The new music royalties

by on January 29, 2013 at 10:19 am in Economics, Law, Music | Permalink

I’ve covered this before, but here is another update on a rapidly-evolving story in cultural economics:

Even for an under-the-radar artist like Ms. Keating, who describes her style as “avant cello,” the numbers painted a stark picture of what it is like to be a working musician these days. After her songs had been played more than 1.5 million times on Pandora over six months, she earned $1,652.74. On Spotify, 131,000 plays last year netted just $547.71, or an average of 0.42 cent a play.

Here is more, and you will recall that the streaming services don’t seem to be making money either.

Todd January 29, 2013 at 10:38 am

Ms. Keating makes all of her money summer touring, like most avant cellists.

Nicoli January 29, 2013 at 11:58 am

Yeah, I wonder what Ms. Keating makes overall, including her summer touring and how that would have compared to a more traditional business model through a record company.

Doug January 29, 2013 at 2:12 pm

The only sustainable business model in the music industry is touring and concerts. I’m convinced that within 30 years virtually every musician will freely release their work as basically an advertisement to see them in concert.

Brett January 29, 2013 at 8:36 pm

It’s got the same problem as the “streaming royalties” pay-out, though – the only people making good money off of it are the handful of big stars. Most artists are lucky if their concerts and touring actually net them money on average, instead of just letting them live hand-to-mouth on the road as they travel and play.

I guess that would just be music returning to its pre-copyright form, though. Some artists might make good money, but most would just be traveling and living day-to-day, hoping to break-out or get a chance to make a song for somebody on commission.

Enrique January 29, 2013 at 10:40 am

If artists are primarily moved by non-market motives, why should we care about this? Won’t her fame in one domain create a new set of market opportunities for her in other domains (e.g. concerts, albums, etc.)?

RPLong January 29, 2013 at 2:01 pm

Exactly.

The D-man January 29, 2013 at 8:36 pm

Yes, but the new markets may not be as profitable as the old. On the margin this will result in fewer musicians who even bother.

sam January 29, 2013 at 10:53 am

All the more reason to soak up this golden age of cultural consumer surplus while it lasts.

Michael Josem January 29, 2013 at 10:54 am

Counting “per listen” royalties seems absurd – the equivalent figures for traditional radio have got to be fractions of a cent.

What are the equivalent figures if you count how many people listen to traditional radio, and count each play as X,000 listens (because X,000 people listen to each broadcast) ?

Urso January 29, 2013 at 11:12 am

Plus, what are the odds that she would’ve gotten 15 million listens on traditional radio? I can’t imagine avant-cellists get a whole lot of love from Clear Channel. Maybe a couple of college radio stations have an all-avant cellist hour from midnight to 1 am. (Followed by the all-avant viola hour?)

Rahul January 29, 2013 at 1:06 pm

The per play numbers are stupid. Most people listen to her because it is so cheap (essentially free).

Let her watch her listener pool shrink if she charged real money to listen.

prior_approval January 29, 2013 at 10:56 am

Ah, but SoundExchange is.

The money has always been reserved for the middlemen – who haven’t gone away, after all.

‘SoundExchange was created in 2000 as an unincorporated division of the RIAA. In September 2003, SoundExchange was spun off as an independent and non-profit organization,[12] incorporated in the State of Delaware. SoundExchange is exempt from taxation under Section 501(c)(6) of the Internal Revenue Code.’ – http://en.wikipedia.org/wiki/SoundExchange

Note the part about being tax exempt – the artists pay tax on their money, but not the people granted the legal authority to collect money on their behalf. Just another example of how art is subsidized in the U.S.

