Phillip Sommerich

Streaming is leaching revenue from classical labels. But does the industry have the clout to make the necessary changes?

11:15, 1st September 2015

There was widespread applause when Taylor Swift took on and defeated the mighty Apple Corp this year over its intention to pay artists nothing during the free introductory phase of its streaming service, Apple Music. Not so in the classical music sector.

While pop artists whinge frequently about their derisory earnings from streaming, most classical artists and many orchestras get nothing. Classical labels similarly see no return from illicit appearance of their recordings on sites such as YouTube.

Yet the classical establishment insists streaming is A Good Thing. In July last year, streams on Spotify, Deezer, We7, Napster, 02 Tracks and Sony’s Music Unlimited were included in the UK’s Official Classical Singles Chart. The Official Charts Company equates 100 streams to one download. That number of listens would yield a record company just 50-70 cents, which might seem reasonable for a four-minute pop song, less so for a 20-minute concerto movement (the uniform payment for streamed ‘songs’ is another complaint from the classical sector). Anyway, the classical singles chart was quietly dropped in January, for lack of media interest – which may say something about industry body the BPI’s ability to excite media interest in the classical sector.

The classical majors insist streaming is a powerful marketing tool and Universal Music recently appointed a classical streaming manager – although, for reasons best known to itself, it refuses interviews with her and even to name her. Of course, it is coincidental that the majors own stakes in the leading streaming services.

Streaming does make sense for the classical majors because, like their pop counterparts, they are artist-led. Listen to Kaufmann, Karajan or Callas and the money goes straight to the labels that signed them. But if you fancy a Beethoven symphony or Bach chorale, the money could go to any one of several dozen labels.

Nonetheless, most classical indie labels have knuckled under and supplied music to the streaming services, without any hope of a big financial return.

One indie label boss who asked to remain anonymous spelled out the maths from a 2013 release: total sales over the year of 2,548, of which 2,104 were CDs bringing in £10,850; 444 were album downloads realising £2,150; 349 individual track downloads for £170; and 34,947 streams on iTunes radio and iTunes Match netting £22.13. That album cost £23,000 to make.

A label investing £1m-£1.5m a year in repertoire-led recordings would be out of business instantly if streams were the dominant revenue source.

What disturbs many labels and performers more than the maths is the mindset that underlies streaming – that music is not something you need pay for. ‘That perception could be the death-knell for the record industry,’ said one industry commentator. ‘People are prepared to pay £3 for a cup of coffee that costs pence to make, but they believe music is there for free.’

shutterstock_200035424 - c.Denys Prykhodov
Photo: Denys Prykhodov

For many musicians, that is precisely their return from streaming. The traditional recording deal that offered artists an upfront payment and royalties has long been replaced by ‘buy-outs’, surrendering all rights to the label in return for one payment (or, sometimes, none because the artist pays part or all of the recording cost). That can make sense for pop artists with the potential to earn well from tour revenue, merchandise sales, sponsorship and broadcasts.

Klaus Heymann, founder and boss of Naxos, has become a convert to streaming, albeit reluctantly. ‘In the first quarter [of Naxos’ financial year] the growth in streaming revenue more than compensated for the drop in download revenue,’ he proclaims bullishly.

There is the essence of streaming’s persuasive power. Heymann says the hope that downloads would compensate for years of steady decline in CD sales are evaporating: physical-format sales are stabilising but downloads are declining.

Therefore, Heymann argues, to survive labels must chase every penny and cent, whether from streams, licensing to other labels, synchronisation (broadcast and film/tv use) or whatever.

As the pioneer of budget-label recording, Heymann is used to driving hard deals. He is brutally candid about the bottom line: ‘The cost of making a recording is tending towards zero because many orchestras and artists are prepared to record without a fee,’ he says. UK artists and orchestras are the exception but many orchestras in mainland Europe will record for free, he says, and cites one of the many labels Naxos distributes which persuades one band to not only record the Brahms symphonies for free but also to buy 3,000 of the box sets.

Those performers are hoping that the recordings will land them an engagement or tour somewhere in the world, and Heymann says: ‘It is unfair to deny those orchestras and artists exposure on Spotify.’

The Naxos Music Library, which offers subscriptions only to academic institutions and music professionals, pays four cents (2.6p) per stream, much more than Spotify, but breaks even only because most of the content is Naxos’s own, he says. The same is true of his newly launched ClassicsOnline HD site, which offers high-quality audio.

But he insists there is money to be made from streaming. The slow movement of Beethoven’s Moonlight sonata, from a recording made 27 years ago, made Naxos $14,000 (£9,000) in streams in seven months. ‘We have about 100 tracks that each earned more than $1,000 (£640) in those seven months,’ Heymann adds.

Heymann has developed some survival rules for streaming:

  • Work with the streaming services or the aggregators who supply them. ‘You can’t just hope to somebody will play your tracks,’ he says.
  • Provide a broad catalogue but one with plenty of ‘basic repertoire such as Au Claire de Lune or The Four Seasons’.
  • Most streaming traffic in the classical area comes not from people seeking particular works or albums, but users of playlists (Greatest Songs Ever, Power Workout, Spine Tinglers). Often there are different lists for, say, the US, UK, Scandinavia and other regions. Suggestions are always welcome.
  • Don’t give streamers your new releases. Naxos and many of its distributed labels have a six-month ‘quarantine’.

That said, everybody agrees that the current streaming scenario is a lose-lose situation. The streamers insist they are not making money (most hand over 70% of revenue to rights holders, YouTube a miserly 50%), with the majority of traffic coming from free streams. The record labels say they would be out of business if they had to rely on streaming revenue. The artists say their share of the money is derisory.

The majors have been pressing the likes of Spotify to follow Apple Music’s example and scrap free streams, and to increase subscription rates. But in the digital domain, even the major record labels lack their customary clout. There have been persistent rumours – first reported by online site Digital Music News – that Universal’s parent, Vivendi, has become so irked by the loss of revenue to free streamers that chairman and chief executive Lucian Grainge’s job was in jeopardy. Universal recently sought to counter that gossip by confirming Grainge’s contract until 2020, while stressing that the group ‘will accelerate the monetisation of music on digital channels’.

Warner Music Group must also be growing restive about the digital outlook after reporting a 10% revenue drop in the quarter ending 30 June compared with the equivalent period of 2014. It noted that the 3.1% fall in digital revenue reflected ‘continued declines in download revenue which were offset in part by continued growth in streaming revenue’ [emphasis added].

But for streaming to become financially viable, the likes of Google, Apple and Amazon need to be persuaded to take action that will probably reduce usage of streaming services. When you are arguing with corporations that control much of the world’s communications, marketing and advertising, in-home entertainment and news flow, and consumer purchases of everything from groceries to package holidays, the entire music industry is a niche business – let alone classical on its own.

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