“If you’re not happy with your interactive streaming music payout, blame your record label.”

“Wait till more people start using the format, then rates will get better.”

These are frequent responses when musicians have raised concerns about paltry payouts from interactive streaming services. But those responses are called into question by a new interview in Billboard where label boss Martin Mills reveals that his Beggars Group—representing an assortment of popular indie labels such as Matador and 4AD—explains that he is actually reducing the percentage of revenues paid to artists from services like Spotify and Beats Music. The stated reason? The economics of streaming mean Beggars can’t afford more. 

Now, if you’ve been watching streaming music debates closely, you know that equitable artist/label splits is a topic where even noted streaming critic David Byrne and frequent streaming defender Billy Bragg find themselves in agreement. This new development suggests the debate about interactive streaming services and artist compensation is far from over.

How the money flows

As you can see in our nifty chart, interactive services pay royalties for the sound recording copyright directly to labels, and labels typically pass on a percentage to artists, in accordance with the terms of each artist’s contract.

(Note that this is different from non-interactive services like webcasting, Pandora, and satellite radio, which in the US are required to pay featured artists 45 percent, backing musicians 5 percent, and copyright owners 50 percent via the nonprofit SoundExchange. These monies also can’t be held against an artists’ debt to a label (also known as “recoupable” costs for distribution and promotion, etc.). Also keep in mind that we’re talking about the sound recording copyright, not the composition copyright. The former belongs to recording artists and labels; the latter to songwriters and publishers. (For more on how this works in practice, we again recommend checking out our chart.)

As with digital downloads, there is significant debate about whether streaming music should be calculated as “sales” income or as “licensing” income. Some labels typically pay more for a “licensed” use than a  “sale”—majors especially have had an incentive to call new formats “sales” even when that logic seemed sketchy.

Beggars had previously made the very public move of paying artists 50 percent of revenue for streaming royalties, which was more than their normal royalty rate. Beggars’ Director of Strategy Simon Wheeler even went as far as to say in 2012: “When we looked at the streaming models we felt that splitting this revenue 50/50 as licensed income was the right thing to do—we couldn’t justify it as a ‘sale.’”

Meanwhile, certain other indies in the Crass Records/Touch&Go/Dischord tradition pay out 50 percent on sales and on licensing income alike in profit-split deals.

Time for a change?

Now though, it looks like Beggars has reversed course, taking a step away from the 50/50 licensed split and closer towards how major labels calculate streaming payouts. Mills says the new rate is still higher than the normal royalty rate, but he won’t rule out it having to be cut further in the future. But what if it’s more out of necessity than villainy?

In the remarkably candid interview, Mills makes it explicitly clear that the growth of streaming is responsible for the new lower payout rate:

A record company such as us, needing to provide the services we do, cannot survive even paying artists 50 percent of net core income, let alone 50 percent of gross as we have been doing. As streaming becomes core income, it has to bear its share of all our costs: A&R, overhead, marketing, promotion, back office services, etc.

Some commentators will likely respond by saying “well this just demonstrates why artists don’t need labels anymore!” But without the promotional muscle of a label, it’s still quite difficult for many new artists to achieve the scale of listenership necessary to generate meaningful income from interactive streaming.

For some artists, the calculus could still potentially make sense. With luck, less money from sound recordings but a decent enough advance and a powerhouse marketing and promotion team could ultimately build an audience and generate income through other means. And it’s not as if Beggars or other indies are suddenly going to adopt all of the shady accounting and contractual practices that we’ve historically associated with the majors.  Meanwhile, some indies are going to hold fast to their treasured 50/50 splits as long as they can.

Still, it’s dismaying any time that artists’ pay rate gets cut. Proponents of interactive streaming have promised that payouts would improve as more people adopt streaming as their preferred method of listening. This move by Beggars raises troubling questions about whether that will ever ultimately be the case. Will this trend continue? If  substitution effects cut more deeply into physical sales and downloads, will more indies resort to 360 deals, with labels taking a cut of artists’ merchandise and live show revenue?