INDUSTRY OPINIONS – Streaming Royalty Rates

Posted by | Nov. 27, 2011 | 15,211 views

This week we take a look at the ‘hot topic’ of the moment of streaming rates and whether they are fair and equitable. We managed to source a wide variety of the stakeholders involved in the debate including, Spotify, Projekt Records, Kudos Records, PRS for Music (the UK performing rights society) and Merlin. We did approach two major labels but received no response from either. Without further ado comments from our esteemed industry executives regarding the following questions are provided below.

“Are streaming royalty payouts to artists fair and equitable when compared to other royalty pay out rates? Or should streaming royalty payouts be increased?”

Steve Savoca, Head of Content – Spotify (US)
“It’s an apples and oranges comparison. Unit sales are finite purchases, whereas streaming transactions can occur countless times over a much longer period. It is not possible to compare royalty payouts on unit sales v streaming in a fixed period of time.

Furthermore, streaming appeals to a younger demographic who have never legally consumed music and has greater potential to reach a presently un-monetized mass market. We believe in the enormous potential benefit of bringing greater numbers of music consumers back into a legal and monetized environment.

We strongly believe that any debate about streaming royalties being ‘unfair’ is wholly unfounded, and a number of articles have recently attested to this fact. A recent blog by Washington & Lee University’s assistant professor of business David Touve concluded that streaming services actually paid more per stream than iTunes. And Martin Mills, the chairman of Beggars Group, commented about streaming services: “Every play is a pay – and 200 plays will earn you more than a sale.”

Sam Rosenthal

Sam Rosenthal, Founder – Projekt Records (US)
“In the world I want to live in, I envision artists fairly compensated when the audience listens to their creations. Spotify and the other streaming sites are not offering rates that respect the artist’s passion, dedication and expression. Their rates are not fair and equitable, thus I removed Projekt’s music from these sites. Music cannot be the chum to line their pockets and fuel their eventual IPOs. I agree that streaming royalties should be increased, but it will require a different model. Free is not a price point that works for creative endeavors. I envision a world where the artists I love receive fair payment for creating ephemeral objects that enrich our lives. I am glad people are having these conversations and asking these questions. Thank you for supporting artists with your digital and physical purchases.”

 

Charles Caldas

Charles Caldas, CEO Merlin
“Revenue from our streaming services is showing massive growth, with Spotify obviously leading the way by a very very long way. That service in particular is a major revenue stream for our members. We are yet to see any tangible evidence from any member that streaming services cannibalise other forms of consumption. Additionally we see very little analysis that looks at this issue sensibly. If someone plays a download 50 or 100 times over its life, what is that worth per play, and how does that compare with streaming services, or radio play, or YouTube for that matter? Finally, I suspect the issue of artist royalties on streaming service is much more a matter between artists and their labels than between services and labels.”

 

Danny Ryan, Founder – Kudos Records (UK)
“First of all, I can only really comment on streaming royalties paid to distributors and labels. The share an artist eventually earns depends on their individual contract with their label. 

 So, as far as streaming payouts to distributors and labels, my view is that comparing them directly to download royalties is a bit pointless. You need to turn the question on its head.
• Streaming technology exists, and for the most part it’s being provided by licensed services (in contrast to the early days of downloads).
• Given a chance to sample the service for free, the consumer seems to like the technology, and judging from conversion rates, £10 per month seems to be the sweet spot.
• If legal streaming services didn’t exist you would soon see an abundance of unlicensed services filling the void.

As I point out in my blog post, conversion from ad supported to premium and bundling will eventually improve per-stream rates, Personally I also view the current share we receive from many of the new digital services as a transitional rate. Once these services start to scale to a point where they cover their own costs we would expect to see an improvement in revenue share.”

William Booth

William Booth, Director Of Licensing – PRS For Music
“A lot has been written recently about streaming services and in particular Spotify and the royalty rates they pay songwriters, composers and performers. From our perspective at PRS for Music, Spotify is one of a number of new digital streaming services at the forefront, along with download services, of providing a legal alternative to piracy online. Spotify has always done the right thing and worked with rightsholders to ensure their music offering is fully licensed before launch. Our writers and publishers are earning royalties from digital music and this is a growing part of our business; we all need to support these services that are giving users a legal, virus free and high quality alternative to peer-to-peer sites and generating an additional income stream for creators. Comparisons with radio or TV broadcasts that may have millions of listeners or viewers are difficult and not always either accurate or appropriate.”

