This weekend, Radiohead frontman Thom Yorke and producer Nigel Godrich, collaborators in the band Atoms For Peace, made waves by pulling their material from streaming music service Spotify. Thom and Nigel explained that, in their view, Spotify’s business model doesn’t make sense for new artists. Godrich called the act a “small meaningless rebellion,” tweeting that, “small labels and new artists can’t even keep their lights on. It’s just not right.” (We jumped into the fray on NPR this week a couple of times.)

All of this comes at a moment when the economics of streaming and its impact on artists is under increased scrutiny in both the mainstream and music press. It’s clear that consumers enjoy access to streaming services; it’s less clear how musicians will fare under this model. Some are excited about the opportunity to reach broad audiences, activate dormant back catalog and participate in legal alternatives to piracy. For others, any enthusiasm is muted by concerns about meager compensation.

Is obscurity the problem?

In the 2000s, a particular axiom was bandied about quite often by tech enthusiasts and music industry reformers alike: “piracy isn’t a problem, obscurity is.” Today’s version of this maxim might be be, “low streaming royalty rates aren’t a problem; obscurity is,” implying that streaming services should be understood as allies in the battle against obscurity. Yet for all of musical history, most working musicians have been obscure, at least by the standards of mass audience models. Obscurity alone isn’t so much of an issue if obscure artists are able to obtain a fair price for their obscure work. With the right systems in place and a small but loyal fanbase, some among the obscure were able to eke out a decent living.  

One common mistake people make when thinking about music industry trends is to think about “artists” or “labels” as monolithic entities rather than being diverse in their goals, ambitions, and scales of operation. To properly envision what “fair” streaming might look like requires us to step back and think about diversity in creative sector business models. As we’ve emphasized in the past, there is no “old model” or “new model.” There are many different approaches that musicians choose, based on their unique abilities, interests, resources and goals — so it’s not suprising that musicians’ opinions are also diverse. 

One of the ways that the ever-consolidating major labels have adjusted their business model in recent decades has been to shrink their artist rosters, gradually abandoning niche acts in favor of superstars. With this shift comes an interest in supporting systems that reward a mass-audience approach, while monetizing their large, but less-active back catalog. “The big three” majors are likely not as concerned with how all-in services like Spotify impact smaller-scale artists at the indie or self-released level. This is important to remember as you consider the amount of leverage the majors have in determining how services are designed and which are brought to market.

Evaluating Streaming

Some point to the fact that Spotify currently pays about 70 percent of revenue to rightsholders and express befuddlement that artists could possibly ask for more. Meanwhile, many artists who receive piddling payouts express similar befuddlement that anyone could see the current arrangement as anything but unfair.

Neither a percentage of revenue or a simple dollars-to-cents comparison of streams-to-downloads tells the whole story. You have to look at at least four factors in tandem to make any substantive evaluation of whether a pricing scheme is ultimately fair.

1) The size of the revenue pie
This could include speculation about how it might grow in the future, but should still account for the present situation for artists.

2) How the pie is sliced
For a major label, this could include equity shares (i.e., part-ownership), advances and favorable deals on the actual per-stream rates. For songwriters and performers, however, it generally only involves a very small amount — fractions of a penny, to be precise. For services such as Spotify which are not covered by a statutory license, performing artists who are signed to a label get paid based on their deal with said label. As is often the case with royalties, an unfavorable label deal means a lower (or even nonexistent) payout. Still, it’s worth noting that it’s more and more common for artists to own their own masters — a group that includes some of the strongest critics of streaming services. (Songwriters are compensated based on a fairly arcane revenue calculation; we don’t have space to get into the details, but at present, the payouts are also quite low.)

3) How many fans contribute revenue toward “baking” that pie.
Many artists whose recorded music sales contributed to a sustainable living (let’s say with 20,000 or so fans) fear that they must now market themselves to an exponentially larger audience to achieve the scale necessary for streaming on-demand services to come anywhere near revenue generated from even downloads. It’s true that as services like Spotify grow in popularity, overall revenue will increase. But that doesn’t necessarily mean that even popular independent artists will benefit significantly from this growth.

4) How the pricing scheme impacts other revenue streams.
Could streaming bolster some ancillary streams, like live show attendance? Does it cannibalize others, like iTunes downloads or CD sales? For any service, the answer will vary for different artists at different stages in their careers. (It may be possible for streaming services to assist in revenue generation in other areas; more on that in a minute.)

It might be helpful to put yourself in the shoes of different types of musicians and composers while considering these questions. And even the “fat middle” of non-superstar artists might come to diverse conclusions at different stages in their career. A young band in their early twenties, just out of the gate and looking for maximum exposure to boost attendance on their first national tour might find Spotify and other streaming platforms serve their needs well. A mid-career singer-songwriter who has spent decades building her small but loyal audience might have a very different reaction. And a composer who doesn’t tour or sell merchandise may have another set of perspectives.

