The Business Of Music In The Digital Era

Not so long ago, just over a decade or two ago perhaps, as a music listener you'd be lucky to have more than one album (or mixtape) from your favorite artist released in one year. Although during the CD era singles became popular, it was also almost unheard of to have your favorite music artist release individual songs without ever releasing an album and still be able to make a sound living.

Thanks to the Internet, and smartphones, the music business model has changed for the benefit of listeners. Not only are listeners enjoying the changes brought by the digital era in music, but independent music labels and artists have welcomed the Internet as it has democratized music distribution. For some independent music artists like South Africa's Robin Thirdfloor, the Internet has proved a great and inexpensive marketing tool which partly helped with him securing a spot to perform at SXSW earlier in 2017. Furthermore, the Internet has enabled music artists to build a more direct relationship with their listeners through various methods including social media.

With all these changes in the music industry that have been influenced by the increased adoption of the Internet, do major record labels still have a role to play?

Given that some music artists can produce a song, record it, distribute and market it all from their smartphones or laptops, do we still need major record labels as part of the music industry ecosystem?

Jidenna and Michael Ugwu GM Sony Music West Africa
Jidenna and Michael Ugwu, General Manager for West Africa at Sony Music.

"Major labels are music industry banks, not just from a financial perspective but from an experience perspective, [and] from a reach and resource perspective amongst other things," said Michael Ugwu, General Manager for West Africa at Sony Music, to iAfrikan as he explained why major record labels, like Sony Music, still have a role to play in the industry.

Ugwu believes that because they, major record labels, have been around for almost as long as the music industry has been commercialized, have a lot to offer. Specifically, because over the decades they have been tried and tested by the biggest and best music superstars around the world and as such have a wealth of knowledge on what works and what doesn't. He does, however, admit that they sometimes get things wrong.

"In Afrika, we have the reach across the continent. Even if you have a fantastic plan in Nigeria have you considered your Nairobi plan? If you have a bullet proof plan in South Africa have you considered your plan in Lagos or Accra? When all is said and done and you have a great Afrikan continent wide plan how are you penetrating London, Paris, New York, Amsterdam, Madrid, L.A, Houston etcetera?"

He has a point.

As much as the Internet has democratized the creation, marketing, and distribution of music, it doesn't mean that you just create music and listeners will somehow discover it and buy it. You don't just "build it and they will come", a plan is necessary, especially for music artists looking to grow into different markets across the world.

The changes brought about by the Internet to the music industry haven't all been positive for major record labels like Sony Music. For starters, it forced them to think of other ways to genrate revenue from music as it has almost ended the physical music business as we once knew it.

"It ended the massive profits labels and artists had been making from the music business pre-Internet days," said Ugwu.

So much so that Ugwu believes physical CD sales, even in a market like Nigeria, are on their last life.

"I’ve had this argument with various people who believe physical is still alive in Nigeria. I personally feel it's dead. When I say dead, I mean there’s no future in it. Yes, definitely people still buy CDs but who wants to build a business out of a dying market? Even in South Africa which has a much better history with a legal and licensed physical business, the story is the same, streaming is the future. The mobile phone is at the center of this shift. In Nigeria right now, however, the functionality of a memory card still more relative than licensed Internet services," added Ugwu.

With each year that passes, major record labels are said to be having less and less of a discussion with music artists they sign about the CDs part of the business.

Sony Music Entertainment Africa team at the leadership retreat in Johannesburg, South Africa
Sony Music Entertainment Africa team at the leadership retreat in Johannesburg, South Africa. (L-R) Michael Ugwu, Refiloe Ramagose - Director Sound Africa Recordings (SME Africa), Paul Thackwray – Marketing Director Africa, Martin Naidoo – Finance Director Africa, Spiro Damaskinos – A&R Africa, Sean Watson – MD Sony Music Africa and Manusha Sarawan – Business Affairs Africa.

Given these changes, record labels of all sizes have embraced the Internet and are working alongside leading music tech companies like Spotify and Apple Music to rebuild the music business. Rather interestingly, and as Ugwu somewhat concurs, this has also meant more independent record labels and artists are being born.

"The Internet democratizes music distribution meaning that former barriers such as valuable shelf space no longer matter. There is no longer the physical limit on how many CDs could be stocked in a physical store. This means that artists don’t necessarily need a label or major label to get their music out there to an audience. The Internet alone has done this. Smartphones from my perspective allow for greater distribution and more direct distribution of music in to the listener's palms,"

"There is no need to get down to the local record store anymore. I think mobile apps and social media have definitely helped artists go directly to listeners without the need for a major label," said Ugwu.

