Free streaming of songs on the internet has been heralded as a possible solution to the death rattle engulfing the record industry, with sites such as Spotify, Last.fm and newcomer We7 professing to offer ‘free’ music to fans while also still being able to pay artists through advertising income.
Quite a few sites cropped up over the last year or two with press releases thundering their solution to the ailing record industry, only to go bust. We’re looking at you iMeem, SpiralFrog, iLike, and Ruckus. UK based We7 has claimed this week that they have reached the point where money owed to rights holders was covered by display and audio commercials, which they argue proves their business model is solid. They claim that 1 million plays of a song would generate royalties to the music business of between £2,000 ($US3,000) to £4,000 ($US6,000). Seems reasonable?
Au contraire, this is the music business, a place that Hunter S Thompson famously said ‘… is a cruel and shallow money trench, a long plastic hallway where thieves and pimps run free, and good men die like dogs. There’s also a negative side’.
Ah yes, that negative side. Recently, several articles in both the music and mainstream press offered up a dissection of the royalties Spotify pays to artists for plays of their songs. In summary, they don’t amount to very much at all – as little as a few hundred dollars for a million plays. Spotify defends this saying they pay royalties for the playing of the song to the respective copyright organisation in the country the artist has registered the songs in, who in turn pay the music publishing company the artist is signed with.
By the time they’ve both taken their cut they dole out the remaining pennies to the artist which is how you end up with such paltry payments.
So why is Lady Gaga not lying back and having grapes peeled for her by oiled up naked man servants instead of touring all the time to rake in the cash? The reason is because streaming sites such as Spotify only pay mechanical royalties, which are very different to recording royalties. Mechanical royalties cover the blanket playing of music on radio, in clubs and pubs and so on and they’re a fraction of the amount paid to an artist for a recording of their music.
Usually the use of an artist’s music in films, ads, computer games, television shows and so on occurs by negotiation and can be very lucrative. These days it’s often considered a major achievement for an artist to reap the financial rewards they provide rather than selling out as it was once upon a time.
However, the mechanical (reproduction) royalties payable to an artist can often be as little as one tenth of one cent, so by the time you divide a million plays by one thousand, the royalties a streaming site like Spotify has to pay may be only a thousand dollars, which by the time the collection organisation and music publishing company take their cut, it’s easy to see where you end up with a figure of a few hundred dollars in royalties.
Streaming may help generate enough to pay for music executives to maintain rampant cocaine habits, but it’s not the panacea to cure the industry’s ills.
