spotify gramercy

Earlier this week, we covered the IFPI’s latest figures for global recorded music revenues, which grew by 8.2% in 2019. Artist rights group the Future of Music Coalition made an important point when it shared our story on Twitter:

Remember, changes in gross revenues for any one income stream doesn’t tell you anything about distribution or about how individual workers (like musicians or songwriters) are faring. So while revenue is an important metric, it’s not a proxy for the health of the industry.

— Future of Music Coalition (@future_of_music) May 4, 2020

It’s true. In 2019 the recorded music industry enjoyed its fifth consecutive year of growth, taking it nearly back to its 2004 level. Meanwhile, outside the recorded sector, publishers are also seeing their revenues grow, while collecting societies are regularly breaking their records for payouts.

All of this is being driven by streaming (and particularly by paid streaming subscriptions), yet this growth is accompanied by a resurgence in unrest from the musicians whose work has made that growth possible. Many are worried that streaming royalties aren’t providing a sustainable income.

The contrast between these fears and the rosy industry figures is sharpened now, during the Covid-19 pandemic, with the live music industry having shut down entirely in many countries, with an anticipated hit to public performance royalties to come.

Spotify is the lightning rod for this unrest, partly because it’s the biggest subscription service and the one most closely identified with the emergence of the music-streaming model; partly because memories are still fresh of it going public (current market cap: $27bn); and partly because its numbers (users, revenues, losses etc) are published every quarter.

This is why the debate about streaming royalties often gets boiled down to ‘Spotify should pay artists more’ – from petitions calling for the company to triple its payouts “immediately” to articles suggesting that ‘Spotify’s ‘tip jar’ is a slap in the face for musicians. It should pay them better‘.

This week, musician Tim Burgess (of the Charlatans, who’s also behind the excellent #TimsTwitterListeningParty co-listening movement) addressed Spotify directly on Twitter, suggesting that “we should look at how much you give to artists… It’s just not fair at the moment”.

Hey @spotify. I feel like I’m working for you here. I really think we should look at how much you give to artists. We should work together on it. It’s just not fair at the moment. You have an amazing thing – it just needs to be fairer#TimsTwitterListeningParty

— Tim Burgess (@Tim_Burgess) May 3, 2020

This, plus the #BrokenRecord campaign being built by fellow British musician Tom Gray (of Gomez, but also the boards of PRS for Music and the Ivors Academy) show that for all the positive industry figures, many musicians still see a big problem with streaming, but also potential to solve it.

‘Spotify should pay artists more’ is a good rallying call, but it’s not a solution until you address the question of ‘how?’ That’s a discussion based around several more questions, which we’ve presented below. but first, some baseline framing of the debate:

A. Spotify doesn’t pay musicians

Bar a now-closed experiment with direct uploads, Spotify doesn’t pay artists or songwriters directly. It pays labels, distributors, publishers and collecting societies, and they then pay musicians.

It’s a crucial point, and only partly because musicians’ streaming earnings depend on the contracts with and calculation processes of those rightsholders and royalty collectors. It’s also important, because many of the changes that might boost those earnings require the agreement of these companies before they can happen.

B. Spotify doesn’t pay by the stream

This is really important: Spotify can’t triple the amount it ‘pays per-stream’ because that’s not how it pays out. Instead, it has a royalties pool (often described as 70% of its revenues, although it’s closer to 65%) that it pays out based on the share of streams on its service.

You can turn that into a per-stream rate, as an artist, by dividing your royalties by your number of streams. That’s why you’ll see these figures in the press, based on data that an artist or label has shared with them.

(For example, artist-rights blog The Trichordist publishes a really useful annual chart based on figures from a mid-sized independent label – its 2019 figure for Spotify was $0.00348 per stream).

Anyway, the point is that these are post-payout calculations. Spotify doesn’t pay out $0.00348 per stream, so it can’t suddenly decide to triple that to $0.01044. To triple its payouts, it would either have to triple the percentage of its revenues that it pays out (to, er, 195%) or triple the size of the royalties pool itself.

C. It’s all about the pool – and how it’s divided

This is the key question to focus on: how Spotify can increase the size of its royalties pool. It’s been happening naturally, of course, as Spotify’s revenues have grown every year, but for the purposes of this debate, we’re talking about other ways to increase it.

