Common Music ‘Industry’ Misconceptions

Every industry has its myths- narratives that get repeated so often they start to feel like facts. As I’ve explored previously, Music may be one of the most culturally powerful forces in society, but it’s also one of the most misunderstood commercial ecosystems. Misconceptions are often perpetuated by those without years of internal industry experience- not only colouring how the business is perceived (particularly operationally), but also by implication how we think about innovation, investment, and what’s realistically possible for creators in the future.

Photo by Jessie McCall

This week, I want to explore three common misconceptions, and how they are linked. These quietly shape expectations, funding decisions, policy conversations and the ambitions of founders entering the space. By unpacking them, we can better understand not only why music works the way it does, but also how change might realistically be realised (and in contrast, how it will not).

1. “Music is an industry.”

It is… but not really in the way you'd think. Matt Pincus recently offered a striking observation in Kristin Robinson’s brilliant On The Record podcast: "Music is not really an industry, so much as a community of 1,000 people".

Compared to the other typical ‘industries’- finance, aviation, pharmaceuticals, construction- music is tiny. It is small in both top line revenue, number of operators, stakeholders and people. This means that subsequently it is relational to its very core.

It’s also dominated by three major, consolidated, players- each vertically integrated in ways that aren’t possible in most other sectors. In concert with (and at times opposed to) them sits a tapestry of independent companies- publishers, labels, distributors, DSPs, societies and service providers upon a foundation of creators. Each of these entities is usually to some degree dependent in some way on the 3 majors, meaning decision and policy making is concentrated, sometimes to an extreme of gatekeeping.

As we’ve discussed before, this is not inherently good or bad, but simply a reflection of years of collation of leverage. The larger players have got larger, consolidating that which helps them grow larger again.

The misconception arises when people expect music to behave like a “proper” industry- with broad competition, diffuse incentives and material regulatory oversight- a market large enough to sustain multiple billion-dollar entities. Music does not have those characteristics- the combination of a small volume of stakeholders, interwoven incentives and a perceived zero-sum game (just look at the discussions around the streaming ‘pie’) make the relational side incredibly important. Collaboration is key- and this only comes with win-win, value add relationships crafted in a crucible of community. 

Understanding music as a concentrated, relational ecosystem helps explain a lot of what frustrates both creators and innovators. Things move slowly because the number of decision-makers is small, and access matters because the network is tight. Change is often incremental because influence is so consolidated.

But this also means that targeted, well-aligned efforts can have outsized impact. One doesn’t need to shift an entire global megasystem- only a handful of crucial nodes within it.

2. Startups in music don’t follow the traditional VC model

VCs look for extremely large markets, rapid scalability, and the potential for a 50x-100x exit. Music, structurally, cannot offer that- the total addressable market is simply too small. As above, the number of customers and total revenue they command is limited.

This is why so many otherwise brilliant music tech companies struggle to raise traditional venture capital. It’s not that the ideas aren’t good, or that the teams aren’t strong. It’s that the overall economics of the ecosystem simply don’t support the maths required by investors- so called ‘VC-level’ returns.

When founders try to force-fit the VC playbook onto the music business, we see predictable routes all heading to the same grave yard of music tech startups:

• Inability to overcome the ‘Cold Start Problem’

• Dependancy on partnership with those that they’re proposing to disrupt

• Business models that require industry-wide adoption in markets that rarely move in lockstep

NB. I've been guilty of all falling into all of the above!

The misconception persists- that music startups should behave in ways tech startups do across other sectors. The problem is when they don’t, it’s seen as failure. In reality music does have its own capital stack that doesn’t rely on VC firms that traditionally are more open to other industries (such as FinTech)

• Angel investors (often High-net-worth artists)

• Strategic capital from publishers, labels, management companies and DSPs

• Revenue-sharing partnerships

• Government innovation funds

These sources may not feed unicorns, but they do fuel meaningful innovation. VC money is excellent for accelerating a proven model- but not for the prerequisite experimentation phase. The good thing for music is this is where the capital sources above are well suited- particularly if they bring other strategic value beyond the money itself.

The companies that succeed in the long term in music tend to optimise for depth rather than  breadth. They’re solving real, specific pain points and growing sustainably rather than explosively- a level of growth that strategic music capital can support.

3. The industry needs “revolutionising”

Every few months someone proclaims that music is finally on the brink of being “disrupted”. Blockchain will fix it (LOL 2018). AI will fix it. Startups will bypass the majors. Creators will become fully autonomous. Royalty flows will be instant. Everything will decentralise.

I’m all for positive ‘disruption’. I like challenging the status quo, pushing to move the ecosystem forward- particularly if it empowers disenfranchised creators by putting more money in their pockets.

The truth is that outside of new consumption technology, the music industry has proven remarkably resilient to full-scale disruption. Or to put it another way- very few single entities have managed to create material step change in legacy operations (particularly in publishing).

The only genuine outside entrants to reshape the wider landscape in the last 25 years have been on the consumer side- Apple, Spotify, YouTube (mp3s, CDs, and radio if we go back further). Interestingly they also didn’t much revolutionise the bones of the industry- rather changing the face and shop window for capturing initial revenue.

Does all this mean change is impossible? Not necessarily- but it does mean that meaningful change tends to be evolutionary, not revolutionary on the supply side. Data quality gets better. Transparency increases. Royalty pipelines become less leaky. Deal terms modernise. Collaboration increases. Slowly, then all at once, and then slowly again.

What is unlikely to happen is a complete flattening of the value chain or the sudden collapse of the existing power base. And we shouldn’t build our strategies or narratives- creative, commercial, or regulatory- on the premise that this is imminent.

What future can we realistically aim for?

If we accept that music is:

• Small and relational

• Structurally unsuited to VC-scale hypergrowth

• Typically evolving incrementally on the infrastructure side

…then what can we hope for?

Within these constraints lies an opportunity for a different kind of progress- one built not on disruption, but on alignment (parallel to a previous post I wrote on collaboration).

A future can be delivered where:

• Creators have clearer visibility into their rights and royalties

• Publishers and labels use data infrastructure that reduces leakage

• Innovation is funded sustainably and strategically, not on unrealistic expectations

• New entrants can succeed by integrating thoughtfully into the ecosystem, not by trying to blow it up

• Music companies collaborate more easily because the market is small enough to enable it

• The value that creators generate flows more accurately and efficiently back to them

The music business may never be a trillion-dollar industry, but it can become a far better-functioning one. Amid all the structural complexity and entrenched misconceptions, one thing remains constant: the entire system exists because of the creators. Everything else- every company, deal, innovation and platform is built upon the work they produce.

If we keep that at the centre, progress is not only possible, but something we should all be keen to pursue.