A full report on MusicTank's "The Artist Economics of Streaming" event
MusicTank’s yearly streaming debate - the title for this year being “The Artists Economics Of Streaming” - took place on the 7th of April at the University of Westminster, a three-hour session packed with information as well as breaking news. The panel was chaired by Keith Harris, MusicTank’s chair and Director of Performers Affairs at the PPL.
Chris Cooke, editor of Complete Music Update, kicked off the evening with an introduction to the streaming debate. “There’s a lot of concern in the artist community around the money that is received from music consumed on streaming platforms”, Cooke stated, but the question “Are services not paying enough?” is, as documented by years worth of debate, a difficult one. Cooke remarked that most music streaming services today are loss-making and pay the majority of their revenues to the music industry. So should the attention turn to record labels and what they are paying out to artists? Cooke says “Record companies have been very supportive of streaming services even as the royalties debate exploded in the artist community" …."You may conclude that the problem here is what the labels are paying out to artists, and this debate pre-dates streaming and was all the same when it came to the splits of iTunes downloads sales.”
At the time the debate was: is a download a sale or a license?, since this has significant impact on the splits which are much lower for an artist in a sale scenario than in a licensing one. The dispute has gone legal a number of times in the US, and only the Eminem case went all the way through the courts with Eminem prevailing, and it’s still unclear whether that set a precedent as more and more lawsuits make their way into the US legal system.
But what about streaming? For Cooke the case for treating streaming as a licensing income is stronger than with downloads. For older artists that’s a legal debate due to their contracts, whilst with newer artists contract take that fully. Newer artists are also arguing that labels are taking less risks these days and should be more generous when doing splits on revenues from streaming services.
What should the split be? Cooke remarks on the fact that in spite of the debate that has been going on most artists are in favour of streaming services, but there’s a lot of confusion in the way digital deals are done and a lot of secrecy: who pays what to whom? Which streaming services do major record companies have equity stakes in? What’s going to happen to the money if and when they float?
Chris Cooke’s introduction asked some key questions that would be addressed through the evening’s debate.
Billy Bragg on streaming and discovery
After Cooke, artist Billy Bragg presented a prepared statement in response to David Byrne’s recent post discussing the issues around streaming. According to Bragg the internet revolution has had a disruptive effect on all sorts of industries, but so far it hasn’t actually killed a creative industry dead. Instead what we’ve witnessed are the latest chapters in a series of technological evolutions.
Byrne in his piece had compared streaming on-demand to over-fishing ultimately drying out the “musical sea", but Bragg commented that unlike fish-stock which is finite there will always be a market for creativity, he said: "With all this upheaval of the industry content is still king, and there will be ways for innovative artists to make a living."
Bragg believes there is still a big problem when it comes to discovery, something companies like Spotify need keep working on, he said: “Spotify’s Discover option often recommends you your own music collection, the other day it recommended myself” … "We need to develop new methods to aid the discovery of new acts." Bragg also talked about the role artists themselves play in the discovery of new bands: “By reaching out to my fan and talking about why I love this music my fans will be inclined to go and explore it.”
His key question was: "Is it better in the long run to receive a one-off payment or to be paid every time your song is played?"
Whilst he agreed with Byrne on a few points: that artists should receive 50%, that they should have the right to to approve the user of their works by streaming sites and that there should be better transparency in accounting - Bragg argued with Byrne’s idea that there should be no free on-demand streaming since there’s no way to get that genie back into the bottle. Commenting on the idea of seeing Spotify free or YouTube go away he said: “That’s just not going to happen, and if we choose to fight on that ground [as artists] we’ll look self-serving and naive.”
Simon Wheeler and the Beggars Group’s revision of the 50/50 split on streaming
After Bragg, it was Simon Wheeler’s turn to speak - he is Director of Strategy at the Beggars Group and had a big announcement to make. Wheeler two years ago at another MusicTank streaming event first announced that Beggars had decided to pay 50% of their streaming royalties to their artists, in spite of their contractual obligations being much lower. He said: ”We thought it was important to make those royalties significant to our artists, but we’ve been always clear that we’d have to review that if streaming took off.”..."All of the costs that the label incurs; A&R, marketing, distribution need to be covered from the sales income and as the streaming income grows that needs to bear a share of the costs. We’re going to be moving away in the following months from the 50% royalty model to somewhere between the normal royalty rate and 50%. It’s a big statement but recent changes require this as streaming is 40% of Beggar’s global digital revenues.”
Later in the evening, Bragg asked Wheeler to explain the move in more detail from a commercial standpoint, wondering whether there is no economy of scale involved making it more feasible to pay 50% as streaming incomes increase.
