The Music Industry was not Built for the Digital Age

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May 8, 2024

Time has shown that the music industry was not built for the digital age we live in today. The industry is plagued with legacy systems and outdated infrastructure to manage and license intellectual property. This explains why music on social media has yet to represent a revenue stream for artists, why the metaverse doesn’t even have any music, and why AI is perceived as a threat. If the music industry wants to capitalise on emerging technology and acknowledge tomorrow’s digital consumers, it will require a more agile and future-facing foundation.

How did we get here?

Throughout history, musicians have been able to express themselves and their art through live performances. Music was a communal and participatory experience, bringing people together in a very personal way. This changed in 1877 when Thomas Edison unveiled the phonograph. This allowed people, for the first time, to listen to music in the comfort of their homes. As a result, the commercialisation of recorded music came into effect.

As the phonograph further developed, the cylinders used to produce sound became smaller and smaller. Finally, the phonograph was accompanied by vinyl records, first introduced by Columbia Records in 1948. Vinyl records were pivotal, allowing multiple songs to be compiled on one single record. The development of music distribution technology, from phonographs to vinyl records, facilitated the rise of record labels. Given the high costs associated with professional studios, music promotion, and distribution, individual artists often had little alternative but to sign deals with record labels. This ultimately led to an industry structure dominated by six major record labels that controlled most recorded music distribution and promotion until 1998.

As size and portability were barriers to the adoption of vinyl, the cassette was introduced in 1963. This allowed for greater portability on a smaller device, which people could easily take anywhere. It also allowed for significantly longer play times compared to vinyl. However, it also ignited negative repercussions, such as the first forms of piracy. Afterwards, in 1981, the first viable format of Compact Discs (CDs) was developed by Sony and Philips. The CD was a crucial development for the music industry, offering superior audio quality, portability, and affordability. This transition made the music experience much more casual, setting a precedent for transitioning from active to passive music consumption.

The pre-internet evolution from the phonograph until the CD built the foundations of the music industry value chain we still rely on today. From a live and participatory experience to a more globalised and accessible form of entertainment. Technological advancements in audio formats introduced new ways to consume, distribute, and experience music.

While the CD changed our listening habits, digital MP3 formats quickly gained popularity by eliminating the inconvenience of storing physical copies of music. Although introducing the digital format was new, it presented significant challenges for the music industry. Piracy was a relatively minor concern with analogue records because the quality diminished with each subsequent copy. However, digital formats could be duplicated without any loss of fidelity, creating the possibility of widespread piracy. 

In the late 1990s, particularly during the beginning of the dot-com boom, several attempts were made to establish internet-based music companies, but none achieved significant success. However, at the start of the millennium, the music industry experienced one of the most impactful developments with the introduction of peer-to-peer file-sharing technology, which was popularised by Napster. Napster initiated a new era that demonstrated how an innovation can disrupt an entire industry and make many established industry practices and players obsolete in a matter of days.

Illegal file sharing resulted in dramatic declines in sales of CDs and industry revenue. In the UK, recorded music revenues decreased by about 60% between 2001 and 2015, from £1,868 million to £761 million (CMA, 2022). To counter the rise in piracy, new ways of consuming music emerged. Initially, legal downloads through platforms like Apple’s iTunes store allowed consumers to purchase individual tracks or albums that they then owned and could listen to at their convenience. While this approach had some limited success in reversing the revenue decline, it wasn’t enough to fully mitigate the impact of piracy.

Music streaming services disrupted the industry yet again, starting with Spotify in 2008. Unlike the download model, streaming services offer consumers ongoing, legal access to vast music catalogues as part of a subscription or for free if they are willing to listen to advertisements. This resulted in streaming becoming the dominant means of consuming music. Crucially for the music industry, streaming has increased recorded music revenues from £761 million in 2015 to £1,115 million in 2021 (CMA, 2022).

From an artist’s perspective, streaming platforms offer a unique service for easy distribution, visibility and exposure. From a consumer perspective, streaming undoubtedly provides an unbeatable service: unlimited access to the vast majority of the world’s music catalogue, on-demand, for a monthly fee as low as $12.99 .

While the industry has undoubtedly benefited from streaming, revenue flows remain concerning. Artists, especially emerging artists, struggle with little to no earnings despite their music reaching a global audience. Even though streaming revenues are increasing, recorded music revenues in real terms remain significantly below their 2001 peak (CMA, 2022). The traditional structures of royalty distribution have struggled to adapt to the evolving consumption patterns of streaming.

Despite the advantages, poor streaming economics and an exponential increase in music on streaming services have ultimately led to the devaluation of music. This makes streaming an impractical long-term strategy for artists to build their careers on and thus undermines the sustainability of the music industry. Artists need access to new technology to capitalise on their intellectual property and sustain their careers properly.