Making the Case

Defenders of streaming services suggest bigger payouts are just around the corner, once the platforms attract more listeners. Such proclamations may be valid, but they often fail to illuminate how this growth will impact different kinds of artists. Academic David Touve has argued that streaming could actually cumulatively pay better per listen than an iTunes download. But his math rests on an assumption that the average person listens to an average purchased download 250 times. Perhaps this is true of consumers whose tastes are narrowly focused on pop hits. But artists not named Justin Bieber might just as well anticipate a lower lifetime play count. (Jesse Von Doom of CASH Music has rather humorously tried to calculate the sheer volume of streaming listening necessary to surpass the value of a sale.)

Similarly, attorney and industry veteran Donald Passman told the New York Times earlier this year that “if those subscriber ranks grow, royalty rates will also climb.” But Passman also comes from a mass-audience background — his clients tend to aim for success on a mainstream scale. Thus his reassurance does little to assuage the concerns of artists who are working in niche markets or community-centric levels.

There’s no doubt that Spotify has tried to encourage consumers, labels, and artists see them as forward-looking good guys. Heck, they even brought Spotify-exec Sean Parker together with his Napster-era nemesis Lars Ulrich of Metallica to sing the service’s praises. And Mumford & Sons’ label boss Daniel Glass touted that band’s debut as a record that was streamed extensively on Spotify but also “moved tons of units” in downloads and CDs. If streaming math works for Metallica or Mumford & Sons — both hardworking bands whose careers are built on mass-scale ambitions and assumptions — then that’s great! But this tells us nothing about the realities faced by the little guys (even the relatively popular ones). The most critical question for streaming is whether/how/if the numbers can work for artists who have no mass-scale ambitions; who will never play an arena or even the SNL stage.

In this context, “low streaming royalty rates aren’t a problem; obscurity is” starts to sound more and more like an attempt to get musicians and composers to accept what works for big acts, major labels (and some of the mega-indies) as the the only game in town — even if it’s a game that most independent artists can’t win. Spotify has commissioned research indicating that not putting a new release on a streaming service can increase piracy and even diminish download sales, but again, these numbers are focused on superstars like Rihanna and Taylor Swift.

Complicating all of this is a lack of transparency (particularly with Spotify). It’s inexcusable that this long after the service was launched, we don’t know as a matter of policy whether indie artists are getting the same rate as majors. We don’t know what kinds of advances the big labels have received from Spotify — and we certainly don’t know whether those advances have been shared with artists (though it’s probably safe to assume they haven’t). And what happens if Spotify’s owners and investors decide to sell the company? The major labels will no doubt be well-compensated for their equity shares, but what about the performers and songwriters who bring so much of the value?

Make no mistake: we’re eager to see the rapid growth of a legitimate digital marketplace. But we must also be skeptical about structures that may disadvantage artists who aren’t working with mass-scale assumptions. Whether a particular service represents a step forward shouldn’t be judged solely on the basis of whether it is legal, but whether it contributes to the overall revenue health of a diverse array of artists and independent labels, directly or indirectly. If the marketplace ends up being an environment where only superstars and the privileged can pursue music as a vocation, then it’s not much of an improvement over unauthorized downloading.  

If one concludes that streaming economics for non-superstar artists isn’t working, the conversation often gets reframed to suggest historical inevitability, something along the lines of, “low-or-no-cost streaming is a result of consumer demand, and you can’t control consumer demand!” This can be perceived as a tacit threat: artists and indie labels, get on board or get left behind. This “historical inevitability” argument ignores the fact that consumer desire and consumer expectations are in part manufactured. (How else can you explain cable television?) It’s worth asking whether artists should get locked into a future where consumers are trained to expect that everything is hunky-dory, so long as the service is legitimate.

That said, streaming is still relatively young. Services have an opportunity (and hopefully, a responsibility) to consider the concerns of the artist community. There are a number of ways that streaming services could be improved, and we’re optimistic that new market entrants can introduce some real competition to make streaming services more artist-friendly. Some have suggested connecting streaming to other kinds of e-commerce — stream the album, then buy the t-shirt, or limited edition 180g vinyl. Of course, the notion that t-shirts can make up for substituted record sales is somewhat fanciful — our research shows that only 2 percent of musicians’ income on average comes from merchandise sales — but the opportunity to facilitate direct commerce should still be acted upon. Similarly, it’s good to see streaming services showing a growing interest in connecting listeners to the live music industry, both by informing listeners about artist’s tour schedules, and by giving artists useful information about who’s listening and where. Not every artist can tour constantly, though, and the economics of working on the road are precarious, as we’ve discussed elsewhere. Still, integration of these features would be a baseline step in the right direction.

Ultimately, the question of how much artists get paid on different services is about leverage and who wields it. Yorke and Godrich might not have enough leverage to transform the industry, but they have used their position of relative notoriety to draw public attention to the question of how to create systems that work better for both fans and artists. And that’s worth recognizing.