Okay, here's a question. Have you ever noticed the difference between how music streaming is covered in the classical music media, as opposed to in the pop and mainstream media? Think about it. As far as pop music goes, your likely first thought will be artist earnings, exemplified by Taylor Swift's high-profile removal of her music from Spotify, and her triumph in reversing Apple Music's payment policy during its free trial period.
Now move on to classical music and, be honest, it's metadata, isn't it? Thousands of words have been written on the irritation of clicking onto a multi-composer album to discover that only the work titles, and not the composer names, appear on the track listing. Or of finally unearthing a choral work, filed not under its title or composer but under the name of one of its soloists.
If you were to come up with a second issue, it would probably be audio quality. However, whilst metadata and audio quality have been the burning issues for classical journalists and listeners, it's the economics of streaming that has been alarming certain independent specialist classical record companies. In fact, as far as they are concerned, streaming poses unique and far greater problems for the classical industry than it does for the pop world.
First, some context. Streaming platforms typically pay around 70 per cent of their profits to rights holders. How much each individual rights holder then receives is calculated by dividing that 70 per cent figure by the total number of streams on the entire platform, then multiplying that resultant figure by the number of separate track streams the individual rights holder's music has accrued. With subscription services such as Spotify Premium and Qobuz, the profit being divvied up comes from their subscriber fees and works out at somewhere between $0.006 and $0.0084 per stream, according to Spotify. Then, royalty payments from the free, ad-supported services such as the basic Spotify service and YouTube are drawn instead from advertising sales income, and are consequently much smaller.
In other words, in order for record companies to achieve through streams the same kinds of profits as physical and download sales, a serious number of streams are needed. And that's a problem when your company, unlike the majors, only produces classical recordings, because classical music commands only 3.2 per cent of the market share, in comparison to pop's 34.5 per cent.
Add classical listening habits to the mix and you discover a fresh problem. For instance, as Delphian Records' Managing Director Paul Baxter points out,‘How often in a year do you want to listen to the complete Rachmaninov Songs?’
A further streaming-unfriendly listening habit is cited by Steve Smith, Founder and Director of The Tallis Scholars' own label, Gimell Records. ‘A much smaller percentage of the classical market treat classical music as wallpaper music than people who listen to pop,’ he maintains. ‘Classical listeners are much more likely to sit and listen to an album or two, rather than have it on all day long.’
Next, think of how many different recordings of Beethoven's Symphony No 5 there are in comparison to how many separate versions of any given Pink Floyd song, and you begin to see how what profits that there are could be spread even thinner.
‘If you're a subscriber to Spotify and you only listen to classical and not pop music, it's more than likely that your listening is subsidising the pop acts’ – Steve Smith, Gimell Records
Then, compounding all of this is the streaming platforms' payment-by-track remuneration model. As Steve Smith explains, ‘If someone listens to the Gimell recording of John Browne's music, which has just five tracks ranging between 13 and 15 minutes, and somebody else is listening to a normal pop album which may have 16 or 17 tracks lasting three or four minutes, we would only get five tracks' worth of payment whilst the pop album would get 16 or 17 tracks worth of payment. So, if you're a subscriber to Spotify and you only listen to classical and not pop music, it's more than likely that your listening is subsidising the pop acts.’
Such inherent disadvantages hit independent labels such as Hyperion Records, Delphian Records and Gimell particularly hard because they are still operating a traditional funding model whereby they largely foot the bill for the recordings they make. A recording can cost them anything between £10,000 and £40,000 to produce, so in order to stay afloat and keep making new recordings they need a steady stream of upfront, substantial income. This currently comes through a combination of new releases and back-catalogue sales. However, if customers were to suddenly stop buying and start streaming – a drip-by-drip economic model reliant both on huge volume, and on continued listening over a prolonged time period – the impact on these labels' economics would be catastrophic.
Take the example of Hyperion Records, who have decided not to make themselves available on any on-demand streaming platforms. In 2013 a well-reviewed Baroque vocal album cost them £36k to make. During 2013, this album earned £10,847 through 2,104 CD sales and £2,152 through 444 download sales. However, 34,947 streaming events on iTunes Radio earned just £22.13. Not good, even within the context of iTunes Radio paying out less than a subscription service.
