In the controversy over streaming economics, warring factions of the music industry are bickering over how to move pennies around a plate, rather than how to expand the size of the shared meal
Founder, Music Business Worldwide
Christian Hjorth/PYMCA/Avalon/Gonzales Photo/Universal Images Group/Getty Images)
Everyone can be certain, but not everyone can be right. The music industry is currently suffering from an abundance of the former, as warring factions debate a potential change to the core business model of music streaming.
To recap: Politicians in the UK have, for months, been gathering oral and written evidence from all sides of the record industry about how much streaming services pay out to artists, with a general consensus that the royalties under the existing pro rata model are way too low. The results of the UK findings are due to be published soon as part of a Parliamentary inquiry (equivalent to a U.S. Congressional inquiry) into the economics of music streaming, and the whole global industry will be watching. Under pressure, Apple and Spotify have loosely agreed to “consider” alternative models, further fanning the flames.
Parties have made various cases for how streaming should really get money into artists’ bank accounts. Below are a couple of the most popular suggestions — and also why, unfortunately, they all miss the most important answer to musicians’ money woes.
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The loudest of the “streaming must reform” voices have been those of artists who feel ripped-off by the current model. The New York Times just dedicated a full article to these acts’ demands, which include a proposed switch to an “equitable remuneration” (ER) royalty model for lean-back streams, a.k.a. streams that listeners don’t actively select to play but are chosen by the platform or playlist.
This ER model would see Spotify et al paying out royalties for lean-back streams to a collection society, which would then pay 50 percent of this money to artists directly and 50 percent to record companies — in line with how royalties work in the UK radio industry. (But not in US radio, confusingly, because of a longstanding loophole that lets US radio stations get out of paying recording artists for broadcast plays.)
Record companies counter that the introduction of ER would shrivel the negotiating power of record companies like Universal Music and Sony Music versus the streaming services in licensing agreements. This is why the BPI, which represents major (and some indie) labels in the UK, has called ER “a recipe for disaster” that would “dramatically shrink the total pool of royalties available to labels and artists”.
Still, the likes of Paul McCartney, Chris Martin, and Stevie Nicks have come out in favor of ER’s adoption.
A different idea being kicked around by the UK inquiry has gained more widespread support: Replacing the current “one big pot” streaming payout system with “user-centric” royalties that pay artists based on specific listeners’ activity on their catalog.
Currently, under pro rata, Spotify pools the money from tens of millions of global subscribers, takes its cut, and divvies up the rest to artists based on their share of all listeners’ plays — meaning that a user who exclusively listens to one ultra-niche artist might still see a chunk of their money going to, say, Ariana Grande. Under a user-centric model, that user would see their subscription money allocated only to that niche artist, and not to any artists they do not actively play.
On the surface of it, “user-centric” seems like the fairer option. Just ask SoundCloud, which has already launched its own take of this adventure — savvily dubbed “fan-powered royalties” — and argues this system healthily tethers consumer activity to the artists those same consumers love.
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There is, however, a strong counterargument. For one thing, a recent industry study co-authored with Deloitte looked into what a switch to “user-centric” royalties would mean in France. It estimated that the move would boost the income of some genres (classical, jazz) but that rap and hip-hop would see a 21% and 19% reduction in payouts as a result.
Prickly question: Is the music industry, as we move towards the one-year anniversary of Blackout Tuesday, really prepared to financially penalize predominantly black artists for being popular? To reduce the royalties of artists in genres that faced major under-investment — not to mention some infamously dodgy label deals — for decades?
This bleeds into another strong protest against user-centric: The biggest gainers from “one big pot” royalties are those artists whose tracks are, on average, played more frequently by their listeners than other acts. By outstripping the average plays-per-user, these artists increase their service-wide market share. So how can it possibly be fair to punish these top-played artists? All the blood, sweat, tears it’s taken them to reach the top of their game — only to have their pay docked out of nowhere?
As you can see, the economic idea of “fair” in this conversation really does depend your vantage point and whose wallet you’re protecting.
In my view, despite the pain points, a switch to user-centric probably is worth it for one specific reason: It would wipe out the commercial incentive for streaming fraud on platforms like Spotify. In turn, this would increase the total amount of money paid out to legit artists, regardless of their genre. But this isn’t as elementary a debate as some would have you believe.
Obviously, the music industry remains a segregated, quarrelsome place, with upset people pointing fingers in a multitude of directions. But it’s a great shame, because such a lack of industry unity is really starting to show.
Just this week, we saw a double-blow to the hopes of anyone who wants to see more money and an increased average revenue per user (ARPU) coming from subscription streaming. First, Apple Music announced that it is launching higher-res audio quality for subscribers at no extra cost. Then, mere minutes later, Amazon Music announced it is reducing the price of its HD tier from $14.99 per month to $9.99 per month, and even cutting down the price that existing subscribers to this tier are paying by $5 apiece.
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These are movements made by tech giants that play to their Number One agenda: luring as many music fans as possible into their wider commercial ecosystem. But they potentially run counter to the record industry’s Number One agenda: exploiting and maintaining the value of music online.
The music industry’s hopes of achieving this objective are surely weakened by the fractious squabbling now playing out over streaming economics. The different parties involved — fueled by unpopular artists angry about their lack of popularity — are, in essence, currently bickering over how to move pennies around a plate, rather than how to add dollops more money to their shared meal.
Case in point: in 2018, UK trade body ERA published startling statistics on the amount of money being spent by physical music “superfans” in the UK. Some 157,000 vinyl buyers plus 292,000 CD buyers, its research concluded, were spending around GBP £400 each per year. Cumulatively, these “superfans” were spending an estimated £179.6 million on recorded music per annum.
If these numbers carry to the US, which has a population five times the size of the UK’s, that indicates there are somewhere around 2.2 million vinyl and/or CD-buying “superfans” in the States, spending over USD $1 billion on recorded music between them each year.
These are people demonstrating an exceptional level of music fandom that might see them spend far more than $9.99 per month on the right kind of music streaming experience. As suggested in this column last year, the keys to unlocking this extra spend could include the segmented “upselling” of streaming subscriptions for those who wish to dive deeper into a niche genre. Or artist-centric subscriptions, enabling fans of particular acts to pay more to access exclusive digital and physical goodies (think: merch, early ticket access, behind-the-scenes video updates, livestream shows etc).
The CEO of SoundCloud, Michael Weissman, recently observed that, outside of Bandcamp, “[spending] $100 online on my favorite artist right now is actually really hard to do.” He’s right. And the more “superfans” who enter a $9.99-per-month-and-that’s-it streaming environment today, the more money the industry is leaving on the table. We’re talking unexplored billions now, not the relative pennies of the streaming economics debate.
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Where is the united music-industry voice mounting pressure on platforms like Spotify, Amazon Music, and Apple Music to launch and market these kinds of exciting new revenue-getting initiatives — and blow up the streaming pie for all parties?
It’s MIA. Right now, everyone’s far too busy kicking lumps out of each other.
Tim Ingham is the founder and publisher of Music Business Worldwide, which has serviced the global industry with news, analysis, and jobs since 2015. He writes a regular column for Rolling Stone.
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