Tag Archives: Spotify

STREAMING MAKES MORE MONEY! THE DATA IS IN!

digital-music-report-UBJ*280In the great streaming royalty debate, the focus has been on tiny royalty rates per stream. Artists are up in arms, many are opting out of streaming services, and the noise and debate has been growing louder. Lost in that noise is a voice that is seldom heard: that of the record companies. There’s good reason for that: they’re making more money from streaming and the future looks extremely bright for them.

Buried in the Christmas Eve edition of the Wall Street Journal (which is itself a day to bury news) is a short column by esteemed writer Ethan Smith. And buried in HIS column (not the lead paragraph, but 8th paragraph) is the vital important nugget that shapes the future music business:

Data reviewed by The Wall Street Journal showed that one major record company makes more per year, on average, from paying customers of streaming services like Spotify or Rdio than it does from the average customer who buys downloads, CDs or both.

OK…let’s quickly digest this. On a per-consumer basis, a major record label makes more money from streaming services than any other format. This might be a figure to look at skeptically if these services barely reached a million people, but worldwide streaming services generated $1.25 billion dollars this year and Spotify alone has over 24 million active users (which jumped massively in the last week with app installs up 4x over the previous week). But how much more is being earned?

The average “premium” subscription customer in the U.S. was worth about $16 a year to this company, while the average buyer of digital downloads or physical music was worth about $14.

Let’s take a look at that. Year over year, the premium subscriber was worth nearly 15% more than the person who bought music either digitally or physically. So, if there’s more money to be made in the streaming hills, why are so many artists unhappy? Because the artist has to rethink the business on multiple levels.

IT TAKES LONGER TO MAKE MORE MONEY
As Ethan points out, it took an “indie pop/rock group” 34 months to make more money from streaming than they did from sales. Some artists will do it in less time, and others in more time. Either way, the artist has to take the long view. It’s certainly easier and much better to run a music business with the money coming in quickly with an up-front sale. However, if you believe in your music and have patience, the long run pays off. In this way, the recorded music business will quickly resemble its partners in publishing. In another way, with many artists being financially irresponsible, is it so bad for them to get their money slowly over a prolonged period?

THE MONEY GOES TO MORE ARTISTS THAN EVER BEFORE
A person buying $14 worth of CDs a year has the money going to 3 artists at the most (3 CDs x under $5). A person buying $14 worth of downloads a year has the money going to maybe 18 artists at the most (18 downloads x $.79). However, $16 worth of streaming revenue conceivably goes to as many as 3,200 tracks (3,200 streams x $.005). Even if you take an assumption that a person does 100 listens of one artist in a year, that’s still spread out over 32 artists in a year, or nearly double the max average for download sales. As I’ve reiterated before, the real issue facing artists with streaming is that the very access that allows them to make money means the pie gets sliced thinner. There’s more money, but it just goes to more artists.

THE SONG HAS TO LAST A LONG TIME
Disposability of a song only works if you work it extra hard while it’s hot. If an artist/song takes 34 months to make more money, then the song needs to be relevant for those 34 months. No longer can you stiff a consumer who buys something and only listens to it a couple of times. Now, those listens need to reoccur and do so over a prolonged period. This also means continually marketing content to ensure it stays relevant.

Longtime readers of my book Futurehit.DNA have already been making music that plays into these trends. I’ve been predicting for years that music revenues will be based more on repeatability, and that is now taking firm root. Those who embrace these new realities are more likely than others to rise above the mass volume of music released and are poised to thrive in this new age of the music business.

ROYALTIES SUCK, MUSIC SALES ARE DOWN, PIRACY IS RAMPANT AND OTHER LINK-BAIT TERMS FOR MUSIC PUNDITS

The royalties artists get on streaming services are pitiful! Mere slivers of pennies and a million plays barely buys you a pizza. These need to go up because music sales are in the toilet. Did you see that iTunes sales are down 1% this year? Panic in the streets! The real scourge is piracy which, a decade on, is still left unchecked and easily found with a Google search! So, your music is being stolen, not being purchased, and then devalued heavily on streaming services.

Sound like a familiar refrain? Sure, many artists and music business pundits have been spouting off about this stuff for awhile now. As well they should to keep the debate healthy…and grow their own business. Wait, say what?

