Archive

Archive for the ‘Streaming Meltdown’ Category

20 Questions for New Artists Sidebar: The Economic Reality of Streaming

May 16, 2019 Comments off

Streaming is all the rage.  But–it is cannibalizing higher margin goods, even digital goods.  Because of the industry standard revenue share method of dividing up royalties, all artists essentially get a market share allocation of streaming service revenue based on the number of streams.  Plus, with some exceptions, your royalty rate is dependent on factors you have no control over.  What this means in simple math is that streaming royalties on a per-stream basis will always decline over time (see also Malthusianism).

 

Artists’ dismal streaming royalties on music subscription services are largely based on a simple calculation:  A per-stream payment derived from a share of the service’s revenue prorated by number of streams.  Artists get a portion of a service’s monthly revenue (at least the revenue the service discloses) based on a ratio of your plays to all the plays.  Your plays will always be a lot smaller than the total plays.  (This is essentially what Sharky Laguana referred to as the “Big Pool.”)

Sounds simple, but mixed with the near-payola of Spotify’s playlist culture and Pandora’s “steering” deals, it’s really not.  Negotiating leverage allows big stakeholders to tweak the basic calculation with royalty floors, advances (aka breakage), nonrecoupable payments that help cover accounting costs, and other twists and turns to avoid a pure revenue share.  All of which approximate a per-stream rate on a Rube Goldberg level, by the way, which is one thing these services seem to resist.

Cartoonist Rube Goldberg’s Automatic Back Scratcher

It’s pretty safe to say that all new artists get hosed on streaming royalties.  Setting aside the fact that your distributor will never get all the goodies that the big labels get in their deals, this is because even if a fan listens to your tracks only for a month, well over 90% of that fan’s subscription payment is allocated to artists she didn’t listen to and may not even like.  Of course all these machinations happen behind the scenes.  Fans are not usually not aware that their subscription pays for music they don’t listen to and artists they never heard of or don’t care for.   Plus, it’s virtually impossible for any label, digital distributor or publisher to tell an artist or songwriter what their per-stream rate is or is going to be.

Revenue share deals for big stakeholders have some bells and whistles that leverage can get you, like per-subscriber minimums, conversion goals, top up fees, limits on free trials, cutbacks on “off the top” revenue reductions, and the percentage of revenue in the pool (50%—60%-ish).  Even so,  the basic royalty calculation in a revenue share model is essentially this equation calculated on a monthly basis:

(Net Revenue * [Your Streams/All Streams])

Or ([Net Revenue/All Streams] * Your Streams)

In other words all the money is shared by all the artists.

Sounds fair, right?

Wrong.  First, all artists may be equal, but on streaming services, some are more equal than others.  Regardless of the downside protection like per-subscriber or per-stream minima, the revenue share model has an inherent bias for the most popular getting the most money out of the “Big Pool.”  (This is true without taking into account the unmatched.)

And of course it must be said that the more of those artists are signed to any one label, the bigger that label’s take is of the Big Pool.  So the bigger the label, the more they like streaming.

Conversely, the smaller the label the lower the take.  This is destructive for small labels or independent artists.  That’s why you see some artists complaining bitterly about a royalty rate that doesn’t have a positive integer until you get three or four decimal places to the right.  Why drive fans away from higher margin CDs, vinyl or permanent downloads to a revenue share disaster on streaming?  Because it’s all the rage.

Yet it increasingly seems that we are all stuck with the nonsensical streaming revenue share model with ever-declining per-stream rates.  Why is the rate guaranteed to decline?

If the month-over-month rate of change in revenue (the numerator) is less than the month-over-month rate of change in the total number of streams or sound recordings streamed on the service (the denominator), the per-stream rate will decline over those months.  This is because there will be more recordings in later months sharing a pot of money that hasn’t increased as rapidly as the number of streams.

As the number of recordings released will always increase over time for a service like Spotify that licenses the total output of all major and indie labels (and independent artists), it is likely that the total number of recordings streamed will increase at a rate that exceeds the rate of change of the net revenue to be allocated.  If there are more recordings, it is also likely that there will be more streams.

So streaming royalties in the Big Pool model will likely (and I would say necessarily will) decline over time.  That’s demonstrated by declining royalties documented in The Trichordist’s “Streaming Price Bible” among other evidence.

 

There is a move afoot to switch to a “user centric” model of revenue share allocation that rewards the artist with a share of everyone who listens to them.  I have a version of that concept I call the Ethical Pool.  But the simplest approach would be to abandon the revenue share model altogether and negotiate a per-stream royalty–unfortunately, no one seems to be interested in the simplest approach.