 

It seems that as an industry we need to see how this plays out over the medium term. But it is TMV’s view that any revenue that is coming in from any services that are offering an alternative to piracy at the same price point of ‘free’ whilst paying out something to labels and artists is a good thing for the industry as a whole.

Readers please do feel free to leave your own views in our comments section…

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Posted by on Nov 27 2011. Filed under Digital, featured. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.

10 Comments for “INDUSTRY OPINIONS – Streaming Royalty Rates”

  1. Joe Linus Music

    As a recipient of royalties from my recorded works, the income generated from these works is an essential part of and justification for the ongoing process of recording new works. That’s a basic artist premise of engagement in the music industry.
    Your question of fairness is not well stated, in my opinion. It is not fairness “compared to downloads”, but a fairness question that goes much deeper to the heart of reasonable compensation for the time, skill and effort inherent in creative endeavor, not to mention the commitment noted by Mr Rosenthal.

    Spotify serves a streaming listen on demand subscriber audience, and that is wonderful for the subscriber and for an artist, who might not otherwise be heard, or for some artists that are well compensated/represented by major labels. But beyond that opportunity, the streaming model used offers such a convenience for the subscriber that there is no motivation for the typical consumer to reasonably move beyond the streaming stage to a complete a download purchase.

    Thus that question of “fairness” is more properly presented in light of the effect of streaming on removing consumer motivation to complete a purchase, which creates a whole new reality for the artist, where the work may be conveniently streamed, but never purchased.
    Therein is the question of FAIRNESS of streaming. For now the artist must rely on streams to replace the income generated by sales at the rate of 200 streams equaling one sale. One sale at $.99! ( as per Mr Savoca’s math).

    Mr Savoca’s (and Mr Booth’s) suggestion that present scenario is better for artists than the illegal downloads that were the norm a few years back is just lame white washing analytics. “Better than a stick in the eye!” is the phrase that comes to mind. No one is suggesting that following the law is not an improvement for the tens of thousands of artists victimized by the technology of free pirate filesharing. (to be fair here, these men were responding to your ‘fairer than’ question!)
    Still, using social media, one can see that there are some fat deals being made that don’t seem to include the financial interests of artists. Facebook has linked up with Spotify to offer the artist’s catalogue through its so-called ‘artist page’. If my 5000 Facebook friends each streamed my Spotify song 200 times, i’d have a million streams– equivalent to about $5000….
    While this is ‘possible’ , the question is how likely is it for the artist? and is that even an amount to motivate participation?
    $5000 might seem like a lot to some, but your typical recording engineer isbilling out at $50 per hour. Getting into budget issues? Consequently, what we have is a roll the dice, and hopethe ‘hit’ comes up snake eyes– a gambler artist going for broke. That is a rather unkind and desperate scenario to cultivate for artists and one that increasingly few will respond to.
    Much as i like the concept of Spotify of access to streaming artist’s content, I agree with Mr Rosenthal that the streaming rates are unfair, since i believe streaming is replacing download purchase as a means of music consumption. IF this is the manner in which recorded music is to be accessed by the consumer, then these rates need to reflect that fact fairly.
    In that sense, it is not just a matter of comparison to wiggle out of. It is a straight up inquiry into the fairness of compensation for streaming itself. At this stage, at this rate, it is unfair. “Unfair” has a subtext, meaning simply that these rates will not motivate sustained artist participation in platforms such as Simplify. Artists are a quirky lot and may follow Mr Rosenthal’s lead exit stage left. Leaving another IPO that missed the boat., and a lot of flotsam in its wake. peaceout

  2. JP

    The question is with respect to Spotify and similar services….

    Why can managers and artists not be allowed to know what the NDA deals are, that are being done between likes of collection societies or record companies….and streaming services such as Youtube or Spotify.

    What were the lump sum payments taken against the royalty payment by record companies and other rights holders?

    How can we make sure royalty statements are accurate?

    In response to Steve from Spotify he may quote ‘leading studies’ (they always do), but why do seniors managers from the MMF for example and leading media lawyers/accountants, challenge these arguments and figures. There is a bad smell about this and a sad lack of transparency. The simple premise is If you hide behind NDA’s you can always quote business confidentiality, but if there is little trust it’s a bad state of play and people then make their own conclusions.

