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Why Artists are Steaming about Streaming

To read Spotify's new website Loud & Clear is to get the impression that streaming saved the music industry. It combatted piracy, enabled more artists to be heard world wide and helped keep the industry afloat during the pandemic. As Spotify states:

"Streaming has fundamentally changed the music ecosystem — lowering barriers to entry and democratizing access to audio for listeners across the world. Artists no longer need big budgets to create, distribute, and amplify their music around the world."

Yet if so many artists are benefitting from Spotify's labours why in March were there demonstrations outside their offices and why has The United Musicians and Allied Workers Union (UMAW) started a campaign entitled ‘Justice at Spotify’ demanding that the platform raise its average streaming royalty by a considerable amount. At the heart of this dispute is how do artists and songwriters get a fair return for their efforts and who should be ensuring this occurs. Yet if Spotify's statements are true haven't artist already benefitted from having a wider market and from not having their music illegally copied.

The Streamers case

It is certainly the case that in the early part of this century music companies were in trouble as the graph below shows (the blue and orange areas represent sales of CDs, tapes and vinyl, whereas the mauve and green shading is downloaded music or streaming subscriptions). As can clearly be seen, from 1999 onwards, CD sales declined as piracy took hold until streaming and downloading became legitimised. Although there are strong arguments to suggest music piracy hasn't been abolished, legal streaming has clearly had an enormous impact to the extent that it now dominates music revenue.

From the graph and the pi-chart opposite, two trends are obvious. First, whilst the market has made a recovery, the overall cake has got smaller, with income not yet back to even 1999 levels. However, for the big music companies streaming is a two edged sword. They might have to share the income pot with the streaming companies but streaming is a cheaper way to distribute music. This means they don't incur the same reproduction and distribution costs they would previously have had to meet. This means if they can keep the same contractual relationship with artists then even if their income diminishes, their margins will improve and hence their profits are unaffected.

Yet this is not to underestimate the control exerted by the streaming platforms of which Spotify holds the largest market share. Across the 171 markets in which it is present there are 345 million monthly active users according to the company’s Q4 2020 report. Its fastest growth is in some of the most populated areas of the world in Asia and Latin America.

Yet despite this and its huge subscription network the company has yet to make a net profit. It claims this is because of the high level of royalties it pays out. Yet does this find its way to artists? As Spotify would argue, "Once the money leaves Spotify to the rights holders, it is up to their agreement with the artist as to how much they get".

The Artists Case

It could be said that artists have always argued they don't get a fair slice of the revenue the industry generates. After all even without streaming, as the diagram below shows, for a typical four person band their share of revenues is insignificant in comparison to others who earn from their music. In the illustration below shows, each band member would only get just 2.5% of the income made. As a Citigroup report revealed in 2017, of the $43 billion generated by the music industry, artists earned only 12% of that total. Contrast that with Premier League footballers where over 60% of income goes to them.

However, not all artists are equal. Currently they can be divided into music stars (both old and new) and the rest. In the case of some like Bob Dylan, they have sold their back catalogue (Universal Music, reputedly paid $400 million), to cash in on their life's work. Others make money by alternative means. For example, in 2017, according to Billboard's annual Money Makers report, U2 made 95%, or $52 million of their income from touring, with less than 4% coming from streaming and album sales.

Touring, TV and merchandising is also highly lucrative for current artists. For example in 2016 Beyonce’s album, Lemonade, might have grossed $7.7 million, but her tour promoting the same album earned $62 million, nine times that amount. Equally, if streaming pays an artist well, then, because of the configuration of playlists and algorithms, as explained below, it is current stars that are likely to be the main beneficiaries.

For the rest, the growth of streaming has seen a diminution in sales of digital music and CD's as well as fewer radio plays. With Covid having rapidly reduced revenue from live performances, it is these artists who are most dependent on streaming. Yet as Hayleigh Bosher from Brunel University points out;

“ While the three major labels – Sony, Universal and Warner – are reporting record high profits, a poll by The Ivors Academy and Musicians’ Union found that eight out of ten music creators earn less than £200 a year from streaming."

If a tune earns on average only £0.0032 per stream it means you would need 3,000 plays to earn just over one hour of UK minimum wage. Even that level of income may not be automatic. Currently, subscription income goes into a single pot and is then paid pro rata based on the number of plays a tune gets. This means there is no relationship between the subscription a person pays and the artist to which they listen.

For example, a set of subscribers might only use their subscription occasionally but always listen to English folk artist, Hayrick. However, a group of subscribers the same size may spend all day long listening to their favourite rap artists Busy Scoundrel. Busy gets the lions share of the 'pot' because he has more plays than Hayrick, even though he has only the same number of subscribers. This discrepancy is then further compounded by playlists, as Ormosi and Fletcher show:

"Popular playlists are streamed repeatedly by millions of people, constituting around a third of all streams on platforms like Spotify – a third of the pro rata pie. Because the third of the streaming pie represented by playlists mostly features the world’s most prominent musicians, the effect of playlists is to enlarge the slices enjoyed by the biggest artists at the expense of smaller artists."

Therefore, despite Spotify stating that "over 13,400 artists received over £50,000 each in royalties in 2020", as Music Business Week points out, that only represents 0.2% of music artists on their platform.

So where does this leave us?

Spotify claims it already pays a high level of its income in royalties and can't afford more. There are also a number of threats it faces:

  • It is essentially a delivery company like Deliveroo and, until recently, Netflix. It has in built vulnerabilities because it doesn't produce the music, it doesn't own it and it relies on other companies technology for delivery.

  • As it has saturated the wealthier parts of the world and is moving into poorer countries its revenue earning potential per subscriber diminishes.

  • For Spotify, there are threats from Google and Amazon, Apple already has a broader base in the music world and YouTube pays less than the steaming services to play music videos.

  • There are new service emerging such as United Masters which offer a more direct funding relationship with artists.

Therefore, in a rapidly changing world, streaming companies are dependent on the licenses and agreements they can negotiate with others, which in turn makes their businesses vulnerable. After all to the record companies their huge CD based revenues must have looked pretty safe in 1999.

From the artists perspective there are three key complaints:

  • The level of royalties is too low, given the growth and turnover of the streaming services.

  • That because subscribers don't own the music they listen to, then royalties from streaming should be on the same basis as a live performance or being played by a radio station and hence much higher.

  • For the bulk of artists the 'pot' pro rata method of royalty distribution favours those who already get the greatest rewards. A fairer system would be a straightforward relationship between the subscribers payment for the music they listen to and the artist / composer.

Perhaps the real dispute should be with the big music companies, rather than with the streaming services. The current system of royalties, where you get one fee if your music is played on the radio and another if it is streamed makes little sense. Equally the complexity of what gets off-set against an artists advance payment is just as antiquated. Consequently, even if greater royalties were available from streaming, the money may still not find its way into artists and composers pockets. Achieving change to the current system will be a struggle given that so much power rests with so few organisations. Yet, if artists cannot earn a reasonable return from their labours it is music that will be so much poorer.



See also

Swimming against the stream

For most people, House of Commons Select Committee hearings are not their first-choice for internet browsing. Yet the Digital, Culture, Media and Sports, Select Committee has now embarked on an investigation into the ‘Economics of Music Streaming’ which is well worth a view.

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