And let’s look at just how much tax free money SoundExchange has ‘earned’ – ‘SoundExchange has announced a major milestone of $1 billion in digital royalty payments to recording artists and record labels since its inception in 2000.’ http://thenextweb.com/insider/2012/06/18/us-rights-body-soundexchange-announces-1bn-in-digital-royalty-payment-to-artists-and-labels/

But SoundExchange gets a cut – ‘Like other royalty collection agencies, there is a small administrative fee taken out of the overall royalty pot, but bands or labels do not see a charge on their statements.’ http://futureofmusic.org/article/fact-sheet/soundexchange

What is interesting is that no one can easily see just how a big a cut it is, from an organization which is also happens to be exempt from antitrust laws too. And further note that the record labels are being paid – SoundExchange being originally a part of RIAA, 50% goes to the sound recording owner, which translates to the label in just about every case.

And a good jumping off place to find out how SoundExchange was able to stash a cool hundred million bucks can be found here –

‘But, as we’ve noted in the past, supposedly nonprofit collections groups such as SoundExchange (a spinoff of the RIAA) are notorious for not finding artists to pay — even some of the biggest names in the business. Oh, and did we mention that if the royalties go “unclaimed” the recording industry (via SoundExchange) often gets to keep the money? Given that bit of info, it’s perhaps no surprise at all that P2Pnet is noticing that SoundExchange’s own tax returns note that the nonprofit was sitting on over $100 million at the end of 2007, a pretty significant leap over previous years, and a somewhat startling sum for a supposed “nonprofit” in charge of both collecting and distributing funds.

It seems like those musicians sure are difficult to find.

The P2Pnet report also points out that it will be interesting to see how much SoundExchange has spent on lobbying efforts. SoundExchange is actually barred from lobbying the government, but has been ignoring that for years by funding musicFIRST, a recording industry lobbying group that’s trying to add a new license for radio stations to pay (collected by SoundExchange, of course) by claiming that radio is actually a form of piracy.’

http://www.techdirt.com/articles/20090323/0029504212.shtml

Nylund January 29, 2013 at 10:58 am

And how much does Tyler earn every time someone reads one of his blog posts?

Point being, there’s an analogous story for bloggers, but the reaction is usually quite different.

The Original D January 29, 2013 at 9:03 pm

Not a good analogy. The cost of producing a quality recording is much higher than a quality blog post.

billb January 30, 2013 at 8:22 am

Yeah, but the value to the reader/listener is about the same.

dan1111 January 29, 2013 at 10:58 am

Apparently the old joke is more relevant than ever:

Q: What is the difference between a musician and a pizza?
A: A pizza can feed a family of four.

Alexei Sadeski January 29, 2013 at 10:59 am

$.42 per listen sounds like a LOT. Imagine if artists received that much during the golden age of radio (even adjusted for inflation).

This is more about cellists than anything else. At $.42/play, I imagine that popular artists are being compensated quite handsomely!

Alexei Sadeski January 29, 2013 at 11:03 am

I meant $.0042 of course :)

David K January 29, 2013 at 11:16 am

Not sure if this is what you meant, but it’s $0.0042 per listen (.42 cents), not $0.42 per listen (that would be iTunes-level income after just one play!).

That said you make a reasonable point. To make $100k you’re looking at 23.8 million plays. Justin Bieber’s “Baby” has 825 million Vevo views– if he got this royalty rate, that would be $3.5 million just from Vevo. A world in which everyone who ever wanted to listen to the song was paying $.0042 per listen (note that surely the vast majority of listens to Bieber have been through radio/iTunes/CDs, and not Vevo) in perpetuity would actually add up to quite an income– though it’s a question whether it would add up to his $150 million total gross.

Or, to put it another way, 131,000 listens=$547.71– what would be the usual royalty rate for a song played once on drive time radio in a single major metro and never heard of again?

Xmas January 29, 2013 at 12:47 pm

If the song was played on the radio, the artist would get no money at all. The songs composer would get a small royalty payment though.

TJ January 29, 2013 at 11:53 am

It is .42 cents per play, that is $0.0042

I suppose the CD era meant good money for the artists? Though the anecdotes of bankrupt but successful bands and artist’s song rights being given away etc. indicates a different story.

I guess the real question is, would Ms. Keating have made more money being an avantgarde cellist if Spotify didn’t exist?