A new MIDEM white label report called Content Marketing In The Music Industry, put together by UK agency Venture Harbour, found that those are the Top 3 topics to generate social sharing and backlinks to the author’s site.
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This is not a surprising finding to me. I’ve tried to write on some issues that I felt were intelligent and important and even downright helpful to the artists and the industry. Yet these posts seldom get close to the traffic I receive when I talk about Spotify royalties.

In a lot of ways, this is a variation of the “Culture Of Fear” that permeates news broadcasting. If you watch the evening news, you’d think we’re living in some of the most violent and dangerous times. Instead, Chicago has the fewest murders since 1965, New York’s murder rate is the lowest since the 50s, and that we are likely living in the least violent time in mankind’s history.

This is not to say we should be complacent about artist rights and royalty rates. This is the music business, after all. It’s just that in the aggregate whole, things are much better than what pundits are saying. It just seems that it’s in their best business interest to continually tell you otherwise.

DAVID BYRNE: GREAT MUSICIAN, TERRIBLE MATHEMATICIAN

The latest anti-Spotify editorial screeching around the internet is David Byrne’s editorial on why he’s taking as much of his music off Spotify as he can. As an artist who owns their music, he’s totally within his right to do so. His personal reasons to do so are ones I can certainly respect. However, his public forum explaining his reasoning is full of gross inaccuracies, misrepresentation and bad math. In fact, this isn’t even the first time he’s used bad math to prove a point. Believing Byrne’s anti-streaming diatribe can be harmful to a musician’s own future earning potential. Let’s look at the facts.

Most of the misinformation is found in the fifth paragraph where Byrne mentions several previous artist posts about streaming revenue. To correct each point:
Damon Krukowski’s payouts for “Tugboat”, a 25 year old song that was not originally a hit, largely focused on minuscule songwriting revenue, while Byrne is referring to royalties from the master recording. Once again, an artist uses most people’s lack of knowledge of the different revenue streams to forward an anti-streaming agenda.
• David Lowery’s widely-distributed blog post on Pandora also referred specifically to his songwriting revenue. See: previous bullet point. Plus, I debunked this here.
• The number of streams quoted by Byrne to make minimum wage for a group of four people comes from data that is actually four years old. Based on royalties rate my own label receives, the figure in 2013 would likely be around 75,447,280 streams a year. This is 68% lower than the figure Byrne mentioned, and while still a large number, the decrease is an indication that Spotify’s royalties are improving as adoption increases.
• Similarly, based on Byrne’s presumption of a 15% royalty rate, each Daft Punk member would earn close to $42,000 each for “Get Lucky”, not the $13,000 Byrne claims. But the 15% is likely a very low figure considering that Daft Punk’s record was the subject of a major label bidding war that certainly resulted in both a high advance as well as a higher royalty rate.

The rate that I used for the above math is $.00533 per stream, which is the blended worldwide gross royalty rate for Spotify that my label personally received for all recordings in a sample month from 2013. The rates for each song vary depending on how many plays are from subscription vs. non-subscribers. The rates also vary greatly from country to country, which can be as low as $.002 in countries such as Poland and Estonia, and get as high as nearly a full penny per stream in many of the Scandinavian countries with large adoption rates.

One of the issues artists need to wrestle with in a new streaming world is their ability to attract a global audience. If our music catalog were only attracting a US audience on Spotify, our rate would actually be lower than our overall royalty average. However, we’ve been able to have music that attracts people throughout the world which raises our overall rates. This also occurs with iTunes revenue, which typically pays out at higher rates in first world countries than the US does.

Another issue is the need to have a large body of work. I have been an advocate of artists releasing more music more often. This both creates more opportunities for revenue as well as more possibilities for a song to become popular enough to sustain an artist. Complaining about Spotify’s royalty rates and focusing on individual song examples rather than whole artist catalogs is a classic misdirect. It’s similar to when news media describe a trend, yet focus on one individual’s story (as outlined in Barry Glassner’s great book ‘The Culture Of Fear’). Saying that each member of Daft Punk only got $13,000 for one hit song sounds scary. Yet add in the streams from the other tracks from the new album, and then add in the new Spotify streams for tracks from previous albums that almost always occurs with new hits (not to mention the correct math). Even with Byrne’s likely incorrect assumption of a 15% royalty rate, each member of Daft Punk is likely to be receiving over $500,000 this year. Each. Just from Spotify. Music royalties are part of the reason that Celebrity Net Worth cited the duo as the #2 richest electronic DJs in the world.

