How Much Do Streaming Services Pay Artists? Ask the Labels
-- How much do streaming services pay artists? It's a question that has been asked a lot lately of services such as Spotify, Mog, Rdio, Rhapsody and even iTunes. And it has led to some good debate about some important topics. But the question itself is pointless.
The biggest problem with the question is that it cannot be answered accurately. The most obvious reason is because subscription services do not directly pay artists. In the digital music supply chain, at least one intermediary exists between a streaming service and an artist. There is no right and wrong in the existence of this sort of supply chain; it's just the way business works. Webcasters have a more direct route to artists because SoundExchange pays artists and labels separately. The supply chain for on-demand services operates differently.
Subscription services need be concerned only with paying the rights holders with whom they have negotiated licensing deals. In his Billboard guest post, Rhapsody president Jon Irwin was right to say he "trusts" artists are getting paid. Subscription services simply cannot get involved in the details of artists' contracts with their record labels. They should worry about delivering a great product and paying the rates that have been negotiated with rights holders.
How much money artists ultimately are paid for streams or purchases depends on a number of factors such as royalty rates, ownership and contractual terms. A streaming service could only answer the first one: royalty rates. A service strikes a deal with rights holders to pay them a certain amount - per-play or percent-of-revenue - for streams or downloads of their music. The latter two factors, an artist's ownership of the master recordings and its contract with its record label and distributor, are outside a streaming service's jurisdiction.
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If an artist owns the master recordings (and effectively acts as its own record label) the only intermediary between subscription service and artist is the distributor. All distributors take a cut of some sort - either a flat fee or a percent of sales. Or the artist can license the recordings to a record label. In either case, what the artist receives in streaming royalties depends on the agreements with partners such as these.
The royalty picture gets more complicated if an artist is signed to a label. What Spotify, for example, pays to artists is entirely between the artist and his or her label. And what the label pays the artist vary from deal to deal. Details of artist contracts change over time, so what a newer signee receives may differ from an artist signed five years ago. Rolling Stone's Steve Knopper took a good stab at the royalty breakdown this week, but even his attempt was too simple. Ask 10 different people what Spotify or YouTube pays and you're likely to get ten different answers. "It depends" is never a popular answer, but it's the right one in this case.
Underