Yesterday, on-demand music streaming service Spotify did something pretty big by explaining in detail how it calculates and pays out royalties to rightsholders. With so many music industry pundits and practitioners in a tizzy about the economics of streaming, this move can be generally seen as positive. But as always, the devil is in the details.
It is certainly significant that Spotify took this step—probably long overdue—and we hope that it serves to increase the standard of transparency across the digital music sector. When a market leader like Spotify makes this kind of move, it can be a spur to other players to follow suit. However, it doesn’t really change much in terms of artist leverage on streaming on-demand services, nor does it impact most musicians and songwriters’ bottom lines. We spend a great deal of time considering this stuff—in fact, our own Kristin Thomson recently wrote a post for Music Think Tank about ways to make streaming music more viable for artists. (And if you need a primer on how the money flows on a variety of music platforms, check out these handy charts.)
Spotify took pains to clarify how it calculates its payouts to rightsholders based on a number of factors (the company encourages people to not think so much in terms of money per-stream, but claims an average between $0.006 and $0.0084). Perhaps more significant is the announcement of direct access to data for artists, as part of a partnership between Spotify and music analytics company Next Big Sound. Artist access to data is something that we’ve long championed, and it’s nice to see major players in digital music take up the charge. Another interesting development—and one that isn’t getting enough attention, in our opinion— is Spotify’s planned partnership with direct-to-fan commerce platform Topspin to incorporate merchandise in artist profiles.
There’s a lot to digest at the new Spotify Artists page; you should definitely have a look and come to your own conclusions.
It’s important to note that Spotify isn’t the only streaming platform out there. On the “interactive” side (where you pick what song you want to hear), there are also services like Rdio and Rhapsody, Deezer (across the pond) as well as the anticipated re-launch of MOG under the Beats Music brand. In order to offer their vast catalogs, these services must obtain licenses directly from rightsholders—typically labels and music publishers (unaffiliated artists can use aggregators like CD Baby and TuneCore for distribution to on-demand services as well as download stores like iTunes, Google Play and Amazon MP3). If a service doesn’t acquire a license for a song, it’s not allowed to stream it.
The picture is different for “non-interactive” streaming outlets like Pandora and Slacker, which the law classifies as webcasters. Here’s how.
Even though many internet radio platforms allow users to customize “stations” based on listening preferences, their broadcast-like nature offers them eligibility for a statutory license. This means that government-appointed judges preside over negotiations to determine rates. The upside for services is that, if they simply pay this compulsory royalty, they can play whatever music they want. The upside for recording artists is that they are paid directly through the nonprofit SoundExchange, which collects and distributes monies for the digital public performance right. For artists, the best part of this arrangement is that the money they’re owed isn’t held against their debt to a label. Featured performers receive 45 percent; the owners of the sound recording (typically a label, but sometimes the artist) receive 50 percent; 5 percent goes to background singers and musicians. (If you’re being played on digital broadcast platforms like Pandora, Sirius/XM or other internet radio you should definitely sign up for SoundExchange—it’s the only way to get paid, and it’s free.)
While there are ongoing debates about how internet radio rates are calculated, the way that artists are paid is pretty straightforward and inherently transparent. Contrast that with interactive services like Spotify, where compensation for signed artists and songwriters is dependent on their deals with their labels and publishers. Unaffiliated artists with significant plays may actually fare better in some instances, but they don’t have anyone representing them when the initial terms between the service and rightsholders are hammered out.
As Eliot Van Buskirk of Evolver.fm points out, Spotify’s step towards transparency might end up refocusing artist outrage in another direction:
This move could pit Spotify and artists, whom some see as enemies, against labels and publishers. After all, once recording artists and songwriters see how much Spotify is paying labels (and then publishers) on their behalf, they might notice how little of that money they’re actually seeing, even after waiting up to 18 months for their slice of the money to work its way through their label(s) and/or publisher(s).
Of course, some of the strongest critics of the current streaming model have been artists who own their own masters and/or control their publishing (or at least portions of).
Whether these developments have the effect of making statutory licenses like those utilized by satellite radio and webcasters seem more attractive remains to be seen. At the very least, all of this is indicative of the complexities faced by today’s musicians and songwriters. That’s why so much of our work is spent on demystifying things for the benefit of creators. We appreciate that Spotify has taken steps to explain a bit more about the economics of streaming, and hope that the artist data project serves to give artists a better sense of what they are being paid and why. From there, it may be easier to consider how innovation, business practices or even the law can make digital music work better for creators. We’re always up for that challenge.