But part of Byrne’s doomsday scenario is a world envisioned by Spotify dominance. For my label, Spotify only represents 15% of all digital revenues, and gets smaller when other income streams are factored in. Logic would dictate that as Spotify’s percentage of sales increases with us, so would the amount of streaming because they also would bring along more music listeners. In the last year, this has indeed been the case.

Byrne, however, points out that he’s concerned about tomorrow’s revenues, stating that if Spotify’s growth continues, there won’t be other sources of revenue. A very similar argument made around similar technology shifts such as the advent of radio. Yet my royalty statements include revenues from brands such as EMusic, Nokia and Myspace, all brands that have been left for dead. The future will certainly see the royalty percentage mix shift, but it will likely be one where some people stream, some download, and they’ll all do it on a variety of different types of sites around the world.

The real issue is the larger question that Byrne addresses about the overall effect free and cheap streaming has. But the issue is really about supply and demand. Spotify as a whole is paying out hundreds of millions of dollars yearly, which is a net positive for recorded music. But even with the claim that 4 million songs go unplayed, there’s still tens of millions that are, which means the collective pie of revenue is spread much thinner than it ever has. The good news is the new music business allows more artists in. The bad news is that most get paid less because the pool doesn’t grow proportionally.

The fundamental issue an artist has to deal with is not one of royalty rates, but this simple concept of supply and demand. If any service, download or streaming, is going to have millions of tracks at your fingertips, than there is an overabundance of supply. The only way to make money is to increase the demand by a significantly higher factor. By this simple definition of business, music is in the volume business game. Those who are able and willing to play that game are reaping enormous benefits.

The other way to combat supply and demand is by creating diversified revenue streams. Each artist I’m currently working with has a different mix of what those streams look like. But the important thing is that while there may be one dominant player in one revenue stream, that doesn’t mean that this is all recorded music revenue streams. Our label generates revenue from download sales of singles, download sales of albums, streaming transactions on demand, streaming transactions in radio players, online licensing revenue, sync revenue, performance revenue, direct sales from band websites, road sales, advertising, and even physical product.

So, in a way, I’m thrilled when artists choose to take their music off Spotify. Because in a small way, this limits the number of songs that may take attention away from songs in my catalog. We are still in the throes of a very disruptive period that is clearly resulting in winners and losers. There are many successful artists, both commercial and creative winners, who are not complaining about royalty rates. They are focusing on making amazing music that is desired by many people the world over. Rather than Byrne’s comment on the internet sucking “all creative content out of the world”, what’s actually happening is artists are finding even more creativity to succeed. Because that’s what artists do. Those that focus on improving their craft and growing their body of work are finding varying levels of success. At that point, the math starts to take care of itself.

IS STEALING MUSIC REALLY THE PROBLEM?

Once again, the issue of stealing music and its moral/financial/ethical arguments are dredged up. And once again, most people miss the overall point, causing the collective issue to dig a deeper ditch while those who’ve moved past it (i.e.: major labels) are busy raking in the dough in the new music business.

Yeah, you heard me. It’s 2012, and now the neophytes are actually many indie artists (not all) while the smarter ones tend to be concentrated at major labels, thereby strengthening their power.

What started this was a post on NPR’s website by an intern named Emily White who admitted to buying very little music in her life but owning a lot via various levels of legality. This led to an impassioned response by Camper Van Beethoven/Cracker frontman David Lowery, who eloquently argued for the ethical and moral obligations Emily should have towards these artists and how stealing music has dramatically impacted their financial lives. This post has sprung up impassioned responses by, among others, Bob Lefsetz and a manager who is also, coincidentally, named Emily White. People have dug in their heels and have spilled many hours defending and vilifying both sides.

Yet lost in this discussion is one important element. Facts. Because if you’re going to argue that stealing has impacted your business, you should actually prove that…y’know…a lot of people have actually stolen your music.