Despite this, Ugwu re-emphasized that major labels still have a massively important role to play in the ecosystem. Not only is a major record label like Sony Music, especially in the Afrikan market, working with music streaming services but they are also in discussions with a number of other key music tech players trying to enter and get established in the West Afrikan and Afrikan music market at large.

Michael Ugwu

"We ourselves are not a tech business, we are a label. Investing in ideas is definitely a possibility but none I can talk about for now, but I would say that creating a competitive but conducive environment for these Internet services is front and center for us," elaborated Ugwu.

Another curious business model to observe currently in the music business, which has possibly been brought about because some artists feel that music streaming services are ripping them off, is the idea of giving exclusives to one music streaming or in some cases "windowing". A current example of how a combination of exclusives and windowing works is how Jay-Z released his 13th solo album, 4:44, on his music streaming service TIDAL. As part of the equity deal that TIDAL signed with Sprint, the American mobile service provider's customers received Jay-Z's 4:44 album several days ahead of everyone else with TIDAL subscribers being next in line to get exclusive access before the window period expired a week later with the album being available on all other music streaming services. TIDAL has continued with the windowing strategy when releasing music videos for the 4:44 album.

TIDAL are not the only ones to go with exclusives and windowing. Apple Music, Deezer, and Spotify have done the same in recent years with different music artists, but Ugwu doesn't think the exclusives model is sustainable.

"Windowing is definitely the future, we are going to see way more of this strategy at play in future. So, content will be behind a pay/subscription wall for a brief window. This encourages growth in subscription revenue which is where the real value is for artists and labels. Exclusives not so much, music needs to be available everywhere at the same time in my opinion. Fans are not serviced and sales are negatively impacted when exclusives become the order of the day,"

Ugwu should know as he is not new to the music industry, especially in Afrika. Before joining Sony Music he was at Freeme Digital, a 3rd party digital distribution company in Nigeria which had an array of music artists, comedians, and content owners from across the region using its content production, marketing and distribution services (he remains an investor in Freeme Digital). Prior to that, he was the CEO of iROKING (part of the iROKO Partners family). Ugwu oversaw iROKING's initial content acquisition efforts in 2011 as he signed approximately over 50 of some of Nigeria’s biggest music artists to landmark licensing deals, and successfully renegotiated subsequent deals in 2013 before joining the Freeme Digital team.

Michael Ugwu and DBanj
Michael Ugwu and DBanj at the Sony Music offices.

"[In the] Long term I don’t even think this helps the services that are aggressive on exclusives. We are still some way behind in Afrika for now on several fronts but our market is definitely catching up in terms of sophistication. Exclusives are something that local services really focus on, I can see why but I’ve personally played that exclusives game it's not really sustainable," said Ugwu.

Currently, a perfect note hasn't been struck that satisfies the streaming services, music fans, music artists and their record labels. As things are currently, the scale is heavily tilted in favor of streaming services. Not everyone is happy with the model currently though, especially given how most music streaming services seem to just be huge banks of music with little attention paid to anything else except marketing and in some cases, like Spotify, using technology to understand a music listeners behavior and patterns.

Recently in Afrika, and South Africa specifically, we have seen two new music streaming services that are trying to fill a specific niche by focusing on curated playlists - namely Nichestreem and JOOX.

Perhaps this is where record labels, both major and independent can play a role, given how they understand music beyond just the distribution and marketing thereof. For instance, none of the music streaming services are currently able to determine where certain genres of music are going in terms of trends and culture, nor can they influence it. This is where people like Michael Ugwu add value.

"Afrobeats is definitely taking center stage in the global music industry. 2016’s biggest hit was arguably Drake’s ‘One Dance’ featuring Wizkid and Kyla. This year’s biggest hit is shaping up to be French Montana’s ‘Unforgettable’ featuring Swae Lee and Triplets Ghetto Kids. Both videos have a distinct Afrobeats influence, both videos featured prominent African artists and dancers, and both were shot in Afrika. Both have massively impacted the US and global music markets last year and this year. We will see more of this hopefully with African artists also taking center stage and not just playing ‘featured’ roles in these global hits,” concluded Ugwu.

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