The debate is also about whether there are ways to divide that royalties pool that are ‘fairer’ for musicians – both before the money leaves Spotify, and after it arrives at their rightsholders.

As we said, we’ve structured it as questions, because this article isn’t pretending to provide a set of neat answers. We’ve used ‘Spotify’ throughout to reflect its lightning rod status, but almost always you can read that as ‘streaming services’. Let’s crack on with it.

1. Should Spotify pay a higher percentage of its revenues out?

Spoiler: Spotify is never going to announce that it’s now paying 195% of its revenues out in royalties, however many people sign that petition. But could the company up its payout rate from 65%?

In some parts of the world, the percentages aren’t entirely within its control. In the US, the Copyright Royalties Board sets the percentage that on-demand streaming services pay out in mechanical royalties to publishers (and thus songwriters), and those were due to rise from 10.5% of a service’s revenues to 15.1% by 2022.

Spotify, along with Amazon, Google and Pandora, appealed against those new rates, which sparked fury among the US publishing community, which sees it as evidence that Spotify will fight any attempt to get it to pay out a higher percentage of its revenues as royalties.

Step outside that row though. If the appeal is lost (or hadn’t happened in the first place) and Spotify was paying more like 70% of its revenues out again, is that still too low? Why not 80% or even a Bandcamp-style 90%?

Critics will point to swanky offices and high salaries. Spotify will point to the amount it’s investing in its platform (more than €1.8bn on research and development between 2015 and 2019 alone according to its financial results, plus another €2.6bn on sales and marketing).

There are some sensible questions to be asked about how wisely Spotify spends its money, and also some blunt realities around the company’s value not just being in the music, but the technology it has invested in around it.

Still, the fact that the 30% cut of download sales taken by Apple’s iTunes Store in the downloads era wasn’t that controversial suggests that Spotify’s rev-share may not be the big problem here.

2. How do we get more people to pay for a music subscription?

Let’s focus on something simple then: the streaming royalties pool will grow faster if more people start paying for subscriptions, rather than listening for free.

Spotify’s conversion rate is actually pretty good: 45.5% of its listeners are on Spotify Premium, although that includes people on half-price student plans, and also members of family plans. Still, that leaves 163 million Spotify listeners who aren’t paying… yet. What will persuade them?

This is a long-established debate in itself. The music industry has mulled (and occasionally forced Spotify to introduce) restrictions on its free tier to prod people towards paying.

Spotify prefers a combination of aggressive discount promotions of the three-months-for-a-dollar variety, plus – and it’s very keen on this argument – the cumulative effect of all its clever features (see: that R&D budget) that means the longer people are on Spotify, the more likely they are to pay.

Zooming out: the IFPI says there were 341 million people using paid subscriptions at the end of 2019. That’s 229 million more than were doing it at the end of 2016. How many more can be signed up in the next three years?

That’s a question that will be answered through the collective efforts of music companies, streaming services, artists and fans alike.

3. What’s the right price for a music subscription anyway?

Spoiler: there is no right price: how much people will pay depends on where they are in the world; their personal financial status; and their level of engagement with music. $9.99 a month is not the global standard, despite the regular conference-stage laments suggesting that it is.

Still, in western developed countries, the $9.99 figure may be under pressure – to rise. Tom Gray recently gave an interview in which he proposed increasing it by 25%.

“Stop saying it’s price-sensitive; Kids pay £8 for a skin in Fortnite and we can’t ask for £12.50 for the entirety of all recorded music? Give me a break,” he said.

In its developed markets, Spotify has not raised the price of its standard subscription since it launched in 2008, even though some other digital services (Netflix is the frequent comparison) have done, without obviously suffering from customer rage.

If subscribers will swallow it, increasing the price of a music streaming subscription seems like a straightforward way to increase the pool of royalties.

In the past, Spotify’s senior executives have tended to push back on this idea, but there was a small but significant shift in CEO Daniel Ek’s tone when asked about it last week during Spotify’s latest quarterly earnings call: he hinted that based on its tests in a few countries, Spotify is open to the idea “when the economy improves”.