Wheeler responded: “Say that the royalty rate is 20% and that we were paying 15% of gross to Artists, if our company’s margin is for the sake of argument 20% and we’re going from paying a 20% to 50% royalty rate to artists across the board we would end up losing money. This of course is based on the assumption that streaming will eventually take over as the main revenue stream."
The Big Picture
Paul Pacifico board member of the Featured Artist Coalition stated: "For me there’s a big picture debate to be had on the economics of streaming companies and how we account for the equities positions taken by labels: unless we understand the big picture there’s no way we can drill down to the minutia. Until we get that we can’t debate if 50, or 49 or 38% of streaming revenues is the right amount for artists.” Pacifico also pointed out that different labels provide a different level of service to artists which complicates the debate. He said: “Fundamentally, unless the overall position is analysed clearly we’re never going to understand how to perpetuate a long-term music industry.”
The YouTube Debate
Although there were no Google representatives in the panel YouTube got its fair share of negative feedback, something we’ve seen time and time again at streaming debates over the past year.
Paul Pacifico said: "Using YouTube is not really free, you submit yourself to advertising and you give up certain rights on your data.” He remarked that it’s important to differentiate between free and “apparently free” and that a debate needs to happen with artists as they should be able to take advantage of the opportunities provided by the wealth of data out there.
Billy Bragg speaking about YouTube said: “If you want to get angry about how people are using music YouTube should be the platform we should be focusing on. How are we gong to stop the leakage of copyrighted material and sort out the payments of everyone involved?" He added: “It’s been very difficult to work out how and in what form YouTube have been making money”…"Spotify however are still growing and they are being much more transparent about their numbers.” It’s also clear to Bragg that the music industry didn’t realise what YouTube was until it was too late: “It’s clear what you’re getting with Spotify, you’re getting on-demand access, YouTube was seen as a place to see cat videos, we didn’t expect it to become the giant it has become”
Referencing to the rumoured YouTube Music service, Simon Wheeler said: “We all have to think very carefully about what we do with YouTube and how much content we give them, the level of money we are receiving from them at the moment is completely unsustainable to run a business”. He made it clear that a scenario where YouTube with its own service overtakes Spotify and other music streaming services could be a real issue for the industry. Talking the YouTube Music service Wheeler commented that there are conversations happening around it but that he is absolutely certain that they don’t have all the licenses they need, subtly hinting to the fact that they don’t have a deal with his own label Beggars Group - one of the largest independent labels in the world. This alone could represent a gaping hole in YouTube music’s catalogue and delay its entry into the market.
Paul Pacifico from the FAC acknowledged the issues with YouTube but ended on a more positive note: “Hopefully there will come a time when we’ll have a better way to negotiate with YouTube”.
Accounting and Royalty Statements
Roger Lahaye, Auditor at The Royalty Consultancy spoke about statements and the complexities of new revenue streams: “Record labels are faced with tens of thousands of lines for artist statements for streams and downloads, so statements for artists are 300 to 400 pages long and this is creating problems in processing the accounting. That is now being sorted out but the individual pages no longer tell a story."
Showing the audience a few sample pages from an artist’s royalty statement, with hundreds of lines worth a few pennies each, Lahaye said: “As an auditor it’s impossible for me to go in an do anything meaningful on that sort of information, plus labels really have a hard time providing me with the exact list of transactions coming from one provider” … "We need labels to get the accounting to a point where we can do management analysis on it with some sort of meaning.”
Simon Wheeler later in the panel also remarked on the difficulty of making sense of and maintaining the data received from streaming services: “We struggle with data as we get millions, billions of lines from streaming services: that scares the life out of our IT team.” He talked about the cost of maintaining and properly indexing this data which is huge in terms of IT staff required, servers required and even electricity costs that are ramping up quickly to power those servers.
Later in the panel Roger Lahaye added: "I’m watching with interest how record labels are coping with the data problems, for small record labels it’s a huge issue. We have no idea how bad this is going to get. On a practical level there will have to be a major rethink around how data is presented.” … "Some of my artists get statements that are up to 10,000 pages and are absolute nonsense."
Talking about the difficulty in processing and making sense of that data, the idea was floated that perhaps the PPL (Phonographic Performance Limited, the UK performance rights organisation) may be able to take on some of that work to allow artists to have better visibility over those statements.
Paul Pacifico from the FAC said: "It would be impossible for independent artists to track this data [coming from streaming services] and so they rely on an array of organisations and aggregators, we feel like a collection society could act as an intermediary to provide better access to data."
But Roger Lahaye wondered: “Why would the PPL want to provide this service? What would be their return?”
Simon Wheeler added: “The PPL are a beacon of transparency so if we’re thinking about the UK I’d be quite interested in this debate but if we’re thinking about the world you gotta be careful what you wish for as other societies are nowhere near as transparent as the PPL.”
