Who is Getting Rich from Streaming: Part 5 of the Music Streaming Debate

August 3, 2016

Part 1

Part 2

Part 3

Part 4

 

At the crux of the anti-streaming argument is that certain people or companies are getting rich on the backs of under-compensated artists. This narrative frequently goes that technology companies (pure streaming services or tech companies that use music as a loss leader for hardware or advertising), their CEOs, and their investors are getting wealthy while artists are losing revenue.

 

We never hear a comparison between the compensation of major label executives and streaming service provider leadership. We never hear the details of what percentages of advances or equity that go to labels from streaming services and whether that form of compensation reaches respective artists. When industry analysts are calculating each fraction of a penny per stream making it to artists, are they aware that a substantial payment has been made to the label long before any music has been streamed… or that a substantial payment will be made once a streaming company is sold or releases equity in the form of an IPO? Will artists on that label see any financial gain from advances or equity deals? While many are quick to point their fingers at the streaming services, the economics may be such that major labels or publishers have already locked in their profit.

 

Furthermore, industry analysis of the economics of streaming rarely goes into the contracts that artists have signed with labels. Artists may have taken label advances against future streaming royalties and other sales. Artists may see paltry streaming royalties because they already got paid by their label. Or maybe because their label is not transparent with them about their share of streaming revenue.

 

Spotify pays out between 70-80% of gross revenues to labels and artists.

 

In addition, there is a generation of independent artists who never took advances nor sold their rights. Though they do not expect large payouts from labels, when they do find success within the world of streaming, they keep 100% of the royalties generated from streaming their songs. They are not comparing their revenue to the days when physical sales were stronger and do not see streaming as cutting into a higher margin revenue stream. For these artists, streaming is the product, not a low-priced product undercutting a previous revenue stream.

 

Arguments that streaming pays too little to artists do not account for the specific agreements between artists and labels (such as advances) nor between labels and streaming services (such as advances and equity deals).

 

Continued next week in Part 6

 

 

Dmitri Vietze is the founder and CEO of rock paper scissors, a music and tech public relations firm.

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The Music Tectonics podcast goes beneath the surface of the music industry to explore how technology is changing the way business gets done. The podcast includes news roundups, interviews, and more. Our host is Dmitri Vietze, CEO of PR firm rock paper scissors.

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