Alongside the ‘$9.99 is too cheap’ discussion, though, there’s also still the chance to experiment with even cheaper subscriptions – often limited by catalogue, features and/or how many devices listeners can use – to bring even more of those billions of free listeners in to the paid music world.

deezer user-centric payment system ucps

4. Would ‘user-centric’ payouts make streaming royalties fairer?

The recent unrest around artist royalties has also seen a fair few mentions of ‘user-centric’ payouts as a possible solution. This is something we’ve been writing about for several years, and although it’s far from a panacea for musicians’ complaints, it does deserve further investigation.

To explain it super-quickly: the current ‘pro rata’ system used by streaming services divides their royalty pool by each track’s share of streams in a given period. If Drake gets 5% of the streams, his rightsholders get 5% of the royalties. Which means that even if you never play Drake’s music, he’s getting 5% of your subscription. However, under a user-centric model, the royalties from your monthly payment would only go to the tracks that you listened to.

As a system, user-centric ‘feels’ fairer: your money goes to your favourite artists. That alone might be a helpful selling point when trying to encourage more people to sign up to subscriptions (see point 2). The calculations required are complicated, but perfectly manageable for streaming services.

Here are the two challenges. first, we still don’t know exactly what going user-centric would mean: there have only been a handful of publicly-available studies (here, here and here) using real data from streaming services to sketch out the likely impact.

Their findings were nuanced. Yes, user-centric would redistribute some royalties from the biggest tracks and artists to those in the mid and long tail of the streaming catalogues.

It’s no Robin Hood-style ‘rob the majors to feed the indies’ dynamic though: the majors’ big back catalogues would benefit from the change. Nor does it mean that every smaller, independent artist would be a winner from the change: it depends on how intensely their fans stream them.

User-centric wouldn’t be a sudden cure for the royalties unrest, then. We need more studies and, even better, actual commercial trials of the new model to understand how significant its impact would be. Which brings us on to the second, bigger challenge.

Deezer wants to do a trial of user-centric. It’s been talking about the idea since 2017, and last September it announced its desire to run a pilot by early 2020. The pilot would be in just one country, France, and only with labels, not publishers or collecting societies.

The pilot has yet to launch. Industry gossip varies on which major label(s) are the reason for the delay, but it’s a blunt, bleak illustration of the difficulties in store for user-centric. If one streaming service can’t get a single-country recordings-only trial off the ground, what hope is there for global, industry-wide adoption any time soon?

It’s not a reason to give up on the idea, yet. But if you’re calling for user-centric payouts as a solution for the royalties issue, you’ll need to come with some good ideas to cut through the industry politics. Bleak, but true.

5. Should musicians get a bigger share of streaming royalties?

Streaming royalties aren’t a single can of worms: they’re a mega chain of WormCanMart supermarkets having an annual worm-can opening festival.

It’s an issue whose tensions go beyond ‘streaming services versus musicians’ into some of the long-simmering dynamics of the music industry – from dodgy artist deals to the splits between recordings and songs (compositions).

Some of these issues are hard to solve retrospectively without expensive lawyers – if you have a terrible label deal, your streaming royalties will be terrible – but are easier to swerve now and in the future.

A lot of effort has already gone into figuring out what a fair artist deal is in the streaming era. Artists and managers have more leverage in those negotiations, partly because they have more options for releasing music now. At the same time, labels (and label alternatives) are making their cases for their share of the revenue, and the good ones are proving their value.

Other tensions are more… intractable. Publishers (and thus songwriters) get a much smaller share of streaming royalties than labels (and thus performers) do. It’s not a new complaint, but it might just be coming to a head soon in a battle where Spotify is just a bystander – it certainly won’t want to be the referee.

These and other arguments about how streaming royalties are divided aren’t happening in a vacuum either. What would it mean, for example, if a label was getting both a smaller share of the overall streaming royalties, and paying out a bigger share of what it does get to its artists?

Once again, there’s no easy answer here: just more questions, and a reminder of the complexity of ‘fairer’ royalties.

Spotify Artist Fundraising Pick

6. Should fan funding play a bigger role in streaming?

More than 50,000 artists are using Spotify’s new ‘Artist Fundraising Pick‘ feature, which enables them to raise money from fans for themselves and their teams, or for charities.

But there’s also a backlash from some musicians who see it as a tacit admission by Spotify that its royalties are paltry, and an insulting device to push the responsibility onto fans. Another way to look at this, though, might be that ending the historical separation of streaming and fan-funding might be a good thing.

