Understanding Major Record Labels and Streaming Services: Why the Hesitation?

The hesitancy of major record labels to create their own streaming services can be attributed to several factors ranging from financial risks to market competition and collaborative models. In this article, we will delve into the reasons why major record labels have primarily relied on existing platforms while exploring recent exceptions and their business models.

Investment and Risk

Launching a streaming service is a significant financial commitment that requires substantial investment in infrastructure and marketing. Major record labels, as we know, are businesses that traditionally focus on talent management, production, and marketing. The risk associated with building and maintaining a streaming platform can be prohibitive for these companies, prompting many to opt for partnerships or distribution deals with established players such as Spotify, Apple Music, and Amazon Music.

Competition with Established Platforms

The music streaming industry is dominated by platforms with extensive user bases and significant market reach. Companies like Spotify, Apple Music, and Amazon Music have established themselves as market leaders, making it challenging for new entrants to compete. The resources required to develop a competitive streaming service, including marketing, user experience, and platform development, would be formidable obstacles for a record label focused on its core business activities.

Licensing Agreements

Most major record labels have existing licensing agreements with leading streaming platforms. These agreements dictate how their music is distributed and how revenue is shared. Creating their own streaming service would disrupt these established relationships, potentially leading to conflicts over revenue sharing and content distribution. For instance, a new service might not align with the terms set by existing agreements, thereby complicating the management of their artists' music and revenue streams.

Focus on Core Business

Major record labels primarily focus on talent management, production, and marketing. Venturing into the complex world of streaming services would divert attention and resources away from these core business activities. For example, managing an artist's live tours, album releases, and marketing campaigns requires significant dedication and expertise. Incorporating stream service development would significantly impact the label's ability to focus on these critical areas.

Collaborative Models

One alternative to direct competition is cooperative models where record labels partner with established streaming platforms. This approach allows labels to offer wider distribution of their artists' music while still securing revenue through licensing agreements. Many labels have adopted this strategy, recognizing that it is more efficient and lucrative than building and operating their own service. For instance, some labels choose to co-own or invest in specific services. Tidal, co-owned by several artists, is a notable example where the label's content is distributed through a platform with a unique value proposition.

Label-Centric Models: Examples and Reviews

Despite the general reluctance, some major record labels have ventured into their own streaming services, albeit on a smaller scale. For instance, some labels offer a few free songs from an album, with the option to purchase the full album for a nominal fee (typically ranging from $5 to $10). The idea here is to generate direct revenue and grow the label's audience. A portion of the sales goes directly to the company and a percentage to the band, creating a win-win situation. This model is seen as a viable alternative to the traditional streaming platforms, offering a more selective and curated music library for consumers.

In conclusion, while the reasons against creating their own streaming services are understandable, the music industry is evolving, and some labels are finding innovative ways to adapt. The key to success lies in striking a balance between core business activities and exploring new revenue streams that complement, rather than compete with, established platforms.