As the year draws to a close we're sharing some of Hypebot's most read posts of 2014. This one came from Robb McDaniels, founder of INgrooves Music Group. He recently resigned as the company's CEO to pursue new opportunities.

I have been at the helm of INgrooves Music Group for nearly twelve years now, and have largely chosen to keep my head down and mouth shut (must be that New England upbringing).  But once in a while, it is necessary to speak up and make sure you all know what I know.  Here are five things on the top of my mind these days – feel free to connect with me if you want to do anything about any, or all, of them.

I have long wondered why major labels and publishers care so much about “market share”, seemingly above even generating profits (at least at the distribution/JV level).  I now realize that it is because there is so much non-recorded music revenue generated from the market share metric.  Things like equity stakes in startups, non-recoupable advances and fees from retail and promotional partners, black box funds from performance royalties not collected by indies and “in store” promotional space.  What’s sad is that most indies don’t realize that the better economic terms they receive on their distribution deals from the majors actually result in them earning less money in the long run.  By giving up their rights to collect these ancillary streams, which often aren’t shared back with them, some indie labels are sacrificing a healthy and wealthy future for short term gain.

2.  STREAMING SUBSCRIPTION VERSUS YOUTUBE

I have a lot of compassion for artists who are voicing their displeasure for royalty payouts from streaming services; it must be quite disconcerting to see this shift happen in real time (although I also question whether or not some of them are even being reported to correctly – the sheer amount of streaming data that has to be processed opens up a lot of room for error).  However, I don’t have a lot of compassion for the artists that complain about these payouts but then have all their music all over YouTube.  Fact is that Youtube’s CPM is less than half of Spotify’s for most artists.  Spotify, and most other legally licensed streaming services like Rdio, Beats, X-Box Live and Deezer, monetize 100% of their streams (either from monthly fees or ad sales), whereas YouTube only monetizes about 5% of theirs – YouTube is responsible for about 70% of the music consumption activity in the world but only 3% of the revenue. 

This is the biggest problem by far in the music industry today.  We need to work with YouTube to monetize more effectively, which hopefully will begin in earnest when they finally launch their subscription service. We all hope (and pray?) that YouTube will do a better job of monetizing music content for the benefit of the artist and label community.  Google certainly doesn’t have any issues monetizing the data from YouTube streams – their annual PROFITS are equal to the global recorded music sales (both around $15-$16b).  Doesn’t that seem a bit screwy?

3.  BASIC MATH:

For the past few years, the average amount of money spent on recorded music by consumers has been around $40-$45.  That means some people spend a lot more, and some people spend a lot less (Pirates! Thieves! Or maybe just price conscious shoppers?).  If everyone signs up for streaming subscription services and spends at least $120/yr on recorded music (12 months at $10/month), then that’s nearly THREE TIMES as much in the pot for the industry to share, and that doesn’t include the amount that fans are increasingly spending on deluxe products like vinyl.  Not to mention that fact that independent labels and artists seem to over-index on the streaming services because of a willingness for consumers to experiment as well as passive listening from playlists and algorithm based radio stations (by way of example, INgrooves Music Group’s market share on Spotify in the US is nearly double what it is on Soundscan, which only tracks physical and download sales). 

Don’t we all realize that the entire industry would be a lot healthier if everyone switched to subscription services TOMORROW and stopped downloading and buying CDs?  In doesn’t take a rocket scientist to understand that the early adopters of Spotify, Beats, Rdio and other streaming subscription services were tech savvy music fans who likely spent a lot more than the average on recorded music.  Why spend $600/yr for the 50 CDs I want when I can spend $120 and get ALL I want!?!?  So let’s embrace these services as the savior for the music industry – an opportunity for us to take back the value of the fan experience from the mobile device.

4.  THE GREAT MERITOCRACY IS AT RISK

One of the great things about the Digital Revolution, which began with Napster’s emergence in 1999, has been that it has been based on a Meritocracy.  Great music, regardless of its origins, rises to the top.  No single creator or owner has been able to “pay” for promotion in the various digital retail storefronts, providing a level playing field for indies and majors alike.  Well, now this might be changing and I think that everyone in the ecosystem from artist all the way to fan should rise up and voice their opinion about this potentially alarming development.  Heck, even recommendation algorithms would be incorrectly influenced by digital payola. Watch out.

5.  TOO GOOD TO BE TRUE?

Remember when your mom used to tell you that if it is too good to be true it usually is?  Well, I think that this is the case with some of the DIY services out there, especially the ones offering to distribute all the music volume you want for a fixed fee.  Inevitably, this model breaks down as their fixed costs rise higher than the low fees they charge you and artists and labels will be stuck without a distributor or, worse yet, out some money that is never passed through.  There are some great DIY services out there, like Reverbnation, that are part of long-term, stable companies that aren’t a bunch of smoke and mirrors.

There’s a lot here for you to noodle on, and a lot beneath the surface that I have left for you to decipher and take a level deeper.  You might be surprised by what you find…