Next up, Gimell Records, whose recordings have been widely streamed. They also analysed their income for us and, looking at the six-month period ending in June 2015, they calculated that in order to generate the same revenue for their label as a single-track download from iTunes, a track would need to be streamed approximately 100 times by a Spotify subscriber, 700 times on the Spotify free service, and 825 times on YouTube. Gimell have just removed their music from Spotify, and are in the process of removing many of their recordings from YouTube.
‘There's no way that a record company could operate on the fees from streaming alone’ – Paul Baxter, Delphian Records
Both sets of figures ring true for Paul Baxter. ‘There's no way that a record company could operate on the fees from streaming alone’, he states. ‘It's absolutely impossible. There are too many zeros in front of the amount-per-stream figure.’
Hyperion's Chief Executive Simon Perry puts it even more starkly. ‘If in the future there are no CD sales, no downloads and people only wish to stream, then how on earth does the label find the £1.5 million in cash to pay for the 75 recordings we make each year?’ he asks. ‘I don't have a pot of gold at the bottom of my garden. If we then start offering our recordings on streaming services for virtually no financial return, and the majority of people decide that that's how they wish to consume music in the future, then I can't see where the income will come from to pay for all the new recordings.’
Well, the answer to the ‘who's going to pay?’ question for some record companies is ‘the recording artists themselves’. For although it isn't a new phenomenon for artists to pay for recordings, it is becoming more normal now amongst respected and established record labels, with even internationally established musicians being asked to reach into their own wallets. Often, this could be seen to be more of an issue for artists rather than for the consumer. After all, if an artist can just decide to make a recording, pay up and go ahead, there may be even more newly recorded music for us to buy and much of it extremely high quality, such as Gramophone's own May 2015 Editor's Choice of CPE Bach Symphonies with the OAE under Rebecca Miller for Signum. Or, our September 2015 Editor's Choice of Grieg and Moszkowski piano concertos with Joseph Moog – Gramophone's 2015 Young Artist of the Year - and the Deutsche Radio Philharmonie under Nicholas Milton for Onyx.
However, as Paul Baxter explains, this modus operandi removes an important safety net. ‘The way it affects the consumer is that, traditionally, when record labels pay there's an element of quality control before anything happens at all. The record label had a role as custodian of quality and might sometimes tell an artist, “That's not the right repertoire for you”.’ He continues, ‘I have an idea of which projects are the right things to do with which artists, and if artists just go ahead and record their own things then immediately that level of quality control is gone.’ In fact, Delphian Records takes this element of their role so seriously that they employ an artists' development manager, a post that would become unaffordable if their income drops below a workable level.
Such issues and comments feel particularly pertinent right now. In the next few months we may possibly have an idea of how many users Apple Music has managed to retain as their free trial period comes to an end, but in the meantime we're looking at British Phonographic Industry (BPI) figures released this summer which showed that, whilst free streaming is on the rise, subscriptions remain low, with 41.9 per cent of the British population streaming music in 2014 but only 6.4 per cent paying for it. Likewise, in America last month the Nielsen Music 360 Report found that, although 74 per cent of Americans listen to music online in any given week, as many as 78 per cent of them said they were only ‘somewhat likely’ or ‘very unlikely’ to pay for a streaming subscription, citing expense and the availability of free services as their chief reasons for not biting. And Spotify have made it clear that they're not planning on terminating their free service.
Bubbling alongside all this is the fact that total classical album sales fell by five per cent in 2014. Even more worryingly, classical download sales fell for the first time since records began in 2006, and by a significant 18.9 per cent.
Still, what to do? As far as Steve Long, Director of Signum Records, is concerned, there's no option but to embrace streaming. ‘My view is that streaming is how people have elected to listen to music now, and it's not up to us to say, “well, you can't”,’ he states. ‘Because if you do that, you're not in the music business any more. The public clearly wants to stream, and if we want them to evolve into classical music fans then we have to offer streaming.’ As a result, Signum recordings are widely available on streaming platforms.
‘If the classical industry is to survive long term then it needs to find some fresh customers fast’
However, there's one further killer statistic that is perhaps the one on which the classical industry most needs to focus its attention. Namely, that whilst classical music accounted for just over 5.9 per cent of the UK music market in 1999 (IFPI), that figure is now just over three per cent (BPI). In other words, if the classical industry is to survive long term then it needs to find some fresh customers fast. Perhaps therefore, if one wanted to be optimistic, the streaming crisis will prove to be the catalyst for this happening.
