The South African recording and publishing industries

The recording and publishing businesses in particular are still very much alive and kicking, although there is evidence that major changes are taking place. According to the Recording Industry of South Africa (RiSA), the South African recording industry saw annual sales of R575 602 057.48 up until November 2012, with 7 309 608 units of local product and 7 442 840 units of international product being sold. While these figures represent an overall drop in sales of R4 190 120.52 (0.7%) from 2011, they also indicate that we have a local industry that is worth a fair amount of money. RiSA monitors all of the physical sales of its members to come up with these figures. They are also responsible for issuing gold and platinum discs for record sales[1].

Figures for publishing turnover are not so readily available, as the nature of the publishing business does not require the reporting of sales as physical units do. However, the National Organisation for Reproduction Rights in Music in Southern Africa (NORM) reports that there is ongoing growth in the number of publishers, as reflected in its membership. There are currently over 380 publishers registered in South Africa with NORM[2].

Most readers are aware of the recent changes in the playing field where global record companies are concerned. With mergers and acquisitions reducing the number of major players on an on-going basis, this too has had an impact on the South African market. Let’s have a look at each of these two sectors: Recording and Publishing.

Recording: Major Labels

Historically, music markets have been controlled by large, major record labels. This was because in order to record, manufacture and promote effectively, artists required a big budget to be heard above the competition. However, ongoing mergers and take-overs have steadily reduced the number of the big players. The causes of this change are varied and complex. A lot of it has to do with the diminishing returns that record companies began to experience following the advent of digital music, along with the effects of their short-term oriented business plans backfiring.

Major labels traditionally practised what has become known as the ‘long tail’ model of business. This meant signing many artists who, over time, would realise a good enough return to justify their contracts and in the process help fund the overall business. In the last couple of decades, this focus has switched to a ‘short tail’ strategy, which requires big, immediate demands from a smaller catalogue of music. When this new strategy collided with the change brought about by the internet and digital music, a lot of companies began to fail. They then sought out other companies for mergers and partnerships in an attempt to maintain their profit margins.

The same has been true of South Africa. According to RiSA, there are now only three major labels left in the country. Two decades ago, that figure was closer to ten. The survivors are Sony, Universal and Warner. These three labels are now home to most of the international content that is sold in South Africa. The labels represent a catalogue of South African artists but remain by and large international companies selling international content. RiSA was originally formed to represent the interests of record companies to government lobbies, as well as to perform self-regulatory tasks and verify sales. The gold discs often seen in a record company’s office for sales are issued in South Africa by RiSA and each of the major labels are paid-up members of the organisation.

Major labels are large business concerns with serious overheads and a focus on the bottom line. As a result, it has become increasingly difficult for emerging artists to do business with the majors, which have become the domain of established artists with reputable track records. The low-risk approach of the ‘short tail’ means that major labels are increasingly on the lookout for ‘sure things’ and instant returns - hence their ongoing interest, globally and locally, in shows like Idols, Pop Stars and South Africa’s Got Talent. In addition, as there are now only three majors in the country, it is next to impossible for an artist to play them off against each other in order to secure a better deal. There simply is not enough competition.

Recording: Independent Labels

Of RiSA’s members in South Africa, approximately 2 600 are independent record companies. RiSA estimates that of these, about 1 500 are one-man operations set up to release one artist or by artists to release themselves. What this indicates is that in South Africa independents are by far the most numerous and influential players in the market. They represent the largest number of South African artists. These independent companies range in size from the aforementioned one-man shows to big companies employing over 100 people. While some are focussed exclusively on local artists, many independents hold the distribution licenses to bring niche international catalogues into South Africa for particular markets. These include jazz, world music, house, hip-hop, gospel, electronic and rock.

However, this total number from RiSA does not represent the full picture. There are many other companies that are so independent that they are not even registered with RiSA as members. These companies are either still very small and young or operate totally underground - representing artists aimed at a grassroots, fast-evolving scene. They might even release their content themselves on CDRs and memory sticks, or straight to digital via free online platforms. While most of these are run by passionate, committed people, by virtue of not being regulated or audited in any way, they can pose a risk to artists in the medium-term by simply not being sustainable.