From Bandcamp’s recent revenue-share-waiving sales days to the bonds being forged between creators and fans on platforms like Patreon or Twitch, there are plenty of reminders right now that paying people because you give a shit about them and their work can be… wonderful.

Why shouldn’t that be part of the streaming ecosystem too, whether it’s monthly artist-focused micro-subs on top of the baseline subscription, tips economies based around video livestreams and fan communities, or something else? Could streaming services do something truly meaningful here?

Again, it’s a question, not an answer. For a Spotify or Apple Music to bolt on its own version of Patreon and Twitch is hardly a simple tweak. How many artists would be comfortable with audio-streaming giants playing a dominant role in their direct-from-fan revenues?

Not to mention the challenges of providing the expected content and access, and/or navigating the ‘asking for money’ requirements of tips-economy success? These models can work brilliantly for some creators, but not all.

If we make them the engine of a new music economy, there’ll be implications, and that’s something that needs – stop us if you’ve heard this one before – a lot more discussion.

7. What else can musicians do to survive and thrive?

This is a positive point. There’s no contradiction between musicians calling for change in the way the streaming economy works, while also working hard to create opportunities for themselves within the system as it stands. It’s what they’re doing already.

They and their teams are mastering mailing lists; serving their superfans; figuring out social marketing; being smarter with their merchandise; exploring new models like livestreaming; using tech and services to make sure their metadata is accurate and their royalties are collected; making clever use of the ‘on-platform’ creative and marketing tools of the streaming services… they’re taking control of their businesses and hustling to make the most of the current systems and structures.

It can be tough, particularly when you’re not yet at the level of having a team to delegate any of this to. There’s no single playbook for success, and the competition in terms of the amount of music being released is ferocious, and daunting. Some musicians, like non-performing songwriters, simply don’t have some of the opportunities listed above.

Still, the body of experience and ideas for how artists can build sustainable careers for themselves in the streaming era is growing, and while some of it comes from friendly partners trying to synthesise and share that knowledge (plug: Music Ally is one of them) much of it comes from artists being as creative with technology and business as they are with their music.

What’s more, these experiences can and will inform artists’ activism when they criticise streaming services or call for changes in the way royalties flow. The industry would be very unwise not to listen.

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  1. One element of our lives remains completely unchanged – the need for MUSIC – We all seem to find that life is intolerable without it. Technology allows us to access our chosen music anywhere, any time and anyhow! However, the global management of copyright is woefully antiquated.
    NIM has developed a unique economic ecosystem giving copyright owners the means to sustain and build their careers while getting properly paid to do so.
    (Guy Fletcher, OBE: Former Chairman of PRS for music and co-founder NIM)

    NIM is not changing any existing business model, we are making royalties payment more efficient through disintermediation.
    Resulting in “More money, faster – to copyright owners…” In fact up to 45% more and 26 million times faster!

  2. The user-centric model needs to be adopted and the subscription fees need to be increased based on usage. But also, Spotify needs to bring paid advertising to subscriber accounts and not just the free accounts. Not random ads for car insurance – but targeted ads fans will want to hear – concert and new release announcements by bands they listen to (for instance).

  3. What about other alternatives, like the ones using the blockchain technology to link directly the user to the artist? Do you feel it would have it’s place as a long term solution? The problem being, as with any alternative to a mainstream service, that it needs a network effect to happe for it to grow enough… Which is the hard part. Exemple of blockchain platforms : Emanate. Really interesting concept.

  4. Although I’m not the first to mention it, for years artists have been advocating to end the unlimited free streaming service that has played a major role in Spotify’s dominance in the market. It’s a business decision on their end that bulks up their value to Wall Street where growth is everything.

    Spotify ends their unlimited free service and they will have plenty of money to increase what they pay to artists. These music streaming services falsely believe that it is their success. The truth? They are just the plumbing.

  5. The user centric model seems to be the fairer way to go, however I’m not holding my breath for record labels agreeing to it. After all, isn’t the current “pro-rata” system something that the services had to agree on in order for the labels to license the content? The labels literally charge users on Spotify et all for the access to their content just being there, otherwise there is no explanation as to why 5% of my suscription would go to Drake, I’m paying for the access to it, even though I never listen to it. Why would labels give that up?

