Grappling with the new realities of the music streaming world, understanding its workings, and finding ways to address fair compensation for artists, is a highly complex area. Professor Phil Graham’s incisive article, published in full in our Music Journal, seeks to do just that.
A suitable metaphor for comprehending the streaming business model, Graham suggests, can be found in the record clubs prominent in the second half of the 20th century. Both were big revenue generators, provided mechanisms to discover music, and aroused similar “discourses of complaint, accusation, and defence around their business practices”. Both also had a double dealing aspect which today “sees the major labels on both sides of the deal” as both shareholders and licensing bodies.
Next he observes “a striking paradox built into the system” where revenues to artists and other rights holders actually go down as subscription revenues go up. This is mainly driven by subscription fees being set, but not the amount of music a consumer can access. As more music is consumed, the set fee is shared amongst an increasing number of parties.
More importantly is where the money goes next. Graham quotes from a leaked 2011 Sony – Spotify contract demonstrating the contradictions when a party sits on both sides of the deal. The contract provides a guaranteed income to Sony and specifies a royalty rate so low that it was unlikely royalties would ever exceed the guarantee, meaning “the advances need never be distributed to artists since “actual income has no chance of equalling the advance paid by the platform”. This issue, Graham suggests, is at the heart of the remuneration problem.
To add to this complexity is the stark reality that the streaming platforms are actually currently not viable: “none of the largest platforms has ever made a profit”, even though Spotify is technically worth more than the whole US recorded music business! With an operational model that loses money, the value is in owning a chunk of the business, hence the “the major companies own around 20 percent of the streaming companies”, and in turn the motivation to sit on both sides of the table
Graham returns to the issue of paying artists fairly, and notes that in the US $480 million was paid to rights holders and for public performances in 2014. However he makes the point that the independent DIY sector are excluded from these figures, despite the fact that this sector “by now far outweighs by sheer number the amount of tracks owned by the majors.” The inclusion of the independents also give the streaming platforms their mass numbers and appeal which make them attractive to consumers. The argument to date has been that these are high volume low value transactions, often meaning no value in terms of royalty payments. But when these numbers reach the tens of millions as Graham contends, it’s clearly an issue.
In shaping a model that delivers viability to artists Graham suggests that all represented artists add to the value of a platform, and therefore all should receive some form of return. He also suggests a change from the “advance and recoup model currently in place” to one which more realistically reflects each parties costs, investments and income generation.
The article concludes with the proposition that only with complete transparency and all participants being rewarded for the value they bring to the platform can artists be fairly remunerated.