One man who thinks so is Chaz Jenkins, who founded the LSO Live label and now advises record companies on their digital strategies. ‘Record companies in the past may have sold music, but really they sold bits of plastic’, he points out. ‘Now, revenue is no longer dependent on the consumer buying your product, but on the consumer listening to your product. So, the economics have changed. However, it doesn't necessarily mean that they are any worse.’ He continues, ‘I've worked in the classical industry for a long time, and a lot of people are focusing on selling to an ever decreasing number of people, when the reality is that this represents a tiny proportion of the people who genuinely want to listen to the genre. Classical music almost seems to be talking itself into the grave at the moment by not trying to reach a wider audience. The economics do certainly need to be looked at, but just to dismiss streaming simply because you look at a royalty statement and you see that somebody pays half a pence to listen to a track? I don't really think that that's understanding the economics of this business.’
As for where all these people who want to listen to classical music are, the answer appears to be that they're in the same place as the streaming platforms: the internet. Take a recent study by the US-based music industry analytics website, Next Big Sound. They found that classical music accounts for six per cent of average music-related distribution across Spotify, Youtube, Vevo, Facebook, Twitter, Wikipedia, SoundCloud and Instagram. And remember, that's compared to an overall market share of 3.2 per cent. Narrow that down further to Instagram, and the figure rises to eight per cent, matching R&B and country, and overtaking rock music. On Twitter, classical music takes a seven per cent share.
Anecdotally also, classical music appears to no longer be the no-go area for young people that it once was. Lukas Krohn-Grimberghe is the director of Grammofy, a new classical-only streaming service specialising in curated playlists covering ‘classical's hidden and famous’, with high-end audio and a distinctly cool look. ‘We had a chance to talk to a group of students in Germany aged between 18 and 21,’ he says, ‘and the interesting thing was that they were saying classical music was neither positive or negative for them. It didn't even have the aura of being something that their parents listened to, which means that you can try to get people interested in classical music without any pre-existing prejudice. It's a clean sheet of paper.’
‘Universal, Warner and Sony consider playlists to be so integral to their business model that they've invested in their own playlist strands’
So then, the billion-dollar question is how to translate this potential group of new, unprejudiced, online classical listeners into the millions of streams needed to keep the classical record industry afloat, and the answer to that one may well be playlists. Indeed Universal, Warner and Sony consider playlists to be so integral to their business model that they've invested in their own playlist strands: Digster for Universal, PlaylistMe for Warner, and Filtr for Sony. Then, the key to playlist glory appears to be social media, dovetailing neatly into those Next Big Sound statistics.
‘You can't take out an advert in a magazine,’ explains Steve Long. ‘You need to put it in front of people on Spotify or Twitter or Facebook. Then, with just one click they're listening to it, and if they like it they're telling their friends about it, and then it suddenly goes a little crazy. That doesn't work for every artist, that's for sure, but it's working for more and more now.’ In fact, he says, Signum have one particular artist who makes ‘probably 10 times through just Spotify what he makes through any other revenue stream.’
Furthermore, it could be that streaming has been a key factor in Signum's market share rising in 2014 from 0.3 per cent to 0.6 per cent. ‘I couldn't stake my life on it, but at the moment it looks like for every thousand streams that are on Apple Music we're seeing a download in iTunes,’ comments Long. ‘Plus, our best-selling track download is being mirrored by what's being promoted on Apple Music, and it's not unique repertoire either: it's core repertoire where there are literally hundreds of versions available. We can't prove that people are streaming and then downloading, but it does seem like a striking coincidence!’
And the smaller independent labels are also about to benefit from the sudden arrival of a pack of streaming platforms more kindly disposed towards them, of which Apple Music is of course the most significant. Apple matters because, whereas smaller labels have found that Spotify will neither deal directly with them or allow them to control which of their recordings are available in which regions, Apple engages in face to face relationships and allows even the smaller companies a degree of control over their music. As Steve Smith describes, ‘If one afternoon I say “take track seven down off that album”, by the next morning that track would no longer be available on Apple Music.’ It's also quick and easy to nip from hearing a track on Apple Music, to buying it on the next door iTunes store tab.
