Remuneration is THE hot topic in the music industry of 2023, both in terms of the models used by streaming services to calculate and pay royalties out to rightsholders, and the ways that money then makes its way to songwriters and performers.
The subject came up repeatedly during a panel at the NY:LON Connect conference this week featuring The Ivors Academy’s (and Broken Record’s) Tom Gray, Impala’s Helen Smith and DiMA’s Garrett Levin. You can read our report on that session here.
It was followed by a second panel to drill deeper into the topic, moderated by Blue Raincoat / Chrysalis Group COO Alison Wenham.
She was joined by Daniel Johansson, researcher and analyst at Linnaeus University in Sweden; Michael Pelczynski, VP, strategy at SoundCloud; and David Safir, founder of Music of Economics.
Johansson will soon be publishing his latest study, in which he has explored what kind of artists have been doing well (and not so well) from streaming in Sweden. This involved getting data from Spotify on all Swedish artists who’ve been streamed more than 1m times on that service.
“It’s not those artists that we usually think of: at least not [the ones] on Swedish TV or radio,” he said. “Many of these artists who are generating hundreds of millions of streams, even billions of streams, can go down to the grocery store and buy milk, and no one will recognise them… In the fan bubble, they know who they are, but the general public do not.”
Johansson said that these artists don’t tend to talk publicly about their streaming earnings, which is why the debate in Sweden has been more about legacy artists – the musicians who have traditionally done well on radio and TV – voicing their unhappiness with their streaming incomes.
The study should be published in early March, with Johansson hoping it will bring into the light “a new breed of artists who have understood the current streaming model”. That said, the likes of ABBA, Zara Larsson and the late Avicii are also near the top of his rankings.
Wenham offered a warning: wondering whether there is also a risk of “new players gaming the system” – that alongside that new generation of artists who understand streaming there may also be a new breed of bad actors subverting the model. A question also posed recently by Universal Music boss Sir Lucian Grainge.
The panel conversation moved on to SoundCloud’s Pelczynski, who described himself as “the architect of fan-powered royalties” at the company.
That’s its take on the user-centric model that sees the royalties from each subscriber only paid to the rightsholders of the music they listen to, rather than (as happens in the dominant pro rata model) going into a big pool that gets divided by overall share of streams on a service.
“If for everyone in this room, we pooled all of your consumption, your listener behaviour, the outcome would be very different than if we treated you all as individuals,” he said to the NY:LON audience.
“We’ve changed the incentives,” he continued, referring to SoundCloud’s fan-powered model. “Now all of a sudden, the value is fans, less so scale.”
There is one debate about whether streaming services should switch from pro-rata to other models like user-centric, and a related one (not quite as loud) about what the costs of this might be. Safir said the latter deserves more attention.
“The one thing nobody seems to have mentioned is gross revenue. If you actually move from one system to another – let’s say there’s some simple way, which there isn’t, of moving the entire model from so-called pro-rata to so-called user-centric – you would not necessarily just have an impact on individual artists and individual labels,” he said.
“You’d have a huge impact on the total amount available to be distributed to all interested parties, not least because of the huge administration costs in operating such a system.”
Safir stressed that he wasn’t supporting one system over another, before pointing to another concern about this kind of switch raised earlier in the conference by Impala’s Helen Smith about the potential impact. “Just creating a new pattern of winners and losers is not necessarily a great result,” said Safir.
He also advised looking at how collecting societies have been operating their payout models, which he described as “qualified pro-rata” that “brings in elements of what is advocated by those who like user-centric… we haven’t even talked about, for example, the impact it would have if you distributed the revenue less frequently but certainly more accurately”.
“The fundamental cost structure of the streaming economy is something I think needs to be addressed before we can decide what should be recommended, or not, around artist-centric, user-centric and pro-rata.”
Would it be really expensive to switch from pro-rata to user-centric though? Pelczynski said that for SoundCloud the costs were “very minimal” and in fact that it’s now running its fan-powered model (for independent artists and Warner Music Group) alongside a traditional pro-rata system (for everyone else).
He added that running both models has an additional value for SoundCloud: it has hard data to make the comparisons between the two models, turning back to the audience to illustrate his point. “We can actually can see the difference between this room operating on a pro-rata market share scale, and this room operating as individuals.”
