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Friday
Oct212011

How Do We Benefit From Streaming? Can We?

There’s been quite a raging controversy over Spotify over at Hypebot as musicians across the industry chime in with their opinion on the streaming service. 

Zoe Keating, Cellist and brilliant DIY musician, talks about how independant artists are treated unfairly.

         That’s it. That’s my complaint: fairness.

If Spotify would level the playing field and make the distribution equal to all artists. I would lay off (since I am sure that my constant complaints are a total priority for them!). Now, if Spotify was to make those royalties algorithm-based, they’d have my full nerd support. For example if, thanks to their ‘related’ algorithm,  people listen to small-artist X after listening to large-artist Y, then I could see that a particular play, not all of them, of artist Y could be ‘heavier’. However, if people end up at artist Y by searching for them directly, the play-weight should reflect that. Data, do it with data!
But just to pay tracks from major labels more because they are major labels, that is so OLD. Where is the revolution in that?

Four indie labels have already withdrawn from the service. Sam Rosenthal of Projekt, the most recent label to pull out, issued a public statement explaining the label’s decision bluntly:

For a stream on Spotfy…. NOW READ THIS CLOSELY….. on average $0.0013 is paid to Projekt’s Digital Distributor. 5000 plays generates around $6.50. In comparison, 5000 track downloads at iTunes generates $3487. To be clear: I am not suggesting that every stream would have been a sale at iTunes. Believe me, I understand the reality of the music business. I am providing that as a comparison for you. Let’s look at this another way: To earn the U.S. monthly minimum wage - $1160 - 892,307 plays a month are needed at Spotify. This is not a viable number for artists.  

Spotify responded to Projeckt by changing the subject:

Spotify does not sell streams, but access to music. Users pay for this access either via a subscription fee or with their ear time via the ad-supported service [just like commercial radio] - they do not pay per stream. In other words, Spotify is not a unit based business and it does not make sense to look at revenues from Spotify from a per stream or other music unit-based point of view. Instead, one must look at the overall revenues that Spotify is generating, and how these revenues grow over time.

Spotify is generating serious revenues for rights holders, labels, publishers and the artists that they represent.  We have paid over $100m to rights holders since our launch, and the overwhelming majority of our label partners are thrilled with the revenues we’re returning to them. Spotify is now the second single largest source of digital music revenue for labels in Europe, according to IFPI.

But is this current royalty structure sustainable? According to Spotify’s filings in the UK, it lost $42 million on licensing fees in 2010 alone despite a five-fold increase in revenues from the previous year. 

What does all of this mean to an independant artist? Is streaming worth the loss in income so more fans can listen to your music? Can you ever break even on streaming? Is it better to just ignore the whole deal?


Here’s how I see things playing out:
—-

1) Streaming services are similar to radio in that both benefit major labels with more money and muscle than independant bands. 
 
When it comes down to corporation-level negotiations, a DIY artist will always be at a disadvantage. Self-sufficent bands don’t have legal departments, lobbyists, consultants, piles of cash, or a fanbase ranging into the millions that can be used in negotiations. If Spotify can’t sign a DIY singer-songerwriter it’s no big deal, but if Spotify doesn’t have access to the entire Universal Music catalog, the streaming service will be severely crippled. The streaming service has to make that deal.

As such, these large entities leverage their influence and power to ensure that they maximize their benefit from negotiations. Organizations not at the table miss out.

It sucks, but I don’t see a solution to this problem without either a PRO stepping into negotiations or a coalition of DIY artists forming their own right’s group.

2) There’s no turning back,  the cloud is here to stay.

For better or worse, streaming services figured out how to monetize piracy. Judging by the success of Rdio and Spotify, businesses have made their services more appealing than piracy. Unless there is a game-changing method of piracy to replace BitTorrent, the ease of use of the cloud will continue to draw in customers. (Piracy in Sweden is down 25% since the Spotify’s introduction.)

Businesses won’t give up this revenue stream without a fight.

3) Streaming is marginally better for indie musicians than radio.

Radio was a passive music experience, with a song selection heavily influenced by who had the most cash for promotion.

Streaming/cloud services/piracy enable an active music experience by allowing curious fans to give new bands a try. It won’t pay much, if anything, but it does benefit smaller and niche bands that wouldn’t get much airplay on traditional radio.