Google, as the worldwide leader in search results, is a strong indicator of actual file trade demand. In fact, industry watchdog Moses Avalon argued such this week at New Music Seminar. Yet, when I went to look on Google Insights to see the level of demand for free music by David Lowery’s group Camper Van Beethoven, the message I get is, “Not enough search volume to show graphs.” This basically means, from what I can gather, that less than 50 people per month in the entire world are even showing intent to steal his music. Statisticians basically refer to this as essentially zero. Technically, the same search terms for his band Cracker show some potential thievery intent at work. However, if you actually searched these terms, you’d find most people were actually looking for a program to crack site passwords, and if they were looking for music they were more likely intending to steal the music of Uncle Kracker, who might actually have a legit beef on music stealers.

None of this is to say that I’m naive to think nobody is stealing music. Far from it. I just don’t think they’re stealing the music of the majority of artists bitching about thievery’s impact on their business. The statistics don’t bear it out. At my panel at New Music Seminar, Musicmetric CEO Greg Mead pointed out that file trading is actually decreasing in recent months. This echoes what fellow panelist Russ Crupnick reported in NPD Group’s “Annual Music Study” back in March when they reported that P2P site activity decreased from 19% of the internet population in 2006 to 13% last year.

Respected blogger Cory Doctorow also noted last month that a summary of over 20 different papers on file trading shows very little impact on sales from file trading. Drew Wilson, the author of the summary, got his results from such “fringe” groups as The Wharton School, The Journal of Law And Economics, and The Journal of Business Ethics. The most interesting line in the summary to me is this one:

Judging by the evidence we’ve collected, the evidence does not point in the direction that file-sharing, in and of itself, displace sales, but rather, other factors would also play a role in displacement of sales.

The primary “other factor” is the fact that there are too many artists competing for shrinking dollars, largely due to the shift from albums to singles. Despite the economic number that David Lowery quoted of the number of professional musicians falling by 25%, if you took “album releases” as an indicator, it seems like the number of pros has increased. In a decade, we’ve gone from about 30,000 albums being released to over 77,000 last year. And that’s just albums going thru legit channels. The problem, as noted by Chris Muratore of Nielsen on the previously noted New Music Seminar panel, is that 94% of those releases sold less than 1,000 units. Indicators that I have examined showed those low sales aren’t because of people stealing them. They come from too many releases causing most people to not even realize they are out. For example, 80s rocker Lita Ford has a new album that came out yesterday. As of this writing, it’s the 91st most popular new release on Rdio. How many of you have the patience or time to sift thru the other 90 releases to get to #91? Let alone decide to even put in the effort to steal it? Whether you were going to listen to it or not, I’d be willing to bet that almost everyone reading this found out that Lita Ford had new music from this paragraph. Stealing it is even further down their priority list.

And now that you know Lita Ford has a new record, what are you going to do about it? If you have a remote interest in her music at all, you’re most likely going to listen to it on a perfectly legal source such as YouTube, Spotify, Rdio, Mog, Rhapsody or Slacker. Why? Because I bet you caught yourself subconsciously saying that it would be quicker and easier to stream it and see what it’s about there than finding a site to steal it from, let alone having the downloads clutter your hard drive. Guess what? This is what most people do now. Having a download on a hard drive…single or album, purchased or stolen…this is the 2012 equivalent of “buying a CD with one good song on it”. People are smart and will legally stream something before any sort of ownership decision solely because they don’t want their hard drive cluttered with music they don’t like. And guessing by the demographic of my readership, I would also guess most people just want to check out what Lita is up to and have no intention of any sort of ownership. The music would have to be mind-blowing to shift the decision from “let’s see what she’s up to” to “I need to own this”.

So while all these independent artists argue thievery, do you know who’s winning? Major labels. This week, of the top 100 tracks on Spotify, only 6% are on independent labels. Major labels have figured out that the game is about exposure and awareness, two things that they are actually quite good at. It’s not about royalty rates, thievery, or even quality of music. It’s all about how I get people to know I exist. Major labels aren’t ignoring file traders, but they have moved past how much of their day they concern themselves with it. Instead, they focus on putting energy behind making music that the public wants and marketing the shit out of it so it rises above everyone else. While you’ve spent the last few years claiming the major labels are “dinosaurs” who are going to be “out of business”, they’ve actually become stronger behemoths who are more progressive than you realize.

