In the heated debate over streaming music’s sustainability, we seem to be gridlocked between claims of Spotify CEO Daniel Ek as the digital Messiah of the music industry, and artists’ outcry about exploitative payouts and a poor economy.

It’s a debate in desperate need for data, transparency and models. It’s also a debate that needs to move beyond the black and white / good or bad discourse and focus on what improvements have to be made in order to develop a sustainable digital platform for the future.

Amid that jungle of different reports and mixed messages, perhaps Norway can provide a case that illustrates the basic duality of today’s streaming music market by highlighting two contradictory trends: the Norwegian market for recorded music is on the rise, but Norwegian music is losing out!

Understanding streaming

In August 2013 I delivered the report from a newly established committee appointed by the Norwegian Minister of Culture, Hadia Tajik on the Norwegian streaming economy. You can find it in Norwegian here (PDF).

The committee was asked to look at the developments in the Norwegian market for recorded music, and especially the effects in a market that is truly adopting the streaming format.

We were to assess the developments and consider what types of releases are struggling in the transition to new digital platforms. We were also asked to advise on whether any political actions were needed and if so – what actions to take.

Needless to say, the committee’s assignment was ambitious, challenging but timely. There’s a growing emphasis on the nature of the streaming economy, on revenue distribution and sustainability for artists, labels and ISPs.

This is also a sensitive public debate, and there’s a challenge getting reliable and comparable data in order to provide accurate descriptions and progress. Many of the reasons for this are understandable, but they nonetheless prevent necessary studies that could perhaps provide a shared understanding of challenges and possibilities.

It’s also a question of not having a unified understanding of what the streaming model looks like, how revenues are channeled through the system from fan to artist and what mechanisms kick in on what part of the subscription-based value-chain.

Given the limited resources we had, we quickly focused on two important and very significant developments in the streaming economy, which we based our discussions on, and on which I will base this article on.

Market share concerns

To start with the first, Norway saw a promising rise in revenues of 11% last year that follows the 7% increase that we saw in 2012, according to IFPI. While streaming only represented 13% of recorded music revenues in Norway in 2010, it now accounts for 65%.

The revenues from streaming services also increased by an impressive 60% last year, which means that subscription-based revenues are the main reasons for the positive development.

By now, these numbers are well known and Norway, together with Sweden – the home of Spotify – are referred to as pioneering markets when it comes to adopting streaming and successfully turning a period of long and agonising decline into growth. However, the other, more problematic development is that the revenues for Norwegian music are in decline.

Put another way: there is more money in the Norwegian recorded music market than there has been for many years, but music made by Norwegian artists represents much less of these revenues. Estimates we made, based on figures from IFPI and TONO, shows that today, Norwegian artists’ market share is a meagre 10-15% here.

Now, one can easily agree that this is too low, but it is harder to know what we should compare it with in order to know both what we’ve lost, and what we should be aiming for.

One option is to compare it with the heyday of compact discs. The consensus within the committee was that Norwegian music used to have a market share somewhere between 40% and 50%. Around half the domestic market was based on Norwegian music.

Although this percentage needs to be treated with caution, it nevertheless indicates a dramatic decrease – and thus the conclusion that Norwegian labels and artists are getting much less income.

Swedish comparison

Another option is to compare Norway with Sweden, the only country that has embraced streaming more than Norway, and where streaming’s market share is now 71% according to IFPI Sweden.

Unlike Norway, Swedish music has a much better local share of the domestic market there. Unfortunately, we don’t have the data to give an accurate percentage or make a comparison with Norway, but a simple glance at the top 50 and top 100 charts on streaming services tells us that Swedish music is thriving.

It’s hard to say whether this represents a rise or decline compared to the mid 90s or 80s, but today’s stats nevertheless tells us that the Swedes are streaming Swedish music (and so is everyone else too).

I guess a crucial question would be to ask why the two territories act so differently, and I fear that plausible answers will move beyond the discussions of digital platforms and streaming technology. And it may not be fair to compare stats with Sweden, given its impressive international position in music production and export over the decades.

In a transition where the new economy is based on traction – you need massive volumes of streams from a good number of fans – it’s not surprising that a country that produces so many international hits is experiencing a different development than ours.