    But then the music industry has always been distrusted hasn’t it…because it’s full of ‘dreamers and sharks’. Quid pro quo?

  3. Hi Robbie, thanks for your comment. The format of Industry Opinions is to provide senior execs etc the opportunity to respond to a question, which we will print verbatim. The Music Void generally is an opinion and analysis site, so we do have plenty of writers – myself included – who consider and investigate the issues you’ve raised in a forthright and some might say even confrontational manner. I have my own opinions on Spotify’s business model and payments made to artists, and you will no doubt see an ongoing “stream” of articles in TMV addressing these points. Again thanks!

    Cheers Laura

  4. Ms Laura,

    I think it might help if you stated some of the more blatant vested interests of those you’ve interviewed, such as shareholders in pre-IPO Spotify.

    You’re also behind the curve : this is the Spotify chatter we were hearing in September. What is needed are datapoints, now that Spotify USA is up and running. As a deep catalog label, we are giving them a chance but it is truly scary to see our iTunes revenues drop off a cliff. Here’s what I posted on facebook yesterday :

    “August 2011 iTunes : -25% m/m, -20% y/y, circa. $200 drop
    Spotify USA ab initio 15 July + August = $23 incremental income

    “To be fair, Spotify USA has to account for mechanical and/or performance royalties separately. It may be a year or longer before we get a handle on that pot of gold.

    “Anyone break $100 per month on Spotify? Just think what you have to do to earn $1000 per month there.”

  5. Richard,

    Can you outline your problem with broadjam? Have they not paid out on royalties legally owed to you/your band? Please provide a bit more detail and we might be able to do some digging…

  6. richard patterson

    What about broadjam.com? How do they pay royalties, if they pay them? If anyone knows about them, let me know by e-mail? I’m just a songwriter tryin’ to get paid for his work.

  7. Rick

    I think we should not waste our time trying to seek blame with the audiences listening to music for free. We are where we are today and its a fact that most people are very much not willing to pay neither aware of the consequences of their actions towards creating professional music. Perhaps a certain sense of disconnection fed by greed and instant gratification might be the real problem.?

    Bottom-line is: Unless the law protects online copyrights with extreme outrageous fines and consequences that would seriously scare people away (carrying water to the ocean?), I think artist should adapt and monetize to a model proven to work; live streaming music royalty payment.
    People seem to be willing to pay for commercial free online music services rather then paying to the artist directly. Also, advertisement daily increases revenue for music service providers.

    All we need is an online music service that understands the moral value of its content and the importance of its featured artists. The perfect balance has yet to be found but it will. I’d say 50% of annual revenue should go directly to royalty payment to artists.

    Seems fair to me. Every artist would support this music service and soon this will be the next big thing. Voila!

  8. I get really tired of seeing people in charge of things like Spotify (or in the above Merlin) saying label owners are the problem & why artists aren’t getting the money they’re owed. If you are saying the value of a song is around $0.10 spread out over 20 years of play (which is not far off from the current rates) you can’t say the label is screwing the artist by not giving them their portion of half a penny a year. It would make more sense to pass the blame onto the public who currently think the value of music isn’t even half a penny a year, but zero.

  9. “I suspect the issue of artist royalties on streaming service is much more a matter between artists and their labels than between services and labels.”

    Sorry, but this quote from Merlin made me laugh out loud (in total disbelief).

    Yeah, the indie labels are stealing the £200 a year we’re getting in from Spotify and buying yachts to cruise the ‘Med’ with gaggles beautiful tanned models.

    Please.

  10. As a side issue but related . . . the recent voluntary agreement that the big guns in the broadband provider industry signed last July 2011 is a step in the right direction as well. While people are clamoring that “Big Brother” is monitoring their internet habits (read illegal pirated downloads), the entertainment industry is missing out on royalties, and they are scrambling to make sense of how to transition to a new business model. I am wondering if there were ways to enforce the copyright international laws other than having broadband providers slap the hands of violators with a temporary internet connection slowdown, that the royalty debate would become less an issue, because more royalties owed would get into the right pockets. But yes, I completely agree with you that this needs to play out over the medium term.

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