, their music could only be heard in one place at one time, each performance lost to memory as soon as the last notes fell silent. Now, however, artists’ music could be reproduced almost anywhere and anytime, without their being physically present.

This was a true paradigm shift. The vinyl and gramophone, and their successive technological evolutions (cassettes, CDs), essentially decoupled a musician’s live performance from an audiences’ physical presence and resultantly decoupled the music industry’s dependence on ticket sales as a sole means of revenue generation. With this new way of consuming sound, the music industry had new means of content distribution, customer access and revenue streams. Record companies and recording studios formed, performances were immortalized and consumers derived higher utility (listen to what you want, when you want, as many times as you want). Because of technology, therefore, the recorded music industry was born and the music industry had a powerful new profit generator.

Then came the mp3. And boy was this one disruptive technology. The mp3 was so incredibly powerful because by digitizating music into mp3 files, the physical barrier to individual ownership of unique, individual sound files was now completely destroyed. Before the digital era, consumption of recorded music was inextricably linked to the physical medium on which the recording was stored. Ownership was at once physical and aural — you had the CD, for example, and therefore you owned a sound recording of a given song. And, you had to use the CD and CD player to hear it. There was no other way. Sound, then, was physical, and it was plastic.

The mp3 destroyed this literal and figurative sound barrier. Now consumers could buy a CD, “rip” the individual tracks from the plastic on which they were coded and then store these sound files on a computer. Once ripped, recordings were no longer physically restrained. They could be transported or shared instantly, all over the world. And Napster made sure to make that transportation as simple and immediate as possible. Because of the mp3, then, the music industry lost its iron grip on content distribution and thus compensation. Music piracy became rampant. If you were a record label, it was chaos. The stable economic model ushered in by the gramophone was unraveling.

To many of us, this part of the mp3 story is quite familiar. If you were a millennial, chances are that you used Napster, Limewire or other questionably-legal peer-to-peer file sharing services. Through them you would get the music you desired and occasionally a virus you didn’t. It was quite an interesting experience, at once thrilling and unsettling. Besides playing the Russian roulette of malware with every download, there were other problems that undermined the utility of free digital music. Sometimes the files you would get were great, other times they were of damaged, dubious quality, or even corrupted. And then there was the guilt of participating in these activities: artists were not getting paid for their hard work. Oh, and I should add, there was also the threat of lawsuits brought by aggravated and desperate record labels…small detail.

In this problematic operating environment, where both supply and demand had massive pain-points, an unexpected hero arrived in the form of Apple and the iTunes store. In one brilliant act Steve Jobs brokered a difficult truce between music suppliers and music consumers and stemmed a crisis. To the music industry Apple offered a means of compensation for its intellectual property, albeit at much lower margins than before (they weren’t too happy). To listeners like you and me Apple offered a legitimate and safe way to obtain mp3 files a-la-carte (we were very happy).

True, piracy did not end with iTunes, but the anarchic havoc it was wreaking on the music industry abated. Rome was no longer burning, though the city was decimated. Quite a lot has been written on the mp3, Apple’s role in this narrative, and the commensurate fall in revenues suffered by the music industry. Suffice it to say, though, that the mp3 greatly shifted the balance of power in favor of consumers and platform owners, decimated the economics of the music industry and cast a long shadow on the industry’s future.

But as luck would have it, the blind wheel of fate would turn again, this time in the music industry’s favor. After an 11-year slump, the music industry has miraculously been growing again. In fact it has been notching double digit annual growth since 2016, with 2018 revenues up 13% year on year (albeit slightly lower than 2017’s 17% growth rate). The reason for this is music streaming platforms, which now account for 75% of industry revenues.

Though Spotify and the like were originally heralded as the latest of the music industry’s woes due to their all-you-can-eat content consumption model and new economic model (royalty per listen, not payment per purchase), the popularity of these platforms has paradoxically returned the industry to growth. Finally, some good news! A rising tide, as the saying goes. And while there are concerns over the pace of future growth rates, Bill Rosenblatt makes a good point when he noted that, “interactive streaming is recurring revenue, not one-time purchases, so it’s not going to drop as fast as revenue from previous eras did when the next thing came along.” This, at a minimum, should offer some form of relief for record companies; Sticky revenue is indeed preferable to one-time purchases, especially today.

From vinyl to cassettes to CDs to mp3s to streaming, the economics of the music industry have been shaped by successive waves of technological innovation. This dynamic between technology and music industry profitability has been complex. There have been glorious ups and incredible downs. While I cannot predict what spanner some future innovation will throw into the mix, I can bet that it will be add to the already complicated relationship between the music industry and technology. And, as a consumer it will be interesting to watch and listen to as it unfolds.