Leigh Caldwell January 29, 2013 at 11:15 am

Abstracting from comments above, perhaps the internet radio industry is simply not yet big enough. If the costs of music production are unchanged but listenership and revenues are low, it’s no wonder there would be no sustainable living to be made out of it.

More subtly, even if listeners to online radio are a significant fraction of the numbers for traditional radio, this may not be enough to make the numbers add up. Local advertising, the mainstay of radio revenues, is likely to have fairly high transaction costs. If there aren’t quite enough listeners in any local area to generate enough revenue to pay those transaction costs, the model may simply not work. I’d imagine that internet radio could have 25% of the audience of traditional radio and still not be able to profitably sell local ads.

If this is true, we’d expect to see a tipping point where internet radio reaches enough people to pay those transaction costs, and suddenly revenue would leap. There wouldn’t be much profit (or money available to distribute as royalties) at that point, but all marginal growth after that point would have a disproportionate impact on profits, and that’s when royalties might take off.

libert January 29, 2013 at 11:16 am

That comes out to $0.0042 per play for Spotify and $0.0011 per play for Pandora. That difference is a factor of 3.8. Why the big discrepancy between royalties in the two services?

Stickfigure January 29, 2013 at 11:52 am

Pandora fits into a different regulatory niche. You can’t pick specific songs to play, and there are restrictions on how many times a song or artist can repeat within a specific time frame. It’s supposed to be like radio. They pay license fees to SoundExchange.

Spotify lets customers listen however they want, but they negotiate licensing fees with record labels directly.

Curt F. January 29, 2013 at 11:54 am

I’m not sure this is the reason for the price difference, but…On Spotify users can select particular songs to listen to, and immediately hear them. On Pandora, listeners select works or artists, and Pandora plays music of a type/genre/mood *similar but nearly never identical to* their selection. Thus when Pandora plays Ms. Keating’s works, it is to listeners who may not have explicitly indicated an interest in her music. Possibly, that what makes it possible for Pandora to license the music for less than Spotify.

matt January 29, 2013 at 11:25 am

How many of these artists would have existed, let alone “made a living” under any other economic model in history? More? Less? To what extent is anyone entitled to make a living from their cultural/artistic output? How many of these artists will stop making music due to the current economics of their “profession”. Are we, as a society, somehow lacking in cultural options? Is there a dearth of creativity that requires we radically alter some aspect of intellectual property law?

If there is a consensus that the society would benefit from better compensating its artists (not to mention other intellectual property producers) to what extent does this argue in favor of something along the lines of negative income taxes, guaranteed minimum incomes, some sort of base line medical care, i.e., a broad welfare framework that allows individuals to produce consumer surplus? Is that structurally possible? Where does the revenue come from?

j r January 29, 2013 at 11:39 am

Exactly. This portion in particular stands out to me:

“No artist will be able to survive to be professionals except those who have a significant live business, and that’s very few,” said Hartwig Masuch, chief executive of BMG Rights Management.

When was there ever a time where a professional musician could make a living without doing live performences?

Eric January 29, 2013 at 12:15 pm
Urso January 29, 2013 at 1:09 pm

I’d be curious to know whether if, at the damn of the recorded music industry, there were musicians who were anti-recording because of fears that listeners would substitute away from live performance. After all, buy a record once, and you can listen to it ad infinitum.

Probably not, because the sound quality was so bad back then that there’s no way that home stereos (monos, I guess) were a realistic substitute for live performance. By the time sound reproduction caught up to the point where records could start eating into live performances, the system was entrenched.

uffy January 29, 2013 at 1:41 pm

All good points/questions except this “entitled to make a living” nonsense.

Greg Ransom January 29, 2013 at 11:30 am

Think of how the composers of “Happy Birthday to You” have been robbed absolutely blind over the years by all those people singing their song and not paying for it …

http://en.wikipedia.org/wiki/Happy_Birthday_to_You

MPS January 29, 2013 at 11:31 am

Are not Spotify and Pandora and the like counting individuals listening to songs? It would therefore be interesting to compare this royalty rate to that which comes from radio, the corresponding rate being the amount a radio station pays to play a given song divided by the average size of its audience. It is not obvious to me at all that musicians aren’t making much more money per “customer” with online streaming (but maybe not; I don’t know). It might just be that online streaming is far more efficient at delivering to customers the music they are interested in.