‘Financial analysts believe that the music market as a whole could experience an upturn as a direct consequence of streaming’
This purchasing function is also a feature of Grammofy, as well as another forthcoming high-definition audio, classical-only streaming platform called MeloMe. Both of these platforms will also be operating a payment system based on track length as well as number of plays. Plus, obviously, all profits go to the classical industry, as will those of the other new classical-only streaming platform, Idagio.
Furthermore, looking to the future it's just possible that the all-important subscriber numbers will increase. In the UK last year, streaming subscription numbers across all genres may have been small but they were also the strongest area of growth, with revenues rising between 2013 and 2014 by just over 58 per cent, up to £86.6m. Likewise, figures released this week by the recording Industry Association of America (RIAA) showed that streaming revenue as a whole surpassed $1 billion in the first half of the year for the first time.
In fact, financial analysts believe that the music market as a whole could experience an upturn as a direct consequence of streaming. Credit Suisse recently predicted that music streaming will drive a return to revenue growth in the music industry by 2016, with paying subscribers in the 10 major music markets rising from the current five per cent up to 20 per cent of the adult population. Not unreasonable when you consider that within the more streaming-savvy Swedish and Norwegian populations the percentage is already between 19 and 24 per cent.
‘The average UK consumer's annual spend on music in 2014 was £39.52, whilst a typical annual streaming subscription costs £120’
Credit Suisse analysts believe that the fact that streaming offers both shared playlists and as much music discovery as a consumer would want means that it ‘stands a good chance’ of encouraging some of the 50 per cent of consumers in developed markets who currently pay nothing for music to do so for the first time. And if that did happen, they point out, there would be considerably more money flowing into the music industry than there currently is. After all, the average UK consumer's annual spend on music in 2014 was £39.52, whilst a typical annual streaming subscription costs £120.
However, it's still a bit early for the smaller classical independents to start celebrating. Particularly because, whilst £120 may be more than the average consumer is spending, Gramophone's own 2014 reader survey found that our readers purchased an average of seven physical units a month, plus one download, so an annual spend of closer to £700, meaning a seismic drop-off in classical revenue if all those consumers suddenly stopped buying and instead switched to annual streaming subscriptions (even allowing for the fact that many Gramophone readers may opt for a premium streaming service, with high-fidelity sound, that costs more than £120). And it must be said that Credit Suisse aren't advising clients to invest in small, independent classical specialists, but instead in Vivendi, which owns Universal Music.
Even a champion of streaming such as Steve Long says that if classical listeners switched too soon to streaming then there could be casualties. ‘Yes, it's the “too soon” bit that is key,’ he comments. ‘If we lost all our physical and download sales overnight, we wouldn't be able to make enough from streaming to compensate for that.’
‘The classical music industry does have some time to get its head around this brave new world’
It's likely that the classical music world does have some time to get its head around this brave new – and perhaps potential-filled - world, though. The BPI reported that only just over one per cent of all streams last year were classical, and even physical sales are still holding well in classical, at 78.5 percent, despite their purchase cost rising.
In the meantime, all eyes will be on Apple Music. For, as the serious rival to Spotify and YouTube its customer take-up, and indeed how it develops its classical arm, will be crucial to how the smaller labels fare. As Paul Baxter says, ‘I guess what would be my hope for Apple Music would be that it would be everything Spotify is and more. That it would remunerate labels and ultimately musicians more fairly, and that it would form a serious competitor to Spotify.’
Still, those figures from Hyperion and Gimell pack a punch, and should at the very least prompt classical consumers to choose their streaming subscriptions tactically at the moment, if they want to protect the specialist labels they cherish. Consumers also, in the short to medium term at least, need to consider what effect their suddenly not purchasing albums would have on these record companies. Steve Smith is clear on what he sees the stakes as being. ‘What I'd really like to get across is to say, please understand that if you stop spending the money on downloads and CDs then the total money coming into our industry will dramatically reduce. We will no longer be able to provide the quality of the product you want, and possibly not even the product at all, even at a lower quality.’ He continues, ‘Is this trend towards globalisation in the music industry, of only having two or three overall suppliers and a complete lack of diversity, in the interest of the consumer? I don't believe it is.’
Food for thought, as you consider where next to spend your music budget.