A minor win.

4) Streaming an album is a moral dilemma.
As a fan, it was absolutely awesome to hear the new Mastodon the day it came out for free on Spotify. Now I’ve got no qualms about throwing dollars at Mastodon, I’ve bought every studio album because they’re that gravy. But. having spun the album a few times, there wasn’t any reason for me to buy the actual album anymore.

This is a mammoth moral dilemma.

Instead of Mastodon seeing my entire $10 for a digital download (minus iTunes’ cut), the money is instead spent on a subscription to an intermediate who only offers the band a fraction of the $10. The middleman (streaming) scoops most of the profit off of album before it ever hits the band.

Owch.

How do we cope with this?

5) Delaying and limiting releases to streaming is an effective compromise.

By delaying release of new material to streaming services, we ensure that super-fans who are willing to pay for a “brand-new” album actually pay for the album, while not excluding casual listeners who may convert to a sale later down the line. This is the same method of price discrimination that movie companies use; movies don’t come out on DVD/Netflix until months after they’ve left the theaters. This ensures that movie-buffs willing to pay a price premium to see a movie in theaters actually pay.

For the same reason, any b-sides, rarities or limited-edition material shouldn’t be released to streaming services as this would discourage willing fans from paying at the cost of providing the material to casual fans, who really won’t care about “extra” material.
—-

What are your thoughts on streaming?

What Do We Do About Streaming?

References (1)

References allow you to track sources for this article, as well as articles that were written in response to this article.

Reader Comments (15)

I think bands / labels should treat streaming just like radio. When was the last time you heard an entire album played on the radio? You only hear singles, and only the ones the band wants you to hear at specific times.

We should treat streaming the same way. Put out singles only, and pull them after a certain time. Since it costs $$$ for radio promoters, and nothing for Spotify, then the opportunity to be heard should be payment enough.

POINT: Don't put your entire catalog on Spotify, and pull what you have on there after a specific promotional time. I don't buy the "alternative to piracy" story; why buy the cow when you get free milk?

October 21 | Unregistered CommenterMarq-Paul

As a working musician who has watched the industry landscape change before my eyes over the past decade, I will say that things will continue to get worse before they get better...for artists, fans, and the art and medium in general.

Streaming services, in my opinion, regardless of who they benefit, are merely a stop gap overall. As Sean parker mentioned, major label revenues have dipped from a 48 billion dollar industry to a 12 billion dollar one. This is a man who has, and continues to play both sides of the war, and benefitted every time. The reality is, that for any independent artist to stand a real fighting chance at seeing any type of equality, it's going to take the entire major label platform collapsing...completely.

Looking at the way these companies are folding in on themselves, we're getting close to a single company system (though they will be legally "broken up" to avoid monopoly issues). Once this happens, it's really only a matter of time before that eventually fails as well.

The bottom line is that once music as a medium was made both free and disposable, it's almost impossible to remove the entitlement that fans/consumers now feel and return value back to the creators of the works. In some ways the playing field was leveled by technology here, the only problem is that it effects both the bloated fat cat corporations and independent musicians the same way.

October 21 | Unregistered Commentergaetano

I was wondering as lot of companies are coming with music and these companies are tying the same music songs and company...some are already free and some are paid ones.

So in the long run how will the monetization will take place when its free available to the masses.
Can someone share their views on it?

karan
www.newzmine.com

October 21 | Unregistered Commenterkaran

It's a mistake to focus only on the monetary issues with streaming. IMO the low payouts are the price of admission, allowing potential fans access to my music at no risk, right alongside the major label material.

The biggest failure of Spotify is not the low payouts but the failure to connect listeners to fans. There's no place for an artist to create a profile on Spotify, or collect fan info, or just interact. The listener is completely separated from the artist. It's the opposite of Bandcamp, which pays nothing (AFAIK) for streaming but allows artists all kinds of fan interaction options.

My guess is even if Spotify paid a dollar per play to the artist, most artists still wouldn't earn minimum wage because they're simply deluded. At least Zoe Keating has earned the right to complain -- she's built a significant fanbase. Most indie artists still haven't done the legwork.