Safir cited comments made last year by UMG’s Grainge suggesting that “new models must optimise fairness, efficiency and the alignment of interest amongst their stakeholders” and zeroed in on the first part of the sentence.
“He’s made a very important point at the beginning. You have to look at both equity, or fairness, and you have to look at efficiency. You can’t look at one without the other.”
There are already three different names floating around for potential new streaming remuneration models: user-centric, fan-powered and artist-dentric. Johansson offered another.
“We might need a fourth model called simply the ‘music-centric’ model. When you have a third of streams coming from white noise, brown noise, waterfalls etc, that of course smears out the payments to music,” he said.
“The first step might be to differentiate what is music and what is non-music, and separate them in the economy. Today, both of them are in the same economy, so the first step could be to have a music-centred economy.”
Pelczynski, meanwhile, pitched fan-powered models as being valuable beyond their impact on royalties, stressing that the data might be just as helpful to artists and their teams.
“When the economic model cuts these cohorts [of fans] into their own scenes, rooms, that’s when the model really flies. That data, let alone the royalties, becomes even more valuable,” he said.
“If you are listening to one artist that you fell in love with this past month, and maybe you were a conservative listener [i.e. who didn’t listen to much else] you are legitimately, directly paying your royalties, your 9.99, to that artist in that month,” he continued.
“That knowledge, or that data of you as a fan, is also incredibly valuable. The model needs to build a commercial opportunity on top of itself. If we’re only talking about [streaming royalties] remuneration, we’re literally short-changing our commercial ambitions for the business and for the artists.”
In other words: a system that pays out based on each individual subscriber’s listening by definition will result in clear data on who the most valuable listeners are for each artist. And those are the people they have the most luck selling tickets, merch and other things to.
He later cited one unnamed artist for whom 72% of their total payout from SoundCloud’s fan-powered system was generated by 6.5% of their listenership. “That is where you start to say ‘who the hell are those 6.5? I want to know who they are’.”
Pelczynski promised that this year, SoundCloud “is going to surface those fans: you will actually be able to see those influencers who are high-value contributors to the model” and added “there is so much opportunity for ancillary revenues: we are breaking through the ceiling of that subscription”.
Safir returned to his earlier point: that neither pro-rata or user-centric on its own is good or bad, but rather that either has the potential to work more fairly for musicians if constructed accordingly.
“When it really comes down to the nuts and bolts of making user-centric work or making pro-rata work, it depends on bringing each to the other. When you qualify user-centric or qualify pro-rata, you get a result that, frankly, meets the moral requirements as well as the mathematical ones.”
Johansson, meanwhile, said simplicity is also key, so that artists and their partners can understand how royalties are being calculated and paid out.
“We all need more knowledge,” he said, noting that his upcoming study is the first on streaming remuneration in Sweden since Spotify launched 14 years ago. “And we haven’t really touched yet on the really big problem for artists, which of course is crappy deals!” he said.
Safir joked that whereas R&R traditionally meant ‘rock and roll’, nowadays it “probably means reversion and recoup” for artists operating in the streaming economy. He was optimistic about an evolution in the model, albeit with a warning.
“The current infrastructure of the streaming economy can be adapted, but not if only one or two of the largest DSPs decides to go on way,” he said.
“And I don’t actually think that the moral dimension is necessarily served by creating a system where one artist will turn around saying ‘Why did I get X and the artist that had the same number of streams got Y?’”
He praised SoundCloud for showing that the pro-rata and user-centric models can work alongside one another.
“What you have done is actually shown that in some cases, user-centric will work better for whatever the particular aspirations or needs are not just of the fan, but the artist,” said Safir.
“But frankly, is the fan a surrogate for the artist, or is the artist a surrogate for the fan? Who are we actually working for here?”
The NY:LON Connect global music summit is run by Music Biz and Music Ally. This year’s event is held in association with Orfium and Viberate, and hosted by Reed Smith. The Streaming Economy track is sponsored by Downtown and Luminate. You can find all our coverage of the conference sessions here.
Music Ally’s next Learn Live webinar will help you understand what’s required for artists to thrive in new international markets!