Music and Royalties: We Are Starving Ourselves (Part 2 of 4)

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Behind every Hollywood star or professional athlete, there is a team of people working full-time to make sure they are a success. The same is true in music, with the artist’s success being directly related to the quality of work by their record label, agent, songwriters and publishers. This work deserves adequate compensation, which has proven more difficult to attain in recent history. Using a contract, artists often sign away rights to songs to gain financial and promotional support from record labels and publishers. These entities are suffering from the negative financial impact of streaming and the decline of purchased music. This trickles down to songwriters and A&R managers, who earn their negotiated percentage from a smaller amount of total profit from their song. Faced with pennies on the dollar, in comparison with royalties from purchased music, record labels have been forced to adapt in the harsh financial climate of the digital age. Downsizing only accommodates so much savings, and costly new investigative departments have sprung up to combat use of songs without permission on platforms like YouTube. Some findings from these investigations can lead to sizable awards in copyright infringement lawsuits, up to $150,000.1 Recently in 2008, Viacom launched a landmark copyright infringement case against YouTube, totally $1 billion in claims. However, these cases require expensive lawyers and often take years to accumulate data, testimony and evidence for a trial. Music business companies are faced with a choice between the lesser of two evils; either allow copyrighted material to roam free across the internet or suffer exorbitant costs in an attempt to police – essentially – the world.

An answer to this dilemma appeared in the form of music streaming, which serves as a low-cost alternative to piracy. However, music streaming services justify absurdly low royalty payments, because they feel their only competition is online piracy. Before the turn of the century, an album sold for a certain price to consumers, regardless of what month it was or how many people purchased the album. Looking back, this process appears to be surprising straightforward. It provided a relatively reliable way to quantify how successful and valued an album was to the public. Today, payments to an artist from streaming services cannot possibly be an accurate reflection of how global listeners value a certain piece of music. Instead, compensation for an artist has become a fluctuating number that is affected by several factors outside the quality or popularity of the music. Royalty payments are beginning to appear more like irregular dividends from a risky stock investment in the New York Stock Exchange, affected by a multitude of macroeconomic factors. The new truth for recorded music has become fluctuating, obscure compensation for an artist’s physical recordings. Just take a look at the following formula used by Spotify!

See below for explanations of each item.

I’ll save you from doing the math. The “Artist Payout” is pennies on the pennies of a dollar. How viable is it for artists to be dedicated full-time to producing music if the payout amounts to so little? If legislation does not change, the creative heartbeat of this country could be at risk. This year, the U.S. Copyright Office released a 245 page report outlining issues and their proposed changes to ancient royalty legislation, most of which was written in the early 20th century. The question is, will these proposed changes be passed in time to save a starving industry.

1 Levy, Mark, and Saba Siddiqui. “What’s Legal YouTube. Fair Use Vs Copyright Laws.”

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

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