Newsletter #104 January: The Artist Economics Of Streaming

16 Jan 2014

Streaming is already a red hot topic for 2014, with the format having grown over 2013 and a high profile publicity campaign warming up for Beats Music, which launches on Tuesday.

The expectations are that Beats will spend significant sums on marketing to a mainstream audience (evidenced by its AT&T Family Plan and planned Super Bowl commercial) and cannily leverage the branding of its signature premium headphones.

Despite this positive start to the year, it would be brave to bet that there won’t be more high profile artists expressing their concerns about the economics of streaming, as Thom Yorke and Nigel Godrich did to incendiary effect last year. If streaming really is the future for recorded music consumption, then worries about meagre payouts and baffling royalty calculations, exacerbated by a shroud of secrecy, must be addressed in order to secure the support of artists.

Given the way information and opinion travels across the Internet, it is entirely plausible that Beats and the upcoming YouTube music service – if successful – will face a similar grilling to that endured by Spotify over the last year. Already, Beats’ messaging has raised questions, despite efforts to be reassuring to artists, with the New York Times and others reporting things like “The company declined to specify its rates, but said that it pays all labels equally” (NYT) and “Another selling point that Beats is talking up is it being an “artist-friendly” service, paying the same royalty rate to everyone” (CMU).

With no mention of what those rates are, or, unsurprisingly, any comment on other financial aspects of deals struck with labels and publishers, you can almost hear the wheels of scepticism slowly spinning amongst some industry commentators.

Regarding the services already launched, if artists are confused by their royalty statement it is hardly surprising. We hear of calculations that are frighteningly complex to a layman, including overlapping and interlocking variables like maximum and minimum rates per subscriber, differing mechanical rates and territorial weightings.  It is no wonder accusations have been flying. There are questions unanswered about ‘digital breakage’, such as what happens when one subscriber pays £9.99 a month but only plays a handful of tracks?  Are royalty accountants and artist managers told enough to understand the granularity of statements on streaming revenues?

Added to this the rumours and accepted wisdoms about licensing deals offering everything from signing bonuses and delivery fees to ‘halo’ payments to big artists and equity, and one can understand why artists might be distrustful.

Counter arguments to the views expressed by Yorke and Godrich included criticism of artists who complained about Spotify (and others) whilst happily submitting to YouTube and SoundCloud, services with little or no promise of remuneration. Also, there were accusations of impatience and naivety: if streaming services could just reach greater scale, then all parties had the potential to benefit.

Spotify should be applauded for its attempt to clarify the issues and be more transparent via its spotifyartists.com site. It is, after all, a company striving to become profitable through gaining and exploiting competitive advantages, and transparency can hardly be a USP.

One should also appreciate that streaming IS in its infancy. The problems of how to account to rights holders are new, and will surely undergo adjustments in years to come. Each point in the value chain is trying to understand and find ways to exploit what is an inherently complex system.

There are also significant administrative problems that, in theory, will get ironed out in time. Getting the problems around metadata fixed are as important in some cases as transparency of accounting. If, for instance, the metadata relating to a track’s publishing in a particular territory is wrong, having been supplied by a party other than the actual publisher, key revenue could be missed or redirected.

A cheeky criticism of competing services by Beats’ Ian Rogers was that his would not be a “database list”. In terms of serving creators though, services and suppliers would do well to keep their databases as accurate and up to date as possible – something the Global Repertoire Database promises to assist with.

Perhaps there is no bogeyman here, no comedy villain to condemn, afterall. Perhaps this is a situation where creators, rights holders and technologists are all working towards a future where the value of recorded music stabilises and even grows. Perhaps there is a path from this point forward that leads to clearer, fairer and more accurate accounting to artists.

But negative perceptions, however inaccurate, could cost the industry dearly, as with the Napster years. Can something be done? Are there some reasonable methods of calculation common to all services that can be shared with artists to help them understand this new music economy? One thing is for sure – if streaming is the future of the recordings business, artists deserve a better explanation of its economics than is currently on offer.

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