Music streaming services have been in the news more than usual of late with recent reports estimating that streaming services like Spotify, Deezer Rdio and Mog (have you found the one that suits you yet?) will generate approximately $AU1 billion for the global music industry in 2012. This equates to a 40% rise in revenue for music streaming services since 2011.
In Sweden, streaming counted for 42% of musical label revenue in 2011 (roughly the same as CD sales) and it’s estimated that for each paying subscriber to Spotify, $150 is made for the music industry annually.
This should all be good news, right? The idea that a new model for the music industry is generating unprecedented amounts of money should be enough to make even the biggest music pessimist crack a smile.
But this isn’t the case. What should be good news for the music industry is being dampened by the fact that so far, exactly where the money is going is difficult to trace.
The main point is, we know that these services are making money but the real question is, how much of that revenue are the artists themselves actually seeing?
There is still confusion over how the whole thing works.
Streaming services like Spotify pay labels and digital distributors for the right to offer a stream of a song to the public. After the streaming services have paid the labels and distributors for said streaming rights it’s up to the digression of the paid parties to ensure they are paying the artists fairly. The legalities of this part are where things start to get murky.
By most estimations, artists are receiving roughly 0.3 of cent per stream. Meaning that for an artist to see a dollar, their music needs to be streamed over 300 times.
Now consider that it costs roughly $50 annually for an artist to have their music made available for streaming via TuneCore a major online distribution service, meaning it takes roughly five thousand plays on Spotify for an artist to break even on the $50 cost of distribution, and the numbers start to seem more than unfair.
It’s estimated though that in the last 12 months, Spotify have paid over 180 million dollars in royalties and that the company is on track to pay another 360 million over the next 12 months. But where is all this money going?
Spotify aren’t the ones making bank. In fact, many have criticised Spotify’s business model stating that it’s almost impossible for them to make a real profit, which would explain why each year since its inception, the company has lost money. Why? Because of the unfair deals they’ve struck with major record labels.
In order to get people interested in streaming, services like Spotify were required to make huge initial payments to major labels for the rights to use their music for streaming services. It is reported that musicians did not see a cent of these initial transactions which in the United States alone, were estimated to be upwards of 100 million dollars.
Another facet of this hard-to-trace mess is that while prominent members of the music industry have publically slammed the services,most major labels have a stake in them. Sony, Warner, Universal and EMI now own roughly 15-20% of Spotify.
US film and television streaming service Netflix encountered similar issues. Netflix, like Spotify, pay a blanket amount to film studios for the right to stream their content online. As popularity of the service increased, the film/television studios got greedy and raised the cost to Netflix and went on to make some titles unavailable. As a result, Netflix had to raise the cost to streamers and had to limit their titles which resulted the company becoming largely unpopular and moreover, unprofitable.
The parallels are undeniable and it would seem that Spotify is likely to suffer a similar fate with many top 40 musicians such as Adele, Coldplay and the Black Keys removing content from Spotify.
While there are some industry supporters of the growing trend (Martin Mills, the founder of XL Recordings said in recent statements, “If we didn’t have digital, we wouldn’t have a business”) there are many in staunch opposition.
Indie wunderkinds Grizzly Bear came out against Spotify and streaming services in general earlier in the week stating via their band Twitter that “it doesn’t help bands.”
They continue by tweeting “Spotify might be good for exposure but after about 10 thousand plays we got approximately 10 dollars. It provides a great service for people. Does it help a band? No more than downloading from Lime Wire.”
If Grizzly Bear, who are one of the largest, most successful independent bands today aren’t able to make a profit through having their music on streaming services, what chance does an independent or up-and-coming artist have?
It seems as though no one is winning.
Since the democratisation of music through the illegality of Napster in the late 1990s, the music industry has been looking for a new model. In fact, they’ve been sobbing for one. But, as has happened in the past, the new model is flawed. If artists aren’t seeing enough royalties and the streaming services themselves aren’t turning a profit, then who exactly is benefiting?
The problem today is the same as it was pre-streaming and even pre-internet: a lack of transparency between the people distributing the music and the people making the music. Labels and the streaming services themselves are unwilling to divulge just how much of the revenue is actually going to the artists, and due to murky legalities, it seems no one but the labels are making bank.
So how can we fix this? If the new proposed model is flawed from a business perspective, what can be done to benefit the artists that are actually creating the art? Simple: cut out the middle man. The more local and independent artists bring their music directly to their audience, the more likely their audience will be to actually pay for it directly.This model may just work for larger bands and artists, too.
Take the example of highly successful, Emmy-award winning comedian Louis CK who recently released his comedy special (which he filmed, edited, and produced online himself) for $5 on his website (most comedy specials cost upwards of $30 when purchased through avenues such as ITunes). “I chose to do it this way anyway, because I want it to be easy for people to watch and enjoy this video in any way they want without “corporate” restrictions,” said Louis CK. Within 24 hours of releasing his special Louis CK made over 1 million dollars.
Perhaps by adopting a more grassroots attitude and allowing artists to bring their content straight to their fan without a corporate middleman, everyone might be able to win. Well, everyone except the record labels. But since when are we on their side anyway?