• The “Big Three” major recording labels continue to dominate the music industry, to the detriment of most artists
• Research points to exploitive contracts, unfair royalty splits, and lack of rights to songs
• Recording labels can be successful by being more fair and transparent rather than exploiting artists

As users happily browse their Spotify account it can be hard to decipher whether pleasure is derived from the artists or very shrewd marketing. 

The industry giant released its annual ‘wrapped’ where, as the company puts it, “listeners get a deep dive into their most memorable listening moments of the year” and see which artists scored highest.

The result is a social media share fest rather than listening to any music at all. It’s as if we are supposed to marvel at Spotify’s intricate algorithms rather than the songs.

The rest of the music industry is much the same – attention, ownership and a fair share of revenue are pulled like a rug from under the artist’s feet, as labels, streaming services and other platforms reap the rewards.

Whilst social media, and easier access to music via streaming has undoubtedly provided many emerging artists with a means to gain wider recognition for their talents, it can be hard to turn “plays” into profit.

Even stars with stratospheric levels of success like Taylor Swift can be taken advantage of, after Scooter Braun purchased the star’s record label Big Machine and the rights to her first six albums in the process.

So why do artists get such diminishing returns for their creations? Does the music industry have an ethical dilemma on its hands when it comes to reflecting and remunerating talent?

Almost any business leader will baulk at the idea of damaging their own profits when trying to run a successful venture, but change may be essential to give artists a fairer share of revenues.

A study from Berkeley Business Review discussing how poorly Spotify has paid artists over the years, found that as of 2022, artists are paid loyalty rates between .0033 and .0054 cents per stream.

That’s proved to be lucrative for The Weeknd’s ‘Blinding Lights’ and Ed Sheeran’s ‘The Shape of You’, which have both reached over 3 billion streams on Spotify. But look beyond Coldplay, Ariana Grande and Harry Styles and many artists are struggling.

The solution to rescuing the industry’s reputation and helping generations of talent may be simpler than first thought. Give music artists more freedom, more transparency and more money to reset the balance. 

New research by Giana Eckhardt, professor of marketing at King’s Business School, King’s College London and Tom Wagner at Royal Holloway, University of London, suggests this change has begun. 

In their case study titled ‘A Music Industry for Musicians’, they examine a rising star, Kobalt Music Group. 

Kobalt’s resume is impressive; Sir Paul McCartney and Dave Grohl, both signed to perform at the Foo Fighters’ 2021 Rock and Roll Hall of Fame induction ceremony.

But how is the company looking to retune the unsavoury practices in the music industry? Professor Eckhardt explains, “Kobalt has used its ethical approach to its competitive advantage, attracting rising independent talent through flexible contracts and radical data transparency”.

The proof in the pudding? Kobalt has created $10 billion in value for its clients through higher payouts, rights retention, and increased competition.

As founder of Kobalt, Willard Ahdritz quips, “I have a new concept, a revolutionary concept in the music industry. I am paying artists!”

Such generosity is not a detriment to the success of his business. The research finds that Kobalt turned a $5.8 million profit on revenues of $519.4 million for the financial year ending June 30, 2021.

But it’s about quality not just quantity and it’s fair to say the label has talent in its wheelhouse. In 2021, its songwriters won 22 Grammys, seven Latin Grammys, nine Australian Recording Industry Association Music Awards, and four Swedish Music Publishers Association Awards.

How far Kobalt can actually change the landscape of music?

The “Big Three” major recording labels are Sony Music Entertainment, Warner Music Group, and Universal Music Group, which according to the research continue to dominate the business to the detriment of most musicians.

Giana Eckhardt at King’s Business School and Tom Wagner at Royal Holloway identify exploitive contracts, unfair royalty splits, and lack of rights to songs.

This view is vindicated by Sociologists Simon Frith and Lee Marshall, who call music copyright a “bundle of rights” that can be bought, sold and split among several entities rather than the artist.

They posit that there are two parallel infrastructures for making money from a song: music publishers and record labels. 

“Depending on the circumstances, the publisher will give writers a cash advance; put them in contact with co writers; register the song with collection societies; and find placements for the song in commercials, TV shows, and films. 

“In return, publishers traditionally give advances for a publishing or co-publishing deal and usually take a 25 to 50 percent cut of royalties”. 

Firth and Marshall add that record labels give cash advances, provide development for the artist, but take around 85 percent of royalties, and retain the rights.

The solution? “Increasing the royalties benefits not only artists but also audiences,” proposes Professor Eckhardt, “as fewer artists means more music to enjoy. Creators’ advocacy groups maintain that revenue between labels and artists should be split 50/50. It currently stands at 6/94 in favour of the labels”. 

Kobalt CEO Willard Ahdritz agrees that a new revenue-sharing model is needed. “The major labels don’t want rebalancing because they keep so much of the money themselves in recordings. But I think that it should be 50/50. So, the big question now is, in a digital world, why would it not be equal between songwriters and record labels?”

Kobalt are not just hopeful, they are confident, estimating that by 2028, more than 10,000 English Language artists will make more than $100,000 annually with their approach.

As research has shown, firms which buck the trend in ethical ways can inspire others to follow their lead.

Kobalt may be onto something with its new approach but it’s taken over 10 years to get there. The label only turned a profit for the first time in 2021 and the likes of Spotify increased its annual revenue by 22 per cent in the same year. Sony, Warner and Universal are still sitting pretty, for now at least.But looking ahead, newcomers competing to enter the market may choose to ditch the exploitative practices of the past, and let the Big Three face the music.

By James Dugdale