But I would argue that it’s exactly this difference that makes it interesting to compare the two markets: they represent two different positions when it comes to music creation and the music industry.

Changing habits

So, why is Norwegian music losing ground in its own territory while its recorded music market is rising? A central question here is whether people are listening to less Norwegian music. Has Norwegian music lost its relevance to Norwegian fans or is it simply that the new system rewards differently and that old listening habits are intact?

A popular explanation is that the streaming model requires repeated listening and that today’s reality simply reflects actual listening patterns in a brutally honest way. This would also imply that past models didn’t reflect actual listening patterns – that people in “the old days of compact discs” bought Norwegian music but didn’t listen to it.

This is an unlikely explanation, but one that is hard to prove or disprove. It’s also an explanation that limits music’s value to mere quantity. It would be easy to argue that there are vast amounts of great artists that have an intact following of fans that still listens to and values their music, but they value it in a way that is not rewarded through the streaming system where size and repetition is essential.

Beyond Ylvis, Norway has a proud history of supporting and exporting great music within genres like jazz, classical and black metal, to name a few obvious ones. It’s not hard to see that some of these genres may require different types of listening habits – a different type of approach from the audience.

One can also argue that past models may have been too advantageous for these artists (and perhaps even more so in a Norwegian setting with a range of subsidies) and that the new reality reflects supply and demand in a better way.

But it could be that there are more and important ways we can capture value creation in music, beyond today’s models. And perhaps, with the right tweaking, we could include this in today’s platforms.

We should also expect that these differences will change as the demographics of people who adopt and use streaming services progresses. If today’s revenue distribution reflects subscription demographics and listening patterns then two important factors on the Norwegian case would be to increase subscribers further and try to influence their listening habits.

Choices, choices…

The American psychologist Barry Schwartz argues in his book The Paradox of Choice that more options don’t necessarily lead to better choices. The resources needed to make a choice when facing a vast amount of options (25 million tracks) is more than most people can handle.

We all seek guidance in order to narrow the range of offers. And in order to make a choice that may satisfy, we tend to choose what is offered within a trusted and recognised frame. In this context we could argue that the new streaming platforms, even though representing nearly all music available, also represents a narrowing of shelf space compared to the days of old.

Here, it would be tempting to remind that radio is still referred to as the premier source for discovering new music – a medium that offers no freedom beyond switching channels.

But if we follow Schwartz theory, then clearly, marketing is of an essence. And contrary to claims that the digital revolution would liberate the small and independents from costly and time-consuming marketing campaigns, everyone we talked to during our work with the committee said that marketing is more important than ever. And it’s more expensive too. It confiscates a bigger part of an artist’s release budget, which in turn benefits the larger companies.

There are of course many more variables that deserve scrutiny and debate, and these should be approached thoroughly in future works and future studies. But there is one important factor that needs to be highlighted, namely that the case of Norway could also be explained by embedded features in the streaming model that solely benefits those with massive volume and massive catalog.

It could be worth asking what the market would look like if subscription money followed each subscriber’s streaming profile. How would this influence the local repertoire? How would it influence the smaller acts, the independent labels and the smaller genres? Are there other features that could/should be tweaked in order to make streaming more sustainable for a market such as Norway?

If we look beyond the labels and get more insight into the revenue streams from ISPs and aggregators, then perhaps we could come closer to a shared understanding of what a lasting and sustainable streaming model would look like.

Why is this important?

Beyond illustrating that the Norwegian music scene is perhaps not the biggest producer of international hits (with some very proud exceptions), I believe the findings in our report also illustrate a more universal challenge relating to a model where size and long-term recoupments are essential.

And given the massive effect we’ve seen in revenue distribution in Norway, I guess a key question for the International music industry is what we can isolate as mere Norwegian exceptions and what we must consider to be parts of the model.

The main question is not pro or con streaming. It’s not about a yes or no, it’s about finding a sustainable model that secures future investments into new artists and new repertoire.

So, by focusing on those two variables; the overall rise and the change in distribution, we need to agree on what a future sustainable market should look like, what mechanisms could foster this and then figure out how to tweak it in the right direction. And in order to get there, we need to lift the debate above the trenches and invite key stakeholders to take part in defining future improvements.

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oringally posted at musically.com, article by Daniel Nordgård