Should Apple Music and Spotify Attempt to Become Vertically Integrated?

From reading Jennifer Holt’s Empires of Entertainment: Media Industries and the Politics of Deregulation, 1980-1996 it is clear to see that broadcast, cable, and film were clearly defined industries that competed with each other before they became interconnected with the rise of media conglomerates. As Holt puts it: “film studios combined with broadcast networks (Fox), production/distribution entities reunited with exhibition outlets (Universal, Paramount, Warner Bros.), and film companies merged with cable properties (Warner Bros., MCA/Universal, Columbia), thereby creating innovative alliances across formerly distinct industrial boundaries” (Holt 3). With this alteration to the integration of the entertainment industries, the way films, cable television, and broadcast television were produced would never be the same again. As history seems to repeat itself, I believe that the music streaming industry could follow a similar path to this.

At this present point in time it is clear to see that the two main competitors in the music streaming industry are Apple Music and Spotify. Another outside competitor that is on the brink of being removed from the industry is the physical CD, as physical album sales have decreased at rapid rates over the past two decades, going from 943 million physical album sales in 2000 in the US alone, to only 52 million physical album sales in 2018 in the US. While 52 million is a large number, when put in context physical album sales are no longer extremely important to artist as far as getting paid for their work goes.

The current integration system between artists and streaming services has a clear middle man, and that would be record labels. With the physical CD, music distribution was fairly streamlined, as after the record label was paid by the retailer, they took their share of the sales, and then the artists, songwriters and producers received their percentage. Now with music streaming services being used at a far higher rate than CD’s are purchased, how much Apple Music and Spotify pay for each stream becomes extremely important. As of 2019, Spotify pays $0.00473 per stream, while Apple Music pays $0.00735 per stream. Given enough streams these numbers have the potential to generate money for artists, but with record labels still taking out a portion of the money generated by their artists, it seems that the door is open for Apple and Spotify to eventually become pseudo-record labels themselves. If record Labels are taken out of the equation, and thus their percentage of money, the artist will in theory make more money. This would be an interesting trend as this would likely bring about a more divisive divide between which artists are on Spotify or Apple Music, as any contract signed with an artist would likely be exclusive.

 

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Breakdown of where the money generated by music on streaming services goes.

If these streaming platforms were to attempt to become pseudo-record labels themselves, they would become vertically integrated, as they would control every aspect of the process apart from music creation. This is not a perfect comparison to the conglomerates that Holt touched upon, because this integration would not be as a result of streaming services buying/merging with record labels. While this has its differences, what it shares in common is that it also displays the power of vertical integration to generate even more money for companies/services, as if labels were taken out of the equation, another 45.6% of money generated from music would be available for the streaming services and artists to split. It still remains to be unseen if streaming services will go down this path, but if history has taught us anything, it is clear that it would make business sense for said streaming services.

 

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