October 21 | Unregistered Commenterscottandrew

'Spotify does not sell streams, but access to music. Users pay for this access - they do not pay per stream. In other words, Spotify is not a unit based business ... '

My question: Exactly WHY is it not a 'unit based business'? The users 'consume' the music PER UNIT, ie. one song at a time. And they choose specific songs, for which all the data is easily available and trackable.

'Spotify is generating serious revenues for rights holders, labels, publishers and the artists that they represent.' In other words, it is generating 'serious revenues' for middle-men who merely 'represent' the artists ...

Sounds like a very familiar scenario being replayed again ...

And no, I don't think it offers anywhere near the same promotional opportunities as radio. Radio presents the listener with pre-selected new songs, which drive sales of those songs if the listener wants to hear the music again.

Spotify users need to search for and choose their own music ... many users would never listen to new songs or unknown artists. Even if they do hear new artists, there is zero incentive to actually purchase the music when it can be streamed at will.

I agree with Marq-Paul's suggestion that independent artists should use Spotify for limited periods only, and for a small portion of their material.

I wrote about this whole issue here on MTT in May, if anyone wants to check it out:
http://www.musicthinktank.com/mtt-open/winner-takes-all-if-we-let-them.html

October 21 | Unregistered CommenterCatherine Hol

Frankly, I think we have come to the point where there are more talented artists creating music than there are listeners who want to hear it all.

I don't think talent was ever the limiting factor in getting radio airplay. It was 1) access to recording facilities, and 2) marketing bucks to present you to the masses with just the right spin and angle.

I hope that eventually the internet entrepreneur/tech startups will invent and deliver an *effective* way to "match up" an artist's recordings with a niche audience who would love it.

But as Scott said, Spotify and the rest are not the solution. Far from it.

October 21 | Unregistered CommenterGlenn Galen

When I'm curious about a band, the first place I go is to either google, youtube, or find their facebook fan page. Those are the websites I frequent more than all others. Which are coincidentally the top 3 sites on the web. Even if spotify became my #1 "go to" destination when curious about a band, if the band isn't on Spotify, I just go right back to google, youtube, or facebook. Within 1-3 search attempts, I'm going to find what I'm looking for in at least ONE of those places. This presents the truth that THERE ARE OTHER WAYS to turn someone onto your product, namely YOUTUBE.

I think bandcamp + youtube is a way better strategy for indie/niche artists than Spotify. With youtube, you have analytics. With bandcamp, you have direct connections to people who buy your product. Can you do that with Spotify?

Further, I think bandcamp + youtube + cdbaby/itunes/amazon is even better, because amazon/itunes is the closest thing to the walmart/target main street distribution of yesterday. It is major distribution at this point, given the way people's consumption of music has changed.

I think indies need to take a stand. Spotify is for MAJORS. It's for artists like Black Eyed Peas and Beyonce, who's massive mainstream marketing campaigns can generate a billion plays on Spotify that can yield returns in the millions. Plus, the massive back catalog.

We're the boutiques. And boutiques have to run businesses differently. It's common sense.

Check out this article on Krispy Kreme's marketing strategy, and then think about how it can be applied to indie music. http://www.usatoday.com/money/smallbusiness/columnist/strauss/2003-09-08-krispy_x.htm

October 22 | Registered CommenterDarryl Reeves

If Spotify's offering higher/favourable royalty rates/formulas to the Majors, that does suck. But at this stage it's also going to be a fact of life - one that hasn't changed in several decades - that the guys with the huge repertoires and back catalogues (and therefore a ton of bargaining power) will get a better deal than Garageband Joe and the Nobodies.

*BUT* - when I go to look at my Facebook music feed page (connected to Spotify via their FB integration), I see (almost exclusively) indie artists there. Why? Because my friends listened to them. The songs they listen to on Spotify get listed in the order they were listened to - there's no preference given to major acts there. That's as level a playing field as you're going to get. I discover more indie acts each day through my friends thanks to Spotify.

But here's the kicker - most of those tracks don't stack up to repeated listens. After maybe 2 listens I'll move on to something else, simply because X track just wasn't that good. If it was amazing, really moved me, whatever, and I wanted to keep listening to it, it'd go in a playlist and get a hell of a lot more attention - but the key problem there is simply one of quality.