MPS January 29, 2013 at 11:50 am

A sloppy internet search suggests to me that BMI collects about 12 cents per song from the highest-paying quarter of commercial stations. If these stations have just 30 listeners at a time then they are paying a lower royalty rate than Spotify.

Jonathan January 29, 2013 at 2:04 pm

But, as noted above, radio doesn’t play the performer anything. BMI pays the song’s author, not the performer.

*daniel January 29, 2013 at 11:33 am

Here’s what I don’t get. These streaming sites have complete control over their algorithms and their financial structure… why don’t they go get cheaper music, or even get music made for them? Start inserting that into the user streams or stations or whatever on a per-genre basis. Make it a generative process, evolutionary.

Presumably most of the cost in running a streaming site is in paying labels; why not cut out the middlemen and become your own middleman?

babar January 29, 2013 at 11:45 am

most performers wouldn’t want to sign up exclusively with one distributor when the distributors own their own listener base.

Michael January 29, 2013 at 11:37 am

The article doesn’t do a good job of putting these royalties into perspective, versus what artists previously earned.

For example, they cite typical rates of half a cent per listen. Let’s say that I listen to a song once per day, that works out to $1.825 over the course of a year. Now, if I’d payed $15 for a CD, how much would have the artist gathered? $2-3 dollars? Now, remember, the CD contains 10 songs, and under the old model, I could play it in perpetuity. However, under the streaming model, if I’m listening to multiple songs from an artist’s CD regularly, and continue to listen to it occasionally over the years, they may earn far more than they would have vice the CD sale. The streaming model thus is to the benefit of the enduring artists, at the expense of the short lived pop artists.

Ditto the earlier comments on radio plays too, I’d like to see those numbers. Also, it is quite notable that non-mainstream artists gain significantly from the new flat distribution stream, and have better access to audiences than under physical distribution models.

Also, how much value does Ms Keating derive from living her dream job? Most people would love to just sit around and play music. Many pay for the privilege, and would love the honor and prestige, however modest. Art, and artists, get significant non-monetary value. Many would say that is the point of art.

Finally, note how the new system relentlessly pays based on actual playbacks. How many people bought John Coltrane albums and displayed them, or because they thought of themselves as the type of person who listens to Coltrane, but rarely actually did? This system would seem to hurt the “prestige” artist, and reward those who actually deliver. I can understand how the truth would hurt, for many artists, but have difficulty seeing it as “unfair”.

JWatts January 29, 2013 at 12:16 pm

“The streaming model thus is to the benefit of the enduring artists, at the expense of the short lived pop artists.”

If this turns out to be true, that would be a good turn of events in my mind. There are a lot of good, but not flashy musicians that would end up much better off in the long run.

John Voorheis January 29, 2013 at 12:01 pm

Recorded music is (effectively) a zero marginal cost industry, and consumers demand for recorded music has become almost perfectly elastic. Neither of those things are changing. It seems to me that under these circumstances, $0.0042 per play is generous.

Robert January 29, 2013 at 12:12 pm

We live in a world where pop and hip hop “artists” are able to negotiate deals with the streaming services, but nobody else can.

And that’s why there’s been an overall decline in the quality of music and art. It’s all lowest-common-denominator. I’m glad I didn’t decide to make a living “pumping ivory” which was my original career goal.

MattW January 29, 2013 at 12:27 pm

She should put her music exclusively on YouTube. A pay rate of $1 or more per thousand views is common for original content.

Matt January 29, 2013 at 1:25 pm

“you will recall that the streaming services don’t seem to be making money either”

Implying that the royalties are too high, no?

But right now, Spotify offers a decent benefit for free users. I think you get about 6 months free if you use facebook to log in. That’s long enough to get people hooked, and believe me people will get hooked to the idea of having immediate access to music without having to bother with buying and managing files. The cat is out of the bag here, and the old model is doomed. Artists can either adjust to this new reality, which resembles the old reality in which the great majority of artists had to have a day job, or they can take their stand and fade away.

