Music and Royalties: We Are Starving Ourselves (Part 1 of 4)

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In recent times, the music industry has been rocked by change in both how music is being recorded and the mediums in which it is distributed. There are more avenues that ever to release creative content, yet many artists find today’s market to be the most challenging it has ever been. Record labels are redefining their roles in the industry, while major publishing houses fight an onslaught of online piracy. Television shows and movies are paying exorbitant fees to include chart-topping hits in their latest upcoming project, only to find that most of these tracks are declining in popularity by the release date. Movie soundtrack albums are dwindling, while composers fight for extremely limited and controlled positions within film scores and television soundtracks. It seems ludicrous for an individual to surrender themselves to the music industry without some serious hesitations. However, wherever there are people, money is always exchanging hands. The 21st century music landscape is full of people and the opportunity for profit, but fierce business and listener apathy have left many players in the music business reeling in a panicked scrounge for their measly cut.

Several new corporations in the music industry have arrived with astronomical success, including Pandora, Rdio, Spotify, iHeartRadio, and Apple Music. They all differ in price, platform, and software, but together, comprise the biggest names in music streaming. The business model for streaming services is complex to say the least. For some streaming services, the vast majority of their users pay absolutely nothing at all for their services.1 Companies provide these users with periodical advertisements, and include other limitations on their experience. Some streaming companies will eliminate off-line music storage, prevent skipping forwards or backwards in a playlist, and limit user choices within the application. Paying customers are enrolled in a subscription-based fee, usually monthly, that provides seemingly infinite access to music of any genre. They are also afforded an off-line storage mode that functions exactly like a purchased track on iTunes, as long as the subscription is active. Other companies like Rdio provide streaming of terrestrial radio stations, eliminating the need to listen to a certain station in their geographic area. With all this musical variety in a “payment optional” system, the clear winner of this industry innovation is the general listening public, besides of course, the top executives within their respective musical empires. However, history illustrates that every good thing comes at a price, and in this case, the artists, record labels, songwriters, and publishers are paying a very dear cost.

The music business revolution is having a tremendous negative impact on how artists are being compensated for their work through royalties. For example, at Spotify, one of the world leaders in music streaming, the business pays different royalties for the same song every month. To provide an illustration, consider the song “Hotline Bling” by Drake. “If Spotify users stream more music in August than July, but the same amount of Drake, Drake would see a smaller check for the same play count. This could even happen despite an increase in Spotify’s monthly revenue. If Spotify’s monthly revenue is flat, but Drake’s stream count grows faster than total track volume, he could be paid less per stream but generate more revenue. If revenue increases, Drake could see greater royalties, even if stream count drops.”1 In addition, Spotify employs a complex formula to compute a royalty figure that differs by country and their currency value, advertising and subscription revenue, number of premium subscribers, and an artist’s popularity. The formula for an artist’s popularity is found by multiplying Spotify’s monthly revenue in a given country by an artist’s popularity (artist’s streams divided by total streams) by seventy percent to publishing owners by the artist’s royalty rate. Although the formula includes multiplying four numbers, the final total is often exceedingly tiny. The average stream payment is between $0.006 and $0.0084 per stream.2 After reviewing this arduous process, it is clear that the money an artist receives from streaming services has very little to do with the actual value of their product.

 

1 Nussbaum, Daniel. “5 Reasons the Music Business Is in the Toilet – Breitbart.” http://www.breitbart.com/big-hollywood/2015/07/28/5-reasons-the-music-business-is-in-the-toilet/.

2 Spotify, Inc. “Spotify Explained.” http://www.spotifyartists.com/spotify-explained/.

 

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