Digital Sales

Despite the fact that the recording industry has moved into the digital realm in a big way, digital is still only a small part of the business in South Africa (as of the end of the 2012 reporting period). This is despite the fact that all major telecoms companies offer musical content via their networks and devices, as well as the ever-growing internet connectivity rate in the country. Now that iTunes has entered the local market, however, many analysts are expecting a sharp growth in this arena.

Of the R 575 602 057.48 reported in sales for 2012, only R46 645 118.90 of this came from digital sales, accounting for about 12% of total sales (approximately 97 404 units). This is still an increase from 2011, when only R36 622 993.00 was realised through digital sales. As more channels open and South African content becomes more available on these global platforms, this figure is expected to rise sharply during 2013 and in the future.

Publishing

As previously noted, the representative body for publishers in South Africa is the National Organisation for Reproduction Rights in Music in Southern Africa (NORM). They currently have over 380 members - companies or individuals representing musical catalogues for both major and independent labels. NORM counts among its members the publishing arms of the three major labels: Universal Music Publishing; Warner Chappell Music, administered locally by Tusk Music Publishing; and Sony/ATV Music, which recently acquired EMI Music Publishing. Aside from this, its members are made up of five or six large independent publishers, numerous smaller publishers, as well as individual composers who may or may not have assigned their rights to a publisher.

The publishing business is alive and well in South Africa. With the reported fall in total physical sales a clear and ongoing trend, many artists are beginning to look to publishing as a reliable alternative source of income. While for signed artists this is a logical extension of their record deal, many artists who have not yet even signed a record deal are looking to publishers to license their independently released material - in the hope of landing a synchronisation deal of some kind (licensing a piece of music to other media such as adverts, TV programmes, movie soundtracks or video games), as well as to collect mechanical and broadcast royalties from all over the world.

Proof of this local trend is that publishing revenues are increasing worldwide. This is mainly due to increases in performance income resulting from the huge growth of new media channels (internet radio and TV, streaming, digital and satellite platforms) that all require music in some form or other. While the local trend has not caught entirely up with the global situation, it certainly is coming. There has already been an increase in local content for synchronisation deals locally.

The publishing industry is affected by the general state of the music industry in South Africa. It is important to note that this is a small industry that earns relatively little money in the overall economic picture. There are very few musicians who make a living from being a writer, resulting in many of them also being performers, producers or teachers. Internationally, research figures suggest that there are currently 40% fewer participants in the music industry than there were at its peak over two decades ago. While there are no South African figures available, anecdotal evidence suggests that our figures are declining as well.

Digital Publishing

NORM is focussed on making sure that their members ­- and in turn, their members’ clients - are protected and benefit from the digital arena. According to the organisation, they are particularly active in making as much of their members’ repertoires available throughout sub-Saharan Africa. NORM manages licensing agreements with all major South African telecoms companies, as well as several smaller operators. They also report a significant increase in international internet service providers (ISPs) approaching them for South African music licences.

Another benefit of the digital arena for songwriters has been that the collective licensing of digital rights through NORM has meant that publishers have more bargaining power than the artists did individually. As a result, the rates that NORM is setting for mechanical rights in the digital space are much higher than they were able to negotiate previously with record labels. Performance income for digital is still in its infancy in South Africa. We have Simfy, Deezer, iTunes and RaRa but they are still relatively new to market. It is anticipated that there will be logistical issues with large numbers of reporting lines with very low value (such as the current Spotify debate internationally) and that these will require robust royalty systems to facilitate payment.

So while it is true that the South African music industry is pushing strongly into digital, there are still problems. A lot of these remain physical: we don’t have the bandwidth to support legal services and easy consumer access. The international trend is that when music is available in legal ways that customers have easy access to, piracy levels are lower. Scandinavia is one example of this. As it stands here in South Africa, there is a far greater risk of digital piracy in general.

South Africa has not escaped the massive changes sweeping the global music industry. The local record label industry has had to change due to a sustained drop in sales. However, digital has not entirely replaced these losses, so interesting times lie ahead both for record labels and publishers.