Time for a serious artist living wage-royalty payment mechanism?

Posted by | Aug. 1, 2013 | 6,712 views

Last week Thom Yorke set the music streaming business on fire. Now the 30,000 strong musicians union in the UK has started a campaign focusing on fair royalty payments for songwriters and performers similar to that paid by terrestrial and commercial radio. Is this a good thing for the music business? I would argue yes for artists and managers and maybe not for some record labels…

I wrote an article about the streaming payments debate last week, which focused on the numbers – read low payouts even massive artists receive for millions of streams on Spotify. But let me be clear Thom Yorke can be a hypocrite sometimes.

Firstly, Yorke’s band Radiohead would not have the fan base it does today, little own the career he has without the 3-4 albums of investment in recordings, marketing and tour support his former label provided Radiohead with. Then he has the hide to berate the very same label system that made him and his band globally recognised. Yet I do believe it is right of him make a stand about what he sees as a machine that rips artists off even more and with the collusion of major labels.

One reason Spotify is the service picked on amongst the music streaming fraternity and no doubt globally recognised artists is that they in particular negotiated a special deal with the all of the key rights societies including PRS in the UK.

This sweetheart deal delivered Spotify a discounted royalty payment rate, which other streaming services rightly note presents a serious issue in respect of competition laws on both sides of the Atlantic. There are multiple other streaming music service including Deezer, rdio and many others which actually payout 2 – 3 times the royalties that Spotify does to independent artists because they do not have Spotify’s sweetheart deal.

Lets be very clear that the only reason Spotify secured such a deal was because the big four major labels at the time negotiated equity totalling upwards of 18% in Spotify. Now the clear conflict of interest arises when other streaming services are paying out 2 -3 times the amount that Spotify is to rights holders and artists. The issue being that the major labels will enjoy a nice payoff when Spotify goes for an IPO, which is a matter of when not if. They even enjoy nice upfront advances for every territory from all streaming services and yet pay none of this through to artists.

Now I’ve had heard cries of that is not true. Yet not one large global artist has stated on record that they received a royalty payment detailing the advance their rights holding label received. TMV reached out to a number of labels and the only answer we got was that “information is commercially sensitive and therefore cannot be divulged”. So essentially major labels have it two ways and win either way. Major labels show me a contract that clearly states you pay this revenue through to artists and we will change our stated view. The ball is in labels court to come clean and show the transparency that is expected of them.

Whereas nothing has changed for artists – they are still being screwed by labels in most cases, only this time labels also own the streaming mechanism in respect of Spotify and hence have a vested interest in ensuring low royalty payouts ot artists and that the Spotify IPO happens. They can then collect their nice payoff and not have to distribute that through to the artists whose catalogue they licensed to get them that deal in the first place. Sadly despite this it is Spotify who cops all the flack and the labels are no doubt rather happy with such an arrangement. Who wouldn’t be?

Lets be clear, music streaming does have a place in the evolving digital music ecosystem, however to date it is rather minor in respect of the royalties that get paid through to the creators of music, artists themselves. This debate needs to ensure a clear delineation is made between what Spotify has paid out to rights holders as a gross sum, and what artists are actually receiving from rights holders in respect of these Spotify payouts. As this is where the core of the issue lies.

TMV does advocate a fair and equitable royalty split should be negotiated much like publishing money is paid out with 50% going to the publisher and fifty percent going to the artist, with the label then taking its share out of the 50% paid through to it and the remainder being paid through from the label the artist. Afterall, without artists, labels do not have a viable business.

This brings me to my final point, which is taken from a comment on the article titled “Is Spotify Bad for Music?” in the Guardian (http://www.guardian.co.uk/commentisfree/2013/jul/21/spotify-bad-for-music-debate) newspaper. The quote sums it up perfectly in my view stating that just because Spotify has paid out over $500 million in 5 years “That doesn’t mean that Spotify doesn’t chronically underpay its artists. Spotify is a machine for getting investment, not a plausible business.” Does that mean it is bad for music? Not necessarily. However it does raise more questions than it answers.

If Spotify is not a viable business, and from a purely business perspective it clearly appears it is not. In five years of operation it has failed to deliver a profit. As artists are complaining of dismal payouts and it continues to receive increasing investment from Wall Street (Goldman Sachs and Coke Cola to name but a few) is it nothing more than a ponzi scheme concocted by the music business to help sustain major labels declining businesses? The reason TMV states this is that Deezer, Spotify’s only serious competitor in paid subscriber numbers is actually profitable.

I do use streaming services but make a consciences decision to not use Spotify due to clear conflicts of interests in respect of major label equity in the service and appalling royalty payouts to artists. Instead I use either Deezer which yes is part owned by Russian Oligarch Len Blatvatnik who also owns WMG. However at least Deezer pays out more than double what Spotify does per stream to artists. Rdio is also another great service albeit after the revelations that Skype, which owns Rdio, has been handing over user data to the NSA I have decided to stop using the service.

Moving forward lets keep it real and ensure artists receive fair and equitable recompense for enabling digital music services part owned by major labels to launch an IPO off the back of artists creative works. This requires consensus from all parts of the music business value chain.

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Posted by on Aug 1 2013. Filed under Digital, featured, Wide Angle. 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.