As Spotify was part of the panel Mark Williamson, Director of Artist Services at Spotify, had to endure a fair amount of grilling on a number of issues, but came out of it at the other end in one piece. Williamson started by stating: "What we tend to forget is the reason why Spotify exists a a business. Piracy, streaming online video, playing music through apps were all behaviours that the music industry was not able to monetise effectively. Spotify is essentially a way to grab people back.”
Williamson talked about how Spotify pays 70% of its revenues on content licensing, but also why that high-level number is not enough as a talking point: “... it’s not enough to talk bout these huge numbers and that’s why we’ve had the Artist Services team to work with artists, managers and lawyers and explain what’s going on."
When asked about the amount of money that is making its way to artists, Williamson said: "We don’t choose or can dictate what level of royalty the label will pay their artists. We’re not in a position to dictate if that’s a license or a sale, but what I think what we’re doing is creating extremely competitive conditions by putting money back into the industry and creating the conditions to get a record out more efficiently and competitively all over the world."
On the elephant in the room - the major’s equity in Spotify - he said "Some of the labels have an equity stake in Spotify, this was necessary due to the conditions of licensing, but it’s by no means a controlling share.” Of course on the matter of the rumoured Spotify IPO it was a polite “no comment”.
On the debate around new artists having a hard time making money from Spotify, Williamson said: "When we started the artist services team in 2011 we were arguing with a lot of people that were annoyed about new artist making money but heritage artists not making any. Yorke and Godrich's tweets last year turned that debate around, but we made some work in the aftermath of that looking at the top 100 artists on Spotify: we found that two thirds of them are in the early stages of their career. It’s not dominated by Metallica and Led Zeppelin’s catalogues."
Asked about whether Spotify would ever want to become a label or start creating content like Netflix he said that this is not in Spotify’s plans, mentioning that they have tools for a DIY artist to come to the platform direct, but that Spotify’s core business is about monetising users effectively both with advertising and premium plans. The company is releasing some content though, if only as a branding exercise: “Sure, we recorded a bunch of content at SXSW which we’re going to put out, but our goal is not to go out there and do a netflix-style House of Cards”.
Finally, Williamson was asked about the long-debated subject of streaming eating into downloads, he said: “When we talk about the debate on whether streaming is eating into downloads I have a couple of examples. In Canada you see a very similar drop-off in downloads as you see in the US and UK, but they have no significant music streaming services, same happened in Japan where there is no streaming.” His argument was that in those territories you’re seeing a decline but you don’t have a streaming ecosystem in place to start off-setting the decline, which is what is happening in most European territories and in the US.
Things that need to change...
Pacifico from the FAC remarked on questionable business practices that are persisting in the industry when it comes to digital, things like packaging deductions and deductions on breakages that make no sense. He also remarked on the issue that whilst huge heritage artists have a lot of leverage to re-negotiate their contracts and new artist will get a contract that represents the market as is right now, older artists that are not big enough to ask for a renegotiation are stuck with old deals and thus having a really hard time.
Billy Bragg also spoke on the issue of non-superstar artists, and he argued an interesting point in that regard: "Is there not a case to be made for major recording companies to give artists the right to retail their back catalogue at the same rates that the record companies give to iTunes? Giving heritage artists the right to sell their own material including outtakes would give them a chance of making an extra 30% on top of their royalty payments, getting to 40/45%. There are artists out there that would love to sell their first records from the 70s that are no longer commercially available, give them the right to do this and that would help.” A very interesting statement here, given the increasing importance of direct-to-consumer strategies - but one that will be hard to implement as labels will not want to see younger artists want in on the same deal.
Whilst industry insiders may have been debating streaming issues for years, Paul Pacifico said that at a recent internal FAC streaming debate there were still a number of even established artists in the room that are part of the FAC that just don’t understand the issues. He said that since streaming is becoming such an important part of the industry it’s becoming increasingly embarrassing for those artists to ask the basic questions.
Mark Williamson chimed in on this, remarking on the fact that in spite of the incredible press response Spotify had when launching the Artists website, when asked a room full of artists recently how many of them had visited it and only a few raised their hands. He said: "If we can’t reach the mainstream with coverage from major international publications we need to find a way to get this information through to artists with the help of the industry.”
Once again, the debate around streaming revenues is a complex one, but tonight the main strands that could be picked up were:
1) The issue of royalty splits and what represents a "fair" percentage going back to artists given that Spotify is paying back 70% of its revenues to rightsholders.
2) The issue of royalty statements and how to "condense" them in a way that makes it possible for artists to audit them appropriately and less onerous for independent labels to process.
3) The importance of a continued focus on artist education, making sure they understand at least the basics around the streaming debate.
4) How to deal with YouTube as the biggest music service in the world as it prepares to launch a music streaming service.