No musician wants to hear this...but your music probably just isn't that good. Perhaps you need to work on your craft. Perhaps you're just sh***y. And even if you're good at what you do, there's probably someone else out there doing it better. Someone with a cooler image. Someone with a better marketing strategy. Or someone with better stage presence ignoring debates about Spotify stream rates in an age where many consumers have spent the past decade downloading recorded music for free (meaning the artist gets nothing for their CD/iTunes download anyway) - and going out and doing gigs. Building a fanbase. Thinking of new ways to add value to their product. Making crazy never-before-seen merch items to sell at a premium. Dreaming up awesome fan experiences that'd make die-hard cultists of anyone lucky enough to 'be there when it happened'.

And, most importantly - not bitching on the internet about how little money they're making from their fans. Isn't that what the 'Fat-Cat Majors' do these days?

October 22 | Unregistered CommenterLeon

Streaming is not like radio. You get to play tracks on demand. Radio plays it when it wants to, on their schedule and sometimes not at all. I agree with Sam Rosenthal, streaming is not a viable option.

October 22 | Unregistered CommenterTMD

Leon,

I agree with the majority of your points, though, its one thing to be clicking on your friends streams and liking or not liking things, buying or not buying them, however my experience comes from just that, experience. My complaint isn't that of a garageband nobody, it's one that's seen the inherent limitations of the current overall model through time from the inside of the machine.

As a musician, I've worked in major label situations, as well as indie and complete DIY situations. If you think that people are just sitting here whining and failing to do anything about it, you're mostly wrong. The overall market revenue has shrunk, the bandstand has expanded in regards to the amount of people saturating the market, and worse yet, value of the goods has been made irrelevant.

Are there a lot of Sh*tty bands out there? Yes. Absolutely. But by your standards its an endurance game with a dash of creativity, rather than one of talent, perseverance, and a fair system and community that supports all artists equally in the value of their works.

Do you know what it costs to tour nationally or internationally? do you know how much gas costs in Gernany? or how much it costs to replace a blown amp head in tuscaloosa? How about how much it costs to fill a van's gas tank over 2000 plus miles of road....and then how much a new alternator costs in spokane?

And what about all the people who don't show up to those gigs? the managers, booking agents and other personell who havent been paid in the past 4 months?

Being even in a semi professional situation is literally the life of a sharecropper. Being an amateur, you need a day job, which doesn't take kindly to people who leave for weeks on end. There was a time when there were aspects that made up for these shortcomings, they were called royalties, those are now scarce. Tour support was also something that helped, but that's all but completely extinct too...especially for less than established bands.

Has this stopped me? no. Tomorrow I will go and rehearse and in a week and a half hit the road. This is what I love, that's why I do it. It's just very hard to sit here and pretend that nothing is wrong, and that I should accept that a what was once valued no longer has value, and that's just the way it is, and I should get over it. In my opinion, that's another why there are so many shit*y bands, any self respecting, dedicated, passionate artist wouldn't allow themselves to be disrespected so obviously.

October 22 | Unregistered Commentergaetano

It's a tough call. There's so much great music I would have never heard if there wasn't a Youtube, or another free way to hear it. For instance, I was watching a Jack Daniels commercial a couple of months ago and the song that was playing in the background caught my ear and stirred my soul. I HAD to figure out who it was so I could hear more, so I just went on Google and typed in a few key-phrases about that commercial and there it was! It was The Stone Foxes, a great new bluesy band that I am a big fan of now. I put them on my Facebook, and I now follow them, and as soon as they come through my town I will be sure to see them play live and buy a shirt or CD or something. I am now a fan! I would have never been able to do that in the old days. Maybe I got a little off the exact topic but I am addressing the idea of free and easy to listen to music. Catch 22?

October 23 | Unregistered CommenterBiggerCrowds.com

There is always a problem comparing streaming to radio. With radio, you heard a favorite song/single once in a while, which hopefully got you interested enough to want to hear more, thus you had to BUY the album/single. With streaming, you can listen to the whole album for FREE. So the artist really doesn't get any payout because there's NO NEED to buy the album/single.

The other thing I laugh about is "discovering new artists." Because Spotify is a play-what-you-want service, how are you going to find new music? I've been testing out Spotify and find myself listening to the same OLD MUSIC that I know and love. I have yet to actually DISCOVER any new music!!!! With radio (and sites like Pandaora), you have no control over what is being played, so you are introduced to a lot of new music. If you like what you hear, you seek out (and hopefully purchase) more of the new artist/s. In fact, I prefer to listen to various internet radio stations that play the types of music I love, because I actually do discover new music and, purchase the recordings.

