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April 20, 2015

Why Cloud and streaming will save the music business

Analysis: Despite rejection by acts including Taylor Swift the streaming model could be set to take off.

By Alexander Sword

You’ve heard the story before: a music industry that couldn’t adapt quickly enough to digital and is paying the price.

Record labels report sluggish, declining revenues as artists struggle to make a decent buck from their hard work and become disillusioned with the process.

Nobody’s quite sure where to cast the blame. Lars Ulrich of thrash metal band Metallica notably attracted criticism for blaming the downloaders, while Thom Yorke of Radiohead blames the industry itself. Perhaps it’s time to end the blame game and start looking at where the solution is going to come from.

Since its peak in the late 1990s when the industry rode high on a cresting wave of CD sales, the industry has taken its time to realise more significant revenue streams from digital channels. According to the International Federation for the Phonographic Industry (IFPI), 2014 was the first year to see the industry deriving the same proportion of revenues from digital channels as physical format sales, at 46 percent.

Breaking down this digital chunk further reveals that revenues from downloads globally fell by 8 percent in 2014. It is streaming services where the music industry is seeing its biggest and most sustained growth. The IFPI estimates 41 million people paid for music subscription services in 2014, a fivefold increase since 2010. In addition, revenues had grown by 39 percent in 2014 and grew consistently across major markets.

Artists are divided on streaming.

Certainly Spotify in particular has attracted criticism for not paying artists enough. The business-minded Taylor Swift removed her music from Spotify, anticipating (correctly) that she would be able to sell huge numbers of her most recent album 1989. On the other hand, English singer-songwriter Ed Sheeran credited the streaming service with allowing him to sell out Wembley Stadium.

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However the artists feel, the market is growing. Working behind the scenes, but well placed to benefit from the growing streaming market as much as any stakeholder, are B2B cloud-based music providers such as Omnifone. According to founder and Chief Engineer Phil Sant, streaming will see the industry getting back to health within a few years.

"The music industry sort of stumbled into digital and added digital on the side. It’s taken quite a while for it to recognise that it’s a digital business. We recognised that the music industry was going to turn digital eventually, and it’s actually only really pivoting now…it will end up many times bigger than it was what the peak of CDs."

In fact, Sant argues that it is the immaturity of the streaming market that has held back revenues and hence royalties, which has been a primary bugbear of critics such as Beck.

"There are seven billion people on the earth. There are currently 30 million, growing quickly to 40 million, music subscribers. 7 billion minus 35 million is still 7 billion. It’s really in its infancy still.

"Imagine what’s going to happen when there are 1 billion subscribers, which is where it will get. There will be more money available to everybody – all the rights holders, all the authors and all the musicians."

Omnifone works by collecting content from record labels, including recordings and accompanying materials. They then host this on Amazon Web Services.

"What we ingest from labels are their high-resolution assets – the highest possible quality they’ve got," says Sant. "A studio quality master is about 300 MB, whereas if we delivered that to a tiny mobile phone in India it would be about 600k. We ingest that, the associated artwork, the meta-data and the usage data.

Quality, more than in many other industries, is key to music. Omnifone employs an expert audio engineer and ‘golden ears’, trained by James Guthrie, the man responsible for mastering and producing Pink Floyd’s ‘Dark Side of the Moon’. Alongside Spotify, Omnifone hosts Neil Young’s music service Pono. Carried on an idiosyncratic pyramid-shaped device, the service uses only high quality recordings. The ‘Heart of Gold’ hitmaker created Pono to tackle what he sees as the poor quality of MP3s and iTunes files.

"Although we’ve got the highest resolution available here, in the early days we were squeezing tracks down to the smallest format possible for tiny little feature phones," Sant continues. "We found when dealing with thousands of labels that they all had different approaches to compression.

"We couldn’t give the users that. [The audio engineer] convinced me to go to the labels and convince them of the security, and we took lossless studio quality from them from day one. We have the biggest collection of 41 million lossless tracks in the world."

The availability of such a large collection means that it’s not difficult for new players to launch into the market if they have a unique proposition. Omnifone removes the need for artists to collect their own music database, meaning that competition in this burgeoning market will remain healthy.

As adoption of subscription services increases, we should expect musicians and the industry to start taking it more seriously as a channel. This will mean better service, better revenues and ultimately, perhaps, better music.

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