7 Comments for “Time for a serious artist living wage-royalty payment mechanism?”

  1. Whilst yes streaming is witnesses a serious uptake in users and al-la-carte downloads are at the same time witnessing a serious decline. The core issue here is what artists are receiving in return for their music and it is not a pretty picture. Streaming is contributing to a decline in artists income – the facts clearly show that. Obviously streaming is here to stay but the key question is how does it turn into a profitable model for artist’s and also Spotify as Spotify is bleeding money left right and center. The only winners with the current status quo of streaming are major labels who own over 18% of Spotify, they also receive 3 yearly multimillion dollar catalogue licensing advances allowing Spotify to us their catalogues of music, they also earn the majority of money that is paid through to rights holders by Spotify and then pay their roster of artists pittance. So labels have a triple dipping revenue stream artists and Spotify are screwed…I just cannot see how that is sustainable over the long-term…

  2. Microsoft owning Skye is hardly good news… but that’s another discussion.

    The streaming services are fashionable anomalies, market forces from the bottom up (pissed off artists and their loyal fans) and the top down (Private Equity firms who panic at the prospect of being at the looming liquidity crunch point of the afore-mentioned wolf in sheep’s clothing, Spotify, will soon cause a rupture in this model. Apple will prolong streaming by incremental innovation and pure market power, but in the end music has for years been trending towards commoditization, and when technology enables and encourages so many ‘nails in the coffin’ of the of the old guard, (think: horse drawn carriages, and ice-factories) dramatic upheaval absolutely has to happen. All the signs are there… You’ld be tantamount to blind not to see them.

    If you are even a small part of the ecosystem that will be disrupted, you will never see it coming, or openly postulate about it, and describe the full scope of this house of cards.

  3. moneyman

    Have you never changed your mind on an issue? Has the benefit of experience never convinced to alter your world view, even slightly? Do you still stick rigidly to the opinions you held in your late teens / early 20s?

    Radiohead were young guys when they signed to EMI. They didn’t have the worldly experience, and were not able to make the judgements and have the opinions they do, today.

    Of course a lot of people contributed to their success, but the fact that these guys made music that millions wanted to hear contributed in a very large way to their success and popularity. Remember, EMI were very much against releasing Kid A and Amnesiac….

    You speak as though all a band needs is a huge marketing budget behind them to make it big. I could name you hundreds of bands who had huge marketing budgets, bigger than Radiohead’s, but never made it big.

  4. Obviously the artist was not passive they made the decision to sign with the label that they did so. All I was commenting on was that it was hypocritical to berate the label system that via immense marketing budgets made Radiohead into the global band they are today. Without that marketing budget the band would pretty much be unknown today. That is a fact. My criticism was not on the fact Yorke had withdrawn his music from Spotify. I in no way detailed that Radiohead had not made any worthwhile contribution to music and or this particular debate. In fact the article praises Thom Yorke’s courage in standing up for the greater good in respect of artist royalty rates…its just a pity a lot more artists are not coming out and making a stand for artists rights!

  5. moneyman

    “…Yorke’s band Radiohead would not have the fan base it does today, little own the career he has without the 3-4 albums of investment in recordings, marketing and tour support his former label provided Radiohead with…”

    This is an argument I have read many times in relation to Radiohead’s actions over the past few years. And while it is true, it implies that the artist has been passive in all of this, not making any worthwhile contribution.

    Lets be clear, Radiohead – through their music, the creative endevours of 5 musicians – have made a lot of money for a lot of people over their career – retailers, record labels, publishers, promotors, management. Doubtless they have repaid the financial investment that was made in them. So, having made pots of money for their backers and ‘investors’ why shouldn’t they try doing things their own way? They have more than earned the right.

    Yorke isn’t being hypocritical over this issue. The removal of his music was to make a wider point, I think he and Godrich recognize the fact that they are established artists who have fewer financial concerns when record making than others.

    He is making a stand for the many artists who do not have a voice and for that his should be congratulated.

  6. Very aware that Microsoft now own Skype. Problem is Microsoft have also been providing all user data to the NSA. So will not use the service for the same reason.

    I have had numerous discussions with label executives regarding the payouts from streaming services – obviously none want to go on the record due to the fact that they deal with all of the services.

    Obviously, Spotify has a bit more scale in terms of paying subscribers however a number of independent label sources have noted that other services payout 2 -3 times more based on a per listen basis. Obviously label contracts do impact on this. But did you read the part in he post that outlines the fact Spotify got a special deal in respect of lower royalty payments granted by the performing rights societies MCPS-PRS in the UK etc. This already reinforces the fact Spotify pays out less than other societies it has been well documented by numerous publications.

    Yes Merlin has a stake as well, yet sadly as usual the stake is appalling low when you look at the actual contribution of independent music and its global market share. If anything independent makes up over 27% of all music sales globally. And so yes the indie labels will face the same questions about how any windfall is shared between labels and their artists. But as far as most labels involved with the Merlin deal are concerned I would think that they would be a bit more ethical purely on principal than the majority of major labels and their imprint’s.

  7. Stu

    Good news! Skype is owned by Microsoft now. Rdio isn’t owned by Skype – it’s just founded by the people who founded Skype a long time ago, then sold it to eBay, who sold it to someone else, who sold it to Microsoft.

    On the ‘Deezer and Rdio pay out 2-3 times the royalties to artists’ point, do you have any more figures on that?

    This surely all depends on label deals anyway? If you’re signed to Beggars (which splits all streaming royalties 50/50 with artists), you’re likely getting a bigger multiple more from streams than if you’re signed to a different label with a dodgy contract.

    On IPO stuff, worth remembering that Merlin has a small stake in Spotify too – so will face same question about how any windfall from Spotify going public is shared with labels/artists.

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