Per-unit royalties are a bet on yourself. Revenue share royalties tied to the performance of someone you license to is a bet on that platform, not on yourself. Nowhere is this more obvious than with songwriter royalties set by the government–penny rates on vinyl compared to revenue share on streaming, particularly advertising based streaming. This includes, of course, non-statutory rates for audiovisual licensing at YouTube which has a mix of statutory and non-statutory.
The main difference in a penny rate and a percentage of revenue is that with the penny rate you don’t care about the trickle down. With percentage of revenue deals you do. With a penny rate you are determining what it costs you to deliver the song, like anyone else who uses per-unit pricing. Imagine if Julie’s Widgets said, oh, just pay me a share of what you make and if it covers my costs, great. If not, I’ll just embrace the suck. When the downturn in the business cycle inevitably hits, Julie might not be very well positioned to survive. Like right now.
This chart shows the absolute dominance of Apple–which does not rely on ad revenue or the Web 2.0 nightmare.
You may have noticed that the story du jure is that Big Tech companies that are dependent on advertising revenue have been getting crushed in the current recession. (I’m including Amazon in the chart above for a measure of the recession’s impact for the “get big fast” types.). One reason is that in a recession, businesses cut back on advertising. And oh, right, not to confuse. you, but the “D” in the chart refers to “Dividend” which the old fashioned Apple pays. Just sayin’. It’s not “D” for downturn.
And speaking of downturn, you may have noticed that Big Tech companies that are dependent on advertising revenue have been getting crushed in the current recession. Their crushing is illustrated in the chart above comparing Google, Amazon, Meta and Spotify to Apple. One reason the smart people are getting crushed is that in a recession, businesses cut back on advertising. So if your business depends on advertising….You know, ad revenue, the part of their business you have absolutely no control over and that they won’t let you upstream audit.
But make no mistake, Google and Facebook, especially, are still making billions from advertising. Or said another way, way more than songwriters. The tale of the tape is that you can see how this could go–cuts in costs before hiring freezes, hiring freezes before layoffs, layoffs before downsizing, downsizing before mergers, mergers before bankruptcy. Somewhere along the way someone will get delisted and will probably have a reverse split or two in order to postpone the inevitable. And so it goes.
This would be a very good time to make sure that all the people who pay royalties based on a percentage of their advertising revenue are current with their royalty payments. If you were planning on those minimum guarantees getting extended into the future…don’t count on it. (This will also be a good excuse to put off a price increase even further, not wanting to test the elasticity of demand when subscription revenue declines while the number of subscribers grows). Now they will really poor mouth and blame it all on the labels. But the cuts will have to come from somewhere.
How else will they pay for the green heat in the gilded bidets? And how will you feel about YouTube’s antics when your trickle-down royalties begin to drop while inflation rages and you have no cost of living adjustment?