The music industry’s embrace of technology has historically presented significant hurdles. The figure below provides a comparative study of the gaming and music industries, representing their respective responses to technological shifts. The two graphs illustrate the industry revenue adjusted for inflation in real terms.

Industry revenue adjusted for inflation in real terms.
Source: 49/META

The gaming industry is portrayed on the left side of the figure. The colours signify unique platforms or technological iterations, from arcade systems to console, PC, and mobile gaming. Notably, each technological leap, either sustains or enhances the industry’s revenue. This suggests a positive relationship where new technologies layer upon their predecessors, thus fostering growth. For example, the gaming industry, valued at approximately $20 billion in the 1980s, grew to well over $100 billion in 2019. Over the last 4 years the gaming industry revenue reached nearly $250 billion

Contrastingly, the music industry, represented on the right side of the figure, paints a different picture. Each technological advancement from the 8-track era, through vinyl, cassette, and streaming platforms, erodes the revenue of the preceding technology. This suggests that previous introductions of new technologies did not provide additional value to the industry but overthrew the previous status quo. The net effect is industry revenue that, at best, maintains its value. Even though streaming revenues are increasing, recorded music industry revenue in real terms remain well below their CD era peak of $20 billion.

An inconsistent foundation for data management

The initial method for collecting digital music data had significant flaws. When CDs were introduced in 1980, their limited data storage capacity meant that only basic song information was recorded on the actual disk. Consequently, when CDs began to be converted into MP3 files in the late 1990s, there was only a minimal amount of available data to be uploaded. Unfortunately, during this period, there was no standardised data collection process, leading to the creation of numerous databases with varying standards. This lack of uniformity resulted in early-2000s digital music databases lacking crucial information regarding the IP and rights associated with existing songs. These factors contributed to forming an inconsistent data foundation that persists to this day. 

Music is one of the most complicated copyright environments with one of the worst data management practices

Edgar Bronfman Jr. , Warner Music Group Chairman

The rapid expansion of the music industry and the proliferation of platforms and rightsholders contribute to significant financial losses due to poorly structured data. With over 300 licensed music digital service providers (DSPs) worldwide and CISAC’s affiliated organisations representing more than 5 million creators, the stakes are high. Most data across the value chain remains fragmented and siloed due to the variations in how data is stored, processed, and managed. It is dispersed across various locations, often outdated or incomplete, and exists in multiple versions that differ from one place to another. This prevents alignment across the industry, creating inefficiencies and often making collaboration between entities difficult or impossible. 

Despite decades of music digitisation since the introduction of MP3s, the industry is in a challenging situation. The absence of uniform practices and a standardised database for tracking song information and engagement results in a significant delay between when a song is played and when the rightsholder receives payment. This lag typically spans three months to a year, depending on the entities involved. This delay is particularly noticeable regarding publishing royalties, where approximately 25% of music publishing revenue fails to reach its rightful owners. An important illustration comes from the Mechanical Licensing Collective in the U.S., which recently disclosed $424.4 million in unmatched or “black-box” streaming royalties. (W&M, 2021).

Adding to the delays caused by technical translation challenges is the lack of motivation for business intermediaries to transmit collected royalties to creators. If the money remains unclaimed, these entities are entitled to retain it.  The music industry’s challenges with royalty collection and distribution are a direct consequence of the industry’s legacy data foundations.

A perpetuating cycle of complexity

The attempts to address the fundamental issues in the music industry have been reactive, focusing on alleviating symptoms rather than proactively identifying and eliminating the root causes. 

The systems that governed the industry were originally designed in a pre-Internet era when the concepts of global digital rights and licences were yet to be considered. As the Internet emerged, the industry’s strategy was to retrofit traditional frameworks to fit these new digital contexts. 

Traditionally, music rights were pretty straightforward – if you bought a CD, the musicians got paid for that copy. But with streaming, things got more complicated. Streaming should be governed by a distinct set of rights reflecting its unique characteristics. Instead, the industry patched pre-existing rights to try and adapt them to the digital age. As a result, a single stream is treated as both a reproduction or copy of the song (like buying a CD) and as a performance, meaning both ‘mechanical’ and ‘public performance’ rights are invoked. Legally, this is like juggling two balls (copy and performance) with one hand. 

With each attempt to apply legacy music industry systems to new music consumption methods, the value chain complexity increases. Like in computer science, increasing complexity within legacy systems leads to ‘ripple effects’ that often prevent innovation. Ripple effects can be understood as the series of unintended consequences or secondary impacts that occur when changes or modifications are made to existing systems. 