As for the quality of their music, that’s a subjective opinion. And it’s no more subjective than the independent artists who have figured out how to make a big business out of the new music business. Artists like Tyler Ward, Kina Grannis and Alex Day, amongst others, are making six figures a year in the new paradigm. They struggle to get respect from traditional media because they’re not considered cool, credible musicians. Yet they run rings around the businesses these so-called cool bands deliver. Why? Maybe it’s simply because they deliver the kind of music more people want nowadays. As far as I can tell, they spend not a minute worrying about the money they don’t make and instead spend time making more money from the sources that do pay.

I agree ethically with David Lowery’s assessment. A person who spends extra to protect migrant workers in a third world country but takes money out of musicians’ mouths is a hypocrite. Emily White should stop complaining about wishing for a Spotify-like service and actually…y’know…subscribe to Spotify. But for actually succeeding in 2012, it’s the wrong argument. The biggest problem that David Lowery has to face is exemplified by Zach, the 24 year old New Media indie label guy at the end of Bob Lefsetz’ response post to Lowery’s “screed”. When told by a co-worker that David is the founder of Camper Van Beethoven and Cracker, he replies, “Not sure what either of those are…”

DISTRIBUTE MUSIC EVERYWHERE OR PERISH

Distribution is king in any industry. Musicians seldom pay attention to how their music gets distributed, and that holds back many a career. We can talk about DIY methods and how you can now sell music yourself and how great those profit margins are. The truth, though, is people like to go to the stores they like to go to. If you’re there, they will consume. If you’re not, they will move on. If you’re halfway in, it could be even more damaging.

I’m reminded of how important this is not from a mistake an indie artist made, but actually one made by a major label. This week, Rhino Records tried something new that seems very intriguing. They created Single Notes, which are short, quick e-books on music subjects. As an avid reader on all things music, I was ready to jump in. To get things started, they offered a free book on a musician during CBGB’s heyday who didn’t quite make it. A forthcoming book on Duran Duran written by my former co-worker Lyndsey Parker was also one I would avidly read. So I fired up my Kindle app and was ready to download.
Except for one problem…when I clicked to buy my free book, it told me my Kindle wasn’t registered. Funny, it was registered last week. While the book is technically available on the Kindle, it turns out it’s only available for the Kindle Fire and their Android App. The other books in the series suffer from the same shortcoming. While I have the iBooks app and can just as easily get it there, I don’t use that app. So what do I do? I abandon the idea of getting this book, I retain a negative connotation to the whole series, and I’m telling you about this shortcoming.

But it’s not just me. As of this writing, on the free book’s Amazon page, the book’s reviewers give it 1 1/2 stars in only 24 hours. It was coming from 88% of the reviews giving the book 1 star. The thing was…none of those one star reviews were from people who read the book. They were people frustrated that they couldn’t get the book on their particular Kindle. As one reviewer put it, “This is the rare double bank shot in annoying your customers. Rhino and Amazon deserve all the negative comments.”

Plausible explanations don’t matter. This series now has a deep hole to dig out of, even if they rectify the problem immediately. And the problem is simply that they are not distributing the content in the format that the consumer desires it in.

At least we have to give them credit for having it in the Kindle platform, albeit in a restricted form. Musicians and labels are routinely withholding their music from various platforms. All that means is that you have exponentially decreased the odds your music would be discovered, and you have completely eliminated your chance of collecting royalties from that service. I’ve started a new weekly blog/playlist of the top new singles released that week. I found that people want to hear all the new tracks, but want to listen in the background instead of actively spending time clicking play on each one.

But here’s the problem. I use Rdio as my guide to find the new singles. When I go to recreate the playlist on Spotify or on YouTube, only 75% of the titles are available. That means, 25% of the artists who could’ve had some exposure get none.

So when you consider your distribution service, look to who has the most outlets, not who’s the cheapest. When you’re uploading a track to YouTube, think of all the other services you should also upload it to and take the time to do it. When you’re taking music off of Spotify because you don’t like the royalty, consider that unless you’re Adele, you need the distribution more than you need the money.

