Licensing’s Role in an Evolving Music Industry

The music industry has changed significantly over the past 25 years. Whereas in the mid 1980s the chart-topping acts sold tens of millions of albums, today No. 1 albums sell in the hundreds of thousands. And the era where music videos and radio airplay were the most powerful promotional tools are long gone.

The music industry was behind the curve on finding revenue streams to replace the income lost through declining album sales. A new model, however, has emerged. Basically, touring revenue—including ticket and licensed merchandise sales—has replaced album sales revenue and TV and film placement has replaced music video and radio as means of promotion.

This shift highlights the two major subcategories of music licensing: consumer product licensing and music placement licensing. First, I will discuss music placement licensing.

“Three significant changes have taken place in the market making TV shows an attractive outlet for music licensing,” says David Luner, senior vice-president of interactive and consumer products for FremantleMedia Enterprises, North America. “Firstly, the music business is still in dramatic flux to find new revenue. Secondly, the nature of how music is being used in television has changed. Lastly, the music industry is seeing significant and direct increases in revenue due to the right placement of music with TV content.”

There are many advantages to this type of placement. “Not only is music licensing to other media a revenue-generating opportunity,” says Mike Stein, co-head of CAA Licensing, “but it’s also a fantastic way to promote the music and the artists.”

This segment of music licensing has really grown as a revenue model over the past five years or so.

“Music licensing in general has been a huge growth area over the past few years and we do not see any let up,” says Rob Kaplan, senior vice-president of global marketing at Sony/ATV Publishing. “Aside from increasing revenue, we see a massive growth in the number of licenses we complete each year.”

The segment of consumer products licensing has also become more prevalent and sophisticated. “In the age of declining record sales, many artists earn far greater income from their licensed products than from CD sales,” says Felix Sebacious, senior vice-president of A&R at Bravado.

The profitability of consumer products licensing has brought the practice to a higher profile within the music industry.

“The younger artists coming up now are more sophisticated about these things than people were in the past,” says Michael Krassner, executive vice-president retail and licensing worldwide at Live Nation Merchandise. “Thirty years ago, merchandise was something tolerated at best. Now it is a way that artists see of extending their brand.”

The acts that are benefiting the most from the expansion of licensing are the top-line pop acts like Lady Gaga, Katy Perry, and Justin Bieber, as well as classic artists such as The Beatles and The Rolling Stones.

Sure, the current acts don’t have a singular behemoth venue like The Beatles and The Rolling Stones had with The Ed Sullivan Show.

That being said, while popular music-focused shows like American Idol and Glee may not garner the market share that a show like The Ed Sullivan Show once did, both shows are certainly forces to be reckoned with in today’s music landscape. The power of these shows can be seen as sales of songs featured on the shows instantly become top-selling iTunes tracks. These shows are a perfect example that the breadth of opportunities offered to today’s musicians in the areas of promotion and licensing is nearly endless.