For our purposes, just understand that regardless of what you hear about streaming saving the industry, streaming is unlikely to save you.

 

The MTP Podcast: The Truth About Streaming Royalties

January 30, 2019 Comments off

Zoë Keating Gives More Evidence of the Streaming Hyper-Efficient Market Share Royalty Headlock on Indie Artists #irespectmusic

December 17, 2018 Comments off

zoe tweet

 

Driving traffic to Spotify just doesn’t pay off for indie artists (or probably for smaller indie labels).  See an explanation of the Ethical Pool method as a possible solution.  Whatever we do, the status quo is not sustainable.

And then there’s this:

Spotify Buyback

The Ethical Pool Future: Will Fans Cut the Cord to Big Streaming Services if Artists Leave?

November 30, 2018 Comments off

Everybody knows that the boat is leaking
Everybody knows that the captain lied…

From Everybody Knows by Leonard Cohen

I wrote up my take on “user-centric royalties” a few weeks ago in a post titled “Arithmetic on The Internet: The Ethical Pool Solution to Streaming Royalty Allocation.”  The post has been widely read in the artist community and stimulated conversation about the current model of royalty allocation by streaming services that artists like Sharky Laguana have led the debate on.  I argue that the current model results in the hyper-efficient market share distribution of streaming revenues that effectively bypass the independent artists who fans listen to on the subscription streaming services.

Hyper-efficient marketshare distributions can have unintended pernicious effects due to the impact on the per-stream rate.  If you have a big market share, you don’t care much about per-stream rates because you get minimum guarantees and probably non-recoupable “technology fees” that help protect your downside and defray your accounting costs.  (Particularly important to independent labels whose streaming accounting costs may exceed streaming revenue.)  If you are an independent or “niche” artist, the per-stream rate is everything because you won’t be getting advances or technology payments.

Crucially, that hyper-efficient distribution almost guarantees to a mathematical certainty that per-stream rates will decline over time if service revenue fails to increase at a rate that exceeds the increase in the total number of streamed recordings.  The Trichordist has documented that the per-stream rate has declined by 16% over the 2014-16 period–which happened at the same time as we are told that streaming accounts for over 50% of industry-wide recorded music revenues.  If streaming revenue declines on a per-stream basis while expanding to a larger share of over-all recorded music revenues, the negative effects on the per-stream rate will almost inevitably hurt independent artists, as well as genres like instrumental jazz and classical.

As we found in a recent reader poll, many fans–even many MTP readers–are unaware that an overwhelming share of their streaming service subscription revenue is paid for music they didn’t listen to (and performed by artists they don’t care for in some cases).  Assuming that MTP readers may be more aware of these inequities than the average fan, many if not most consumers may be in the dark about where their money actually goes, which may have an effect their buying decisions and a ripple effect through the market.

question 1

question 2

There’s little doubt that the status quo is unsustainable even though the transition from high to low-or-no margin goods may be irreversible.  Recently, Canadian artist and producer Danny Michel wrote a must-read op-ed for the current edition of the Vancouver Weekly that highlights the motivation behind the Ethical Pool.  Titled “The Expiration Date on Music”, Danny describes his own experience, which of course is echoed by a chorus of independent artists and songwriters around the world:

I’ve been a full-time musician for 25 years. It’s been nothing but hard work, but I love hard work. My songs bought my home, my studio, paid the bills and more. Through it all, the conversations backstage with other musicians have always been about music, family, guitars, friends, art, etc… But in 2018 that conversation changed. Everywhere I go musicians are quietly talking about one thing: how to survive. And I’ve never worried about it myself UNTIL 2018. What I can tell you is my album sales have held steady for the last decade until dropping by 95% this year due to music streaming services.

And therein lies the rub:  You cannot trade a high margin sale at a wholesale price of $5-$10 for a replacement with a wholesale price of a fraction of a fraction of a penny without an unrealistic corresponding exponential boost in activity.

The math is stacked.

Based on the Trichordist’s Streaming Price Bible, it takes roughly 1,600 streams on Spotify, 950 streams on Apple Music, or over 10,000 on YouTube to replace one physical or digital album that sells at a venue or retailer with $7 of net revenue to the artist.  (This revenue variation across services is one reason the TEA math doesn’t really work.)   Venue sales are incremental revenue–you’re already spending to market the show.  Due to streaming, venue sales have all but evaporated in the last few years at an increasing rate as Danny Michel observes.

