Music streaming: friend or foe to the independent musician?

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Taylor Swift’s is the latest major headline as artists across the spectrum of success and notoriety get a better handle on music streaming and its impact on the music industry

On November 3, 2014, Taylor Swift and her management team very publicly “broke up” with Spotify leading to the removal of Swift’s albums from one of the leading music streaming services. The reason? Royalty rates for artists and songwriters are too low, according to Swift and a chorus of many other established artists and songwriters. In fact, streaming royalties are a tiny fraction of what an artist earns when they sell the same song or album on iTunes. A per song stream on Spotify pays .006 to .008 cents, while the single song royalty rate for a songwriter on iTunes is .091 cents. That’s more than 100 times the streaming payout. Or put another way, it takes 166 streams to equal one digital track sale. No wonder some artists are put off by the difference!

What the artist actually receives will depend on whether a label is involved as an intermediary between the streaming service and the writer and performer. And one year after artists and songwriters stormed the hall of Congress to protest the proposed “Internet Radio Fairness Act,” which many artists saw as a back door attempt to further reduce streaming royalties, the topic of music streaming is even hotter today.

In early 2014, Nielsen Entertainment analyst David Bakula stated that he is optimistic about music streaming growth, citing that the “118 billion [music] streams reported in 2013 generated about the same revenue as 59 million albums sold, or about one-fifth of the total albums” sold last year. This correlates with both the increasing numbers of fans using the leading music streaming services as well as the larger overall share of revenue attributed to streaming according to reports issued by the RIAA.

Based on these facts, it would seem unwise for most artists – independent or otherwise – to follow Swift’s lead and dismiss offering some or all of their music in an intelligent and well-thought out way through select streaming services. These two graphs show a) worldwide paid subscribers on the leading streaming services and b) the growth in streaming earnings as a portion of US record industry revenue. Clearly, streaming has become a substantial part of the revenue pie and appears poised to continue steady growth.

Music Streaming paid subscribers
Various music streaming services and their paid subscriber base
Percentage of music streaming of music sales
Streaming as a percentage of recorded music revenue

Is Taylor Swift right or wrong?
While Ms. Swift and her high profile manager, Scott Borchetta, have been among the most visible music artists complaining about the perceived paltry per stream earnings that artists and writers earn from streaming services, they have hardly been a lone voice in the wilderness. A wide range of established artists and writers have been very outspoken in their complaint that streaming rates, which are actually set by the U.S. Copyright Royalty Board are inadequate to compensate music creators.

Perhaps the most vocal and creative opponent has been Radiohead front man, Thom Yorke, who last year famously described Spotify and other music streaming services as “the last desperate fart of a dying corpse,” claiming that the three remaining major labels gladly were partnering with the top streaming services to simply repurpose and profit from their extensive back catalogs of hit songs. The mercurial Yorke’s current view of what’s best for artists is to distribute music directly to fans, cutting out all of the various middlemen. Yorke did this a few months ago for his solo Atoms for Peace project, Tomorrow’s Modern Boxes, which he released through a pay-gated BitTorrent website.

EDM star Diplo recently reissued his 2004 album, F10rida, at a $5 price point using BitTorrent’s new bundle system. Artists who self release through this method keep 90% of the revenue, less any publishing royalties due, and also gain access to a reported trove of consumer data which can be used for follow up marketing.

With Taylor Swift’s recent release, 1989, registering sales of 1.3 million CDs in its first week of sales, the lost revenue from streaming the album would be significantly less when compared to the revenue for Swift, her co-writers, producers and managers from the sales of actual CDs and downloads. In a Time magazine report on the breakup, Borchetta stated that Swift had received just less than $500,000 for domestic streaming in the previous 12 months. Spotify fired back, referencing that when worldwide revenues were measured, she had earned $2 million. Time also estimated that a year ago for such artists as Lorde, Eminem, and Avicii, some of the most streamed popular songs would have earned between $200K and $1 million.

Still, when touring, merch, exclusive marketing deals for clothing and make up, and millions of records sold are factored in, streaming income doesn’t make up for what it costs a superstar music artist such as Swift. Why not? Because the availability of Swift’s music on free streaming sites allows fans to skip purchasing her music; hence, her decision to remove it. She is known around the world, so discovery is no longer a concern. The same goes for other top artists, notably country star, Jason Aldean, who reversed direction and pulled his latest release, Old Boots, New Dirt, from Spotify after it had racked up 3.4 million streams during its first week. The Black Keys have not put any of their blockbuster albums on streaming sites. Even legacy acts such as The Beatles, AC/DC, and Led Zeppelin have kept their back catalog off of the major music streaming services as the demand for physical CDs of their music continues to roll on.

Music streaming sites’ role in music discovery
For an indie artist, regardless of genre, getting your music heard for the very first time is one of the most challenging aspects of building a career in music. With thousands of artists releasing new music every hour around the globe, how do you get your music heard? The two most powerful and effective ways to get that crucial first listen with a consumer are through a live show or alternately via a referral from a trusted source. That’s where streaming services offer a distinct advantage and opportunity for emerging artists.

Curated playlists, something that are easy to create in Spotify and other music streaming apps, allow you to offer up set lists of music you enjoy and to interpolate some of your own songs into the mix. The power and potential of curated playlists to foster easier paths for fans to discover new music is so great that Beats Music hired Trent Reznor as their Chief Creative Officer to oversee how music would be curated and promoted on the site, which is viewed by many as the most artist-centric of all the streaming services due to the fact that unlike Pandora and Spotify, they don’t offer a free, ad-supported version of their service.

Reznor doesn’t agree with the artists condemning music streaming services and told Billboard, “I’m on the side of streaming music, and I think the right streaming service could solve everybody’s problems . . . [music] ownership is waning and everyone is comfortable with the cloud.” So it’s clear that artists are not unanimously against music streaming. Further, it’s been whispered that in 2015, Apple will rollout a revamped Beats-based streaming service as part of the next Mac OS update, which could exponentially expand the number of paying customers for streaming as Apple CEO Tim Cook confirmed that roughly 800 million consumers worldwide have iTunes accounts, most with credit cards on file.

The need for transparency
For decades, how artists and songwriters earned money was shrouded in secrecy. Short of getting a law degree and immersing one’s self in copyright code and contracts, most musicians simply understood that “If I get a lot of airplay and/or sell a lot of records, I can earn some good money.” This veritable “cone of silence” was broken with the 1991 publication of Don Passman’s landmark book All You Need to Know About the Music Business, which explained how artists earned money from record deals and what roadblocks and obstacles would likely be in their way as they worked to establish themselves in the industry. With knowledge, came the eventual desire for artists to establish and maintain more and more creative and business control of how their music was sold. Artists such as Brett Gurewitz, Ani DiFranco, the stable of Saddle Creek bands, Reznor, Allison Kraus, and many more decided that they would remain more independent and not relinquish total control of their music and recordings to a major record label.

This DIY attitude shift can be seen not only as an effort to keep more of the revenue pie, but also to foster a more transparent business model with regard to the financial dealings surrounding music distribution. When it comes to transparency, Spotify seems to be leading the way in explaining how the complex revenue model of their business works for artists and labels. In a blog posting, they break down royalties and payments they offer so there’s a little less mystery in how much money their service pays out to artists and writers. Based on all of the information here and in Time’s November 2013 royalty projections cited earlier, it seems clear that if your tunes are being played consistently on streaming services, you’ll start to see some revenue, even if you don’t quite reach the $1.2M in streaming revenue Avicii racked up that year.

Taking a cue from the movie industry
The music industry has in large part been shaped by fire – it’s been fueled by controversy for decades, and battles over formats, royalty rates, exclusivity and earnings are nothing new. What’s different now is that the shift Reznor mentioned, from ownership to access, is likely the most significant change in the last 50 years of the music business. If the projections offered by Spotify for the growth of worldwide streaming come true, in time, streaming revenues may surpass even the biggest boom years of the recorded music industry, 1999-2000.

A recent Billboard op-ed, “Why Streaming (Done Right) Will Save the Music Industry” by Rhapsody co-presidents Rob Glaser and Jason Epstein, suggests that maybe artists can develop a middle ground approach to working with streaming services that include free, ad-supported players such as those offered currently by Pandora and Spotify. They suggest that the strategy used effectively by the motion picture industry of “windowing,” which staggers the release date in different mediums, may be a good alternative. If a top artist keeps her newest music off of the free versions of streaming services for a year, then fans will be motivated to buy it or get a subscription to a paid service that has her newest songs available.

By having their back catalog available on the free streaming sites, while placing a modest premium on the newest tunes, such a strategy can serve to support better revenue for artists (new stuff costs more) while maintaining risk-free access and music discovery for artists’ back catalog.

The access revolution
This shift between music ownership and access is a revolution every artist must consider. We are nearing a tipping point when music access is going to trump ownership for casual music fans around the world, especially those who rely on mobile devices, although the resurgence in vinyl sales proves there will always be a smaller group of hard core music lovers that collect physical albums. And if the trends continue with more and more emerging countries such as China, India, and Brazil developing growing middle class populations with an interest in pop music, it will become vital to develop a sustainable streaming model that artists can understand and profit from, as the market for music continues to expand globally.

In a recent Associated Press story about the streaming debate, Paul Roper (president of Dualtone Records) states that his band, The Lumineers, consistently averages about 1 million streams per week, even though the group’s record sales ebb and flow around their tours and releases. He also works closely with Spotify to access and measure consumer data on his baby bands, helping him to market them more efficiently. He says that as industry insiders, we forget that it’s early in the adoption cycle for music streaming. Roper stated, “We are still in the infancy of this market and the general public is uninformed with how it works.”

Gaining access to consumer information that can help target one’s marketing efforts, compared to the relative secrecy of the iTunes model which shares almost no consumer info with artists, may on its own be enough of a reason to embrace the thoughtful and strategic addition of streaming to your own music marketing and distribution plans. No matter what side of the argument you take, it seems clear that music streaming and music access will be one of the most important drivers of music discovery and consumption in our lifetimes. DIY artists, songwriters, and labels music not ignore it.

Special thanks to Brandon Dill and Christopher Wentworth for sharing their own recent research into music distribution and streaming which helped to inform this article.

Keith Hatschek is a regular contributor to Disc Makers Echoes blog and directs the Music Management Program at University of the Pacific. He’s also written two music industry books, How to Get a Job in the Music Industry and The Golden Moment: Recording Secrets from the Pros.

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11 thoughts on “Music streaming: friend or foe to the independent musician?

  1. Seeing that Beats Music doesn’t even pay artists anything whatsoever for streams generated by consumers during their trial membership…

    I’m obviously not too much a fan of the current setup. It’s a race to the bottom and the independent musicians are going to hit it first.

  2. This is really a collective bargaining issue that needs to be taken up soon. Unfortunately, the unions have interests in some cases that don’t coincide with an individuals rights. In recent times, I know, some of the collective bargaining organizations tried to align their membership with some of the industry sponsored legislation being proposed. I was sent a petition to sign by SAG/AFTRA and they are aware of some of the experiences I’ve had in the entertainment industry. I was beyond insulted. And, quite frankly, they are pretty insane in some of their policies. Most of their contracts are so huge. Anybody who has bargaining power has their negotiators. So, that outlook is going to have industry wide and organize collective bargaining. Streaming is a blessing to us all. It eliminates so many people to pay out too. That may be holding you back anyway. The slutty jealous receptionist, the pervert in the boardroom, etc. etc. It goes on for days in this industry. And, most of that will just be gone. And, you’ll keep a larger percentage. Hallelujah!

  3. You have misrepresented the limits of the exclusivity of copyrights in free streaming services. Like a mechanical license in an underlying composition, a compulsory license is available for services that are not on demand. You are correct in stating that it takes an understanding of the law and legal issues to fully comprehend copyrights and the limits of exploitation and ownership. Legislation creates the need more legislation to remedy the unforseeable consequences of the first.

  4. I have to admit our independent record company’s experience with Spotify was a complete waste of time with regards to both royalty payments and the opportunity of achieving more publicity through their streaming service…

    That said; iTunes Match streaming service was even worse where the ratio royalties they paid on the number of plays was laughable. So of the two Spotify pays out more than iTunes Match, though to be fair iTunes is the best supporter of Independent artists when it comes to download sales.

    Nevertheless not all online digital stores are equal, when we discovered one UK online digital store that also has a branch in the States, refused to pay any royalties on sales of our new single, and had to be blacklisted. The lesson to be learned is to be extremely careful whom you upload to when it comes to streaming or getting online digital stores to sell your new album.

  5. There is either a typo or there is something wrong with the math on this part of the article:

    A per song stream on Spotify pays .006 to .008 cents, while the single song royalty rate for a songwriter on iTunes is .091 cents. That’s more than 100 times the streaming payout. Or put another way, it takes 166 streams to equal one digital track sale.

    Read more: Music streaming: friend or foe to the independent musician?

  6. You talk only of mega artists! I have had nearly 40,000 streams of my records world wide and have seen only a few hundred $. The streaming services are making tons of money on our backs and the basic streaming royalty must be raised. And why is there no comparison to regular radio? That is the fairest comparison for royalty rates. And streaming is HUNDREDS of times less than radio! They should pay at least a penny every time a song is streamed. Corporations raping the artist again, just like the old record company model! This must stop.

  7. My company fully embraces streaming services. We have embedded Spotify players into our website so our fans can listen to their favorite artists from our website and the artists earn royalties at the same time. We also share Spotify playlists through our social media sites every month.

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