I agree that artists should limit what they put up on Spotify in order to just give a taste of what they do, and hopefully entice listeners to go out and buy more if they like what they hear. Giving it all away is just artistic suicide…

October 24 | Unregistered CommenterIctus75

My thing here has always been, this is what customers want. When in history have we EVER yanked that away. Remember that if I am "streaming" your content, I am paying you with my attention, money will find it's way to you. I've not had MP3's on my phone in nearly a year and sure as hell no CD's in my house....however i've paid over 700 dollars in concerts for bands most haven't heard....all from music in the clouds. That is most money i've spent on music in years....hmmmmm!

October 25 | Unregistered CommenterKevin King

Kevin,

So, I can appreciate your point of view from the consumer side, and maybe even a major label side of things. However, your points still don’t equate to realistic sustainability overall for the majority of artists in the world today.

First off, as far as “what customers want”, I can’t imagine any customer in any industry or market who doesn’t want their goods for free, or a fraction of the quoted market value?? I worked in sales before and during I was getting on my feet as a professional musician. Is the customer always right? Sure. Does the customer always get what they want? No. If that were the case there would be no function market system, and that’s what we’re in the midst of there in regards to the music industry.

As far as streaming and paying with your attention, that’s only half correct, maybe less. Through Spotify (not a cloud where the music is actually purchased and later accessed) only artists signed to a one of the 4 major labels (and a small cabal of huge indies) will get a shot at something even laughable in regards to a royalty (the label will see the bulk of the revenue). Everyone else is out of luck. If the subscriptions start to rise, that’s good for them, it will get a little bit better…but still a joke overall.

As far as your attention, that’s also really about ads, and if the advertisers don’t see clicks that equate to revenue from the adspace that will be pulled. On the topic of royalty, in my opinion once major artists start to see their Royalty checks start to be affected by this in a big way, they’ll be up in arms. Prince has already refused to make new music until some type of work has been done in that dept.

I think it’s great that you’ve spent more money going to shows, that’s an important part of a musician’s revenue, but alone, it’s not sustainable. First, as I mentioned in my earlier post, touring is expensive…on every scale.

Second, you can’t tour forever. Album cycle touring is grueling, it’s physically demanding, mentally exhausting and talk to any musician who’s been doing it for long enough and they’ll tell you it’s unhealthy. If you’re a kid in your 20’s with few responsibilities it can be a hoot, but once you start getting a bit older, no matter how healthy your lifestyle or great your conditions are, it takes a toll. Artists need time to decompress, to be normal humans, and to let creativity flow organically as opposed to churning out albums to suit advance, publishing, and touring cycles just to achieve a living wage.

And what about people who can no longer tour due to their age or physical limitations? Or if they have a family to raise? Are they just shi*t out of luck?

On the other side of things, there’s the monopolies that control touring and live performance. Ticketmaster, Stubhub, Live Nation etc. These are all the gatekeepers and if you manage to get out of small bars, clubs and the general chitlins circuit, you have to deal with them. Ticketmaster has been running the show for decades, and now Stubhub has made it even more insulting to the artists….who do you think makes 800% profit on a ticket sale? Scalpers…by clicking paying face value then reselling on a website.

As far as merchandise sales via touring, it can be good, but not always. There’s a good amount of overhead stuck in the production process, and as far as media, you actually have to buy your records/cds/etc wholesale from your label (if you have one). When it’s finally time to sell it, venues take a cut of that, between 15 and 25%, they can also dictate who sells it, how much you can sell and where. Traveling with merch is tough, it takes up a lot of room, and you have to pay taxes when traveling internationally. It’s funny, because when you do great early on in a tour with merch sales it bites you in the ass because you are then on the road and have to somehow get more of it…it can be a logistical nightmare.

Music and the music industry are an ecosystem, I’m not saying it’s past wasn’t full of inequality and unfairness the way things were (for both artists and fans), but we can’t just get something for nothing, in the end the art form on the whole suffers, whether the consumer is aware of that or not (or cares) remains to be seen.

October 25 | Unregistered Commentergaetano

Gaetano,

Excellent points.

October 26 | Unregistered CommenterGlenn Galen
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