  6. @ Will Buckley – if Spotify (or Apple Music, etc.) thought it could generate more revenue with a pricing model other than unlimited streaming for a flat monthly fee, it has every financial incentive to do so.

    Spotify currently generates operating losses – they’ve narrowed, but it still loses money – which is a very pertinent point that’s not highlighted in what’s otherwise a very good article. In other words, it’s far from obvious that the music streaming business would support any meaningfully higher payout of revenue to rightsholders than the current level, since Spotify doesn’t currently make money with the existing payout ratio. Spotify’s market cap says that investors via the public equity market *think* that it will generate meaningful profits in the future, but history (especially the early 2000’s) is littered with companies that went out of business just a few years after having equity market caps suggesting that they’d one day be highly profitable.

    A couple other data points also suggest that unlimited streaming for one price is here to stay:

    (1) We’ve seen flat rate streaming subscriptions eclipse digital downloads in the music marketplace with both of them available, and with digital downloads of course having a head start. I realize that digital downloads aren’t exactly what’s Will is proposing, but it shows unlimited streams for a flat subscription rate winning out with consumers over a la carte pricing.

    (2) We’ve seen the same thing happen in video. Subscription streaming – Netflix plus various other services – are winning out with consumers over paying a la carte for digital downloads or video on demand.

  7. Apologies yes, it starts at 15% for digital music and 10% for merch, then the digital music share drops to 10% “as soon as you reach $5,000 USD in sales (and stays there, provided you’ve made at least $5,000 in the past 12 months)” according to Bandcamp –

  8. Very late to the party here. Has any work been done on comparing the financial performance of video and audio streaming companies. There doesn’t seem to be much written about copyright owners of video content being unhappy with Netflix, for example, compared to music composers/performers? Are video streaming companies fairer to copyright owners?

  9. My comments here are made as a non-income earning musician (who would like to change that situation next year perhaps!).

    Firstly, Spotify is not the only streaming service worth using. I have tried a few and they all have good and bad points, but for now I have ditched Spotify and I am paying a family subscription for Tidal. With the Tidal plan 6 people get unlimited music access for a lower price than Spotify and artists get paid roughly twice as much. Which is not to say Tidal is the perfect model, just that it is at least a bit better. Napster pays even higher artist rates, but is not available in Australia where I live. So if you want to support artists and still want a streaming service, ditch Spotify and find another like Tidal or Napster. (Should add, Tidal audio quality is also noticeably better even on their base plan).

    Next, I would suggest that until this streaming payment model is ever set up to be fairer for ALL artists who provide content, get out and support the ones you happen to like. Buy their CD’s, records, merchandise, etc, etc. It’s still ok to spend money on music. Don’t expect it to be free, or soon there may be no new music to listen to.

    Make no mistake, us struggling musicians only place music on services such as Spotify, YouTube, and so on because we have no real choice but to do so. If you don’t do it you are invisible. This is where people are listening, and as a fan as well as an artist I can totally understand why. It is absolutely fantastic to be able to listen to whatever you like whenever you like. For my own part, I am constantly discovering music online (old and new) that I have never heard before. So, this is the only way to get music out to the audience now and we are stuck with it. Us small guys are never going to win a battle against the likes of Spotify.

    Finally, allowing companies like Spotify to continue using their current payment model is simply not acceptable. Some form of user-centric, payment to artists at a more equitable per play level is essential if you want to avoid the progressive demise of musicians (figuratively and literally!). We may well continue to make music purely for the love of it, but that does not put dinner on the table. It is really not so long ago that we consumers were quite prepared to pay hundreds of dollars per year for CD’s, DVD’s and the like. So to ask for a few dollars more each month in subscriptions should not be incredibly hard to do (Netflix seem to be managing to do this just fine). A shift in payment model and a modest increase in subscription fees should soon see payments to artists improving significantly I suspect.

  10. Should be noted too that Spotify is, yes, investing lots of money into its technology. What it is not is investing into the music creation process it profits off of. It’s true that terrestrial radio did not invest in music either but before it was corporatized it was a valuable part of the promotion/discovery process. Spotify is like the mega-corporatized version that, technology-wise, wants to monopolize.

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