The fan at the show is in direct contact with the artist in real time when the fan comes to a show the artist is already promoting.   If the fan leaves the show empty handed, it will probably be difficult to get that fan to remember to stream the new artist when they launch their service player.

Getting fans to stream the record usually requires additional effort if not expense–a key reason why it’s important at the show to get that fan’s email at least or some other way to get in touch with them outside of the music service.  As one astute independent label put it, “if the devil made me choose between selling 25 CDs at a show or getting 25 fans to sign up to an artist’s email list, I’d have to think about it for 5 minutes.”  The email signups are a hope for future revenue to make up a shortfall that will likely never be made up on streaming.

Absent getting that fan’s email, independent artists are largely at the mercy of playlist gatekeepers to the point that many are asking if they really want to continue to participate in the major streaming services.  As long as those services have little interest in allowing subscription rates to increase or pay royalties at a level that allow independent or niche genre artists and songwriters to sustain themselves, there’s less and less reason to participate.  And hyper-efficient market share distributions are already causing some artists to like cutting the cord with big services–the only question is how to get their core fans to follow them.

 

And You Know It Makes Me Wonder What’s Going On: @theDavidCrosby’s Streaming Royalties

August 6, 2018 Comments off

David Crosby was in this band called The Byrds which covered “Mr. Tambourine Man” aka Bob Dylan’s first #1 hit as a songwriter.  Then he was in another band called Crosby Stills Nash & Young.  He’s done a lot of other things, too, but I mention those two bands because each of those bands were inducted into the Rock Hall.  That’s right–David Crosby was inducted into the Rock & Roll Hall of Fame twice.  And, one more thing–he is a pre-72 artist for many of his classic recordings and songs.

So here’s his reality.  Oh, and PS Spotify closed at $175.50.

Tags:

Must Read by @MarcHogan in Pitchfork: Congress Is Making Headway on a Bill to Modernize How [Songwriters] Are Paid — Artist Rights Watch

March 21, 2018 Comments off

[Editor Charlie sez:  Marc Hogan, Senior Staff Writer at Pitchfork, takes a detailed and objective look at the Music Modernization Act and makes some critical recommendations for amendments to the MMA.  This is a must-read for all songwriters wanting to better understand the nuances of the legislation.]

In December, [U.S. Representative Doug] Collins introduced the Music Modernization Act(MMA), a 109-page piece of legislation he claims “would literally usher copyright laws into the 21st century.” A Senate version followed a month later. Born from a year of behind-the-scenes negotiations, the proposed law has bipartisan support and—unusual for music-related efforts in Congress—endorsements by lobbying groups representing a broad swath of the industry, from record labels and publishers to streaming services and FM broadcasters. (Some of the bill’s advocates haveargued that it should pass because this time, for once, it could pass.) Provisions of Collins’ bill are expected to be included as part of a package that the Grammys’ policy chief has expressed “very high confidence” will make it onto President Donald Trump’s desk sometime this year….

Though lawmakers are describing the MMA as a “consensus bill,” most of that consensus appears to have been between lobbyists at the negotiating table. While publishing and record-label trade groups advocating for the MMA claim they have cosigns from more than 26,000 songwriters, some in the industry question how much these survey respondents were really told about the nitty gritty. This bill simply shouldn’t be crammed through before the rest of the music community understands what it is and offers ways to improve it. And it’s not just that working-class musicians haven’t been invited to the table—it’s also that the biggest artist advocates they could find are folks like Dionne Warwick and Steven Tyler, neither exactly representative of where songwriting is headed and where royalties should follow….

This alphabet soup of administration would be a lot simpler than the current system, but the details matter. As proposed, the streaming services would fund the MLC, and a board of publishers and songwriters would oversee it. At last (unofficial) count, the board would consist of 10 publishers and only four songwriters. In an open letter, songwriter and big-band leader Maria Schneider has called for an equal, 50-50 split between publishers and songwriters, along with assurance that songwriters would be able to choose their own board representatives. She has a point, and Congress should make the change.

Read the post on Pitchfork.

 

 

Guest Post by @sarahickman: Streaming Royalties Are Ending Opportunities for Working Musicians — Artist Rights Watch

March 10, 2018 Comments off

Sara Hickman on how the economics of streaming is hollowing out the “middle class musician” and devouring the music business from the ground up.

via Guest Post by @sarahickman: Streaming Royalties Are Ending Opportunities for Working Musicians — Artist Rights Watch

%d bloggers like this: