In this illuminating look at a year in streaming, CD Baby CEO Tracy Maddux examines how indie artists are beginning to see appreciable payouts from online streaming services, although other revenue sources still remain important and valuable.
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Guest post by Tracy Maddux, CEO of CD Baby
It was a watershed year for the half-million or so artists and labels CD Baby distributes worldwide in 2016. It was the year its artists' lifetime gross earnings crossed the half-a billion-dollar mark (yep, $500,000,000). But the most important trend was that revenue from streaming services like Spotify and Apple Music overtook downloads as the number one source of artists' sales.
We're pleased to see that independent artists are now making more money from their music thanks to the growth in streaming. Of all digital revenue, streaming represented only 32 percent of gross earnings in 2015.
In 2016, that ratcheted up to almost half. And including ad-supported YouTube monetization, streaming and YouTube combined represented 52 percent of artists' revenue.
But other sources of revenue are still important as well -- both to the artist and the consumers whose preference favors other formats. We saw vinyl sales grow again last year, but more slowly in 2016. We saw CD sales decline by about 12 percent; the third consecutive year of contraction. And downloads, while also declining by 12 percent in 2016, still makeup more than a third of artist revenues. Our common-sense guidance to self-distributed artists and small labels is to monetize their music everywhere they can, which brings us to an important point.
What's really behind a shift in earnings is not 'big tech' that doesn't care about the artists; it's the fans who are choosing to consume music via streaming. It's a shift in consumer behavior. There are tens of millions more people consuming music via streaming every year. But there are also still consumers for physical and download formats. Shifts in format preferences take time. They never happen all at once but are inevitable once started. That's why we think artists should get their music everywhere the fans are willing to consume it.
We understand that some artists are concerned about the viability of streaming services. But we shouldn't ignore the fact that in 2016 there are now profitable streaming services. Rhapsody attained profitability last year. Streaming at Apple, Amazon and Google are likely profitable as the large firms already have the scale and scope to sustain a service. As long as artists are growing their earnings with these services, they should consider focusing on how their fans are choosing to experience music. If any of the large digital service providers fail in the next several years, there will be another in its place to pick up their clients. Consumer behavior is the only thing that matters.
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CD Baby's digital catalog grew to over seven million tracks last year. We figure it's among the largest catalogs in the world and represents 15-20 percent of the content available on Spotify and Apple Music. It's also growing pretty fast -- we added about 750,000 tracks in 2016. And many of those tracks make real money. CD Baby Members had combined gross earnings of over $83 million from all sources last year (about $44 million of it from streaming and YouTube). What we liked the most about these earnings is that they grew in absolute terms. That means we paid out more money in total, and each member made more money in 2016, thanks, again, to streaming. Trying to use pretzel logic that these artists are starving and they should earn more (they should) misses an important fact that many of the artists derive income from other sources, like sales on other platforms, touring and merch.
Recently I received a letter from a label that uses CD Baby for distribution services and the gist of it was, "My songs aren't earning what they used to -- how can I reverse the trend?" When we took a look at the data, we noticed that the label hadn't released anything in awhile, it hadn't opted into some streaming services and it wasn't actively using the new tools of promotion now available to artists to engage and discover new fans.
It's no secret -- some songs earn more than other similar songs because they are being promoted. Art isn't entitled to an equal share of income from any source just because the art is good. To succeed in any format requires artists to actively harness the tools of promotion, especially those tools available on these new platforms that are reaching the incremental millions using subscription services. These tools, from analytics to playlists, are powerful and more available to independent artists than ever before, leveling the playing field for independent artists.
There are a vast number of platforms and tools accessible to artists who want to drive their sales themselves. We greatly admire the work that Bandcamp does for indies -- according to a recent letter to the industry, CD sales on its site were up by 14 percent and downloads by 20 percent in 2016. This bucks the trend in the rest of the industry and shows a growing share of a declining market.
On the promotional side, the free tools the DSPs offer, such as Apple Connect, Pandora AMP and Spotify, are a great way to claim a profile, connect with fans and command the data. We offer trending data from Apple Music, iTunes and Spotify on CDBaby as well. Tools like Show.co can help artists manage a promotional campaign and HearNow is a simple, low cost tool to promote releases. These are just a few tools a click away from artists willing to invest the time.
Average earnings per CD Baby artist grew solidly in 2016 because of streaming. While in prior years we had seen growth in downloads and streaming offset some of the declines in physical, 2016 was the year that growth in streaming revenue offset all of the declines in other formats. All of the industry is growing again because of this shift in consumer behavior. Is it 1999 again yet -- the peak of recorded music? Nope. But our advice to independent artists: don't ignore a huge opportunity to connect with fans who are streaming. There will be millions more in 2017.
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