Distribution is a pain, but it’s a necessary mountain to conquer if you want to hack your hit. If you can take the time and make sure you’ve got your music in every corner you can put it in, your chances of getting your song to success will increase dramatically.

PATIENCE PAYS FOR SPOTIFY ROYALTIES

For several months, I’ve heard a lot of complaints on how little Spotify pays indie artists. So I was kind of surprised that very few picked up the story that Spotify is actually, well, starting to pay indies more.

Evolver.FM said that a confidential report from Merlin (the indie label trade organization rights agency) is showing strong revenue growth from Spotify. The reason is an increase in subscribers and usage overall. One would also suggest that the Facebook integration is starting to show up in royalty statements in recent months as well.

As an indie label owner, I get the pain of small micro payments. But I also get the concept of patience. We all dream that our song will be released, spread like wildfire, and generate huge instant digital revenues. Lately, Bob Lefsetz has been promoting the idea that great music finds its audience no matter what, further reinforcing a false notion that great things are instant successes.

But let’s take a look at one of the biggest songs of 2012: Fun’s “We Are Young”. This is the Google search trending for the song over the last year. The song was released in September 2011. This critically acclaimed song produced…barely a ripple. In fact, it didn’t do much until the spike in December which was the result of appearing on the show Glee. Then it dropped off, though maintained a higher popularity than before the show. But it wasn’t until the use in a Super Bowl ad that everything kicked into high gear and the upward ascent began. This popular hit did not go viral out of the gate. It took traditional TV placements for people to see it.

The success occurred because everyone was patient. In fact, the band’s manager Dalton Sim said as much in a Billboard cover story in March.

From my perspective, the success comes from the hard work the band, Nettwerk Records and Fueled by Ramen have put into the band for the last three-plus years to develop a real fan base.

So when it comes to services like Spotify, it appears that patience just might pay off as well. At one point, YouTube didn’t pay anyone. Now they are a top revenue driver for many artists. Financial success at any level is not an overnight story for artists or companies for that matter. However, working towards those greater successes can yield bright futures for all.

UPDATE: As Jim Mahoney of A2IM pointed out, Merlin is not a trade organization, but a rights agency.

DISTRIBUTION IS KING

Who is more powerful:

A food manufacturer or the supermarket that shelves the food?

A clothing designer or the department store that decides to carry the clothes?

A musician or the store that carries the music?

The distributor carries the power. You may not like it, but it’s a fact of any business. If you don’t want to accept that this is the order of the world, then don’t go into business.

A story a friend once told me. Around 1994, Pepsi wants to enter the bottled water market. Everyone said they’d never succeed because the market was dominated by Evian and Perrier. Also, nobody would want purified tap water over spring water. They entered the market anyway. Within a few short years, they owned the market. Coca-Cola belatedly launches their water brand in 1999 to catch up. As of 2009, Pepsi’s water brand, Aquafina, was still the #1 selling bottled water in the US.

How did Pepsi succeed with arguably a product that is not as “high end” as spring water brands? The answer was distribution. They leveraged every supermarket and convenience store to make sure their water was available. If they’re not in the store, they can’t sell. If they can’t sell, they don’t lead the market.

Another story. I was working with a musician who was slowly building up DIY success. Steady increases of download sales every week. In one week they sold the equivalent of what they had sold the previous 26 weeks combined. Why? A store featured them on the front page. Distribution wins.

Distributors are more successful because there are less of them and it’s harder to create. He who offers something of high demand that is hard to find will win. One can fight to get more money from a distributor, but only when one has the leverage. Only 3 companies really have that leverage in the music space. Only a few dozen artists really have that leverage in the music space. But even then, you can only get a bit more money. The distributor will always get bigger bucks.

If you’re in this to make money, realize the distributor will be more successful than you no matter who it is and move forward.

IT’S NOT SPOTIFY’S FAULT, PT. 2

The debate on Spotify has continued in recent weeks as mainstream press has been covering the fact that big artists like Adele and Coldplay are holding back their releases since they believe it cuts into sales. For their part, a Spotify spokeswoman says there’s “not a shred of evidence that holding back downloads cannibalizes downloads”. There’s probably not enough evidence yet to support either argument convincingly, but it’s not the real issue. To find that, we need to step back for a second to look at the business from 30,000 feet.