The traditional react-and-adapt approach to updating the industry’s foundations fails when modifications negatively impact other parts of the value chain. Solutions that fix one issue often spawn additional problems elsewhere, thus perpetuating a cycle of increasing complexity.

An inability to exploit emerging opportunities

Outdated infrastructure has refrained the industry from tapping into digital opportunities like AI, the metaverse, and UGC on platforms like TikTok. This is exemplified when we look at how the industry’s value chain handles simple IP use today:

Source: Soens, T. (2023). The influence of web3 on the recorded music industry.

On the most basic level, a song has two distinct components: the musical composition itself and the recorded version or ‘master recording’ of a song. At present, there is no consistent standard for connecting a musical composition with its corresponding sound recordings. 

While musical composition data is managed through one system, sound recording data is managed using another one.”

Sharp, 2023

As a result, different intellectual property rights and activities in the value chain are associated with different copyrights performed by various entities and intermediaries. A DJ creating a remix must formulate agreements with music publishers (for the composition rights) and record labels (for the master recording rights). Depending on the complexity of the remix and the number of samples used, the DJ might have to deal with an increasing number of additional intermediaries, complicating the IP management further. As such, each modification in the music value chain, like a remix, adds layers of complexity to IP management, underscoring the challenges the current fragmented system possesses.

When we include music on social media platforms, such as TikTok for example, another layer of complexity is introduced due to the nature of user-generated content. Traditionally, licensed music libraries and fingerprinting methods have failed to effectively capture and monetise these uses. With European legislation placing increased pressure on online services to secure proper licences for copyrighted material, robust metadata and licensing data management has never been more critical. 

Without a consistent data standard and a centralised repository for all copyright ownership information, IP management becomes more complex. In this context, we haven’t even begun to include technologies like AI or the metaverse. When we examine this (simplified) overview of the different intermediaries for IP management, it becomes clear how complexity builds up.

Source: Soens, T. (2023). The influence of web3 on the recorded music industry.

Introducing AI-generated music doesn’t just add complexity; it multiplies it. Think of the original scenario, where consuming music through streaming involved juggling two types of rights: the right to copy the music and the right to perform it publicly. Now, with AI stepping in to casually create music, we’re adding more “balls” to our juggling act, making it more like juggling six balls at once. When an AI creates music, determining the holder of this right becomes a puzzle. Is it the IP rightsholder whose data was used to train the model, the developer of the AI, the user who prompted the creation, or a combination of the three? How the payment flows as a result is yet another aspect to consider. 

There is a reason why music on social media has yet to represent a revenue stream for artists, why the metaverse doesn’t even have any music, and why AI is perceived as a threat. Existing copyright laws do not adequately address the complex web of ownership and usage rights associated with the remixing or user-generated content on social media or in immersive worlds. With TikTok and UMG as an industry example, these fundamental issues lead to legal ambiguities and disputes. The complexity of the industry’s value chain, in combination with legacy systems and static IP management practices, falls short of providing the necessary infrastructure needed to licence music IP demanded by emerging technology use cases today.

Web3 as a way of future proofing the music industry

If the music industry wants to capitalise on emerging technology and acknowledge tomorrow’s digital consumers, it will require a more agile and future-facing approach to licensing. Establishing infrastructure that offers clear and effective IP and rights management is the first piece of the puzzle. This infrastructure would enable an auditable trail of the complex IP ownership and usage needed to align with today’s digital environment. By rebuilding the foundations from the ground up, Music Protocol aims to future-proof the industry, free from the longstanding constraints that have hindered progress for decades.

Brought to you by the Web3 Music Association (“W3M”) – a non-profit entity with the goal of orchestrating innovation in the music industry. Its mission is to educate music industry professionals, support their digital transformation, and bring them together to collaboratively develop innovative use cases. Created from an extensive three-year collaboration, the association is a lead contributor to the Music Protocol – a dedicated blockchain for intellectual property registration, management and monetisation.


  1. Sharp, A. (2023). Smart royalties: Tackling the music industry’s copyright data discrepancies. 
  2. Soens, T. (2023). The influence of web3 on the recorded music industry.
  3. Knibbe, J. (2021). Understanding Music Rights Data: The challenges of delivering timely royalty payments to artists. Water & Music. 
  4. Mulligan, M. (2023, August 31). Ai, Music Rights, and known unknowns. MIDiA Research.
  5. Gamal, A. E. (2012). The Evolution of the Music Industry in the Post-Internet Era. Scholarship Claremont.
  6. Wikström, P., & DeFillippi, R. (2016). Business Innovation and Disruption in the Music Industry. Google Books.
  7. Competition and Markets Authority – CMA. (2022). Music and Streaming. United Kingdom Government.


Tim Soens – Web3 Music Association Analyst