I expect that Spotify will start to slowly reduce free listener benefits, while perhaps modestly increasing the fees/decreasing royalties to attain a profit at some future date. In the meantime, people will just start ignoring anything that doesn’t appear on their streaming service of choice, putting more pressure on artists to take what deal they can get or have no audience.

Brandon Berg January 29, 2013 at 2:00 pm

Implying that the royalties are too high, no?

Or that the ad-based revenue model isn’t working out. Honestly, I’m surprised that they make money at all. Who clicks on those things?

RPLong January 29, 2013 at 3:49 pm

I think a lot of people are missing the point in all of this. The whole concept of paying for internet radio is a terrible business model doomed to failure.

Why? Because the minute you start charging a fee to hear a bunch of indie bands that only 5 of us care about, we are going to move on to the next 5 indie bands who offer their entire catalog of material on their website for free download.

Musicians have always relied on cartel behavior to enable their industry. You have to prevent the big clubs from playing small local (non-union) acts, because if you hire a bunch of talented 18-year-olds at $300 a night, then suddenly the fat, old guys who have been making $2000/night and up playing old Doors covers have to drop their prices down to $300. And those old, fat cartelists can’t make a living by playing music if they get paid actual market price for their work.

So it becomes all about exclusivity. The blacklists. The players’ unions. The sundry “connections” that musicians maintain in order to be the 5th opening act for Feist when she rolls into town. (Go ahead, ask your cool musician friend how he scored that gig. He’ll say, “Gee I don’t know! Lucky, I guess!”) And nobody ever stops to ask how the debut album of a debut artist reaches hundreds of thousands of copies in its first week of sales!

There is no money in music and there never has been. But cartels are always profitable.

Hopaulius January 29, 2013 at 7:46 pm

It’s interesting that musicians and other creative people expect to be paid in perpetuity for a few hours, days, or weeks of work. If they write or record a song, they want to be paid for the song and for every use and every occasion of listening to the song forever. The rest of us get paid for the work we did today, and will not be paid again unless we produce something tomorrow. On the other hand, if the creators of content don’t assert their need/desire to be paid in perpetuity, certainly those who distribute, clone, steal, etc. their work will continue to reap profits from the creators’ efforts. Creator and distributor will continue to struggle over control of the revenue stream.

Stephen January 30, 2013 at 4:04 pm

How does this compare to traditional broadcast radio royalties on a per listener basis?

Sigivald January 31, 2013 at 4:53 pm

Her albums are also on the iTunes Music Store, where she’ll get 70% (less distributor cut – cdbaby eg. promises to take only 9% for being your distributor) of the price.

Yeah, streaming doesn’t pay. Neither did radio.

Someone actually buying the album puts more money in her pocket than she’d have ever seen in the bad old CD days.

(I’ve got her latest album, and it’s quite nice. As such things go.)

Sigivald January 31, 2013 at 5:00 pm

(Also, in the article: On a 99-cent download, a typical artist may earn 7 to 10 cents after deductions for the retailer, the record company and the songwriter, music executives say.

Well, yeah, if they have a parasite record company and don’t write their own songs, the 70-some cents Apple [to use the iTunes example because it's convenient] passes on will get eaten up.

Even if the distributor takes 10% [see previous comment], that’s still 63% left to Everyone Else. Various sources suggest that the songwriter royalty on a track is in the 9-10 cent range – in this case that would leave, being generous, $.53 for “artist and label” from a $.99 track.

It’s high comedy to hear a music executive cry for the artist when it’s the record label eating $.43-47 and leaving $.07-10 for the artist…

This is why so many musicians are completely dumping big labels, and starting their own mere formality labels for their own releases.)

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diomavro February 23, 2013 at 11:33 pm

Making money like that is rent seeking anyway. Touring should be her main source of income, I imagine that the more people listen to her the higher the demand for the concert tickets will be.

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