I’m a big fan of the book The Curse Of The Mogul. Authors Jonathan A. Knee, Bruce C. Greenwald and Ava Seave discuss the historical facts of disruption on many businesses and how it relates to the modern entertainment business. One important idea is that when the walls of distribution come down, with access comes devaluation. In recent weeks, I’ve come to fully embrace this as the root cause behind artists’ displeasure at perceived royalty rates.

The first clue came in a recent Businessweek article where three anonymous music executives said the average person spends $60 a year on iTunes. Since Spotify and other subscription services charge $10 a month, this means the revenue per consumer should double. Sounds like great news for the music business. While I know that the “average” won’t literally double, let’s just go with it for the sake of this example, and keep in mind that what I’ll outline is therefore a “best case” scenario.

If the average person is spending $60 a year on iTunes, it stands to reason that they are spending it on a minimum of 4 artists (4 albums x $15 price tag for deluxe albums) and a maximum of 87 artists (87 singles x $.69 discount price). Realistically, most people will be smack in the middle having bought a couple of regular $9.99 albums and a few singles at the $1.29 premium. If narrowed down to a month, on average the most someone would spend money on is 7 artists.

But how do we know how many artists get heard on Spotify? Well, we can make an educated guess by looking at the Facebook streams of playlists. This is admittedly unscientific, but will highlight the issue nevertheless. I examined what 10 random Facebook friends of mine listened to on a variety of subscription services. They ran the gamut from one person who listened to only one album to someone who listened to over 400 songs, which included albums, singles and playlists. What I found is that the average person listened to 3 songs per artist.

Data on how much people are listening to subscription services on a monthly basis is not available enough to get an exact reliable statistic. However, looking both anecdotally online and from my own personal knowledge, the average person is likely listening to 10-15 hours a month. Using this statistic, we can deduce that people are listening to somewhere between 40 artists (120 songs (5 minute song average x 10 hours) divided by 3 songs per artist) and 100 artists (300 songs (3 minute song average x 15 hours) divided by 3 songs per artist) per month.

In an iTunes world, the average person consumes music by, at most, 7 artists a month. In a Spotify world, the average person consumes music by, at least 40 artists a month. So in the best case scenario, even though the dollar pool has increased by 2x, the number of artists the payouts are distributed to has increased by nearly 6x. Given that this is the best case scenario, the figure is almost certainly higher than that. In a dollars and cent perspective, while the average artist grossed as little as 69 cents per person in iTunes revenue, the average artist probably grosses no more than 25 cents in subscription revenue.

The reality is that the very thing that gives indie artists access to subscription distribution is what is keeping the royalty rate low for everyone. The pool to increase payouts per artists not only doesn’t exist, it CAN’T exist without raising the price of subscription to a price-prohibitive rate of $50/month or higher. The only other potential solution would be to create a service that excluded access to many artists to allow existing artists to obtain a larger chunk of the royalty pie. This would give services a gatekeeper role not unlike current physical music retailers. Many artists would certainly complain because they were kept out, but the ones that did get in would be happier with a more reasonable rate.

As a new independent label owner, I actually welcome all the artists and labels keeping themselves off Spotify. It actually allows for an opportunity for us that are on these services to command a larger slice of the royalty pie. However, don’t think of Spotify as being cheapskates. The truth is that as an unknown artist, if you want access to the big game, you must understand that until you’re popular that it comes at a (lower) price.

IT’S NOT SPOTIFY’S FAULT YOU MAKE SO LITTLE MONEY

In the last few days, chatter has grown in the indie community about pulling releases from the new (to the U.S.) music subscription service Spotify. The complaints largely stem from miniscule royalty checks at lower rates than majors receive. Spotify has responded to the complaints but that only seems to add fuel to the fire. What is the real issue?

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PANDORA AND SPOTIFY ARE NOT COMPETITORS

Last week, Pandora announced their first post-IPO earnings report. They did post a loss, but they had higher revenue than Wall Street expected. This was not only good news for Wall Street, but also for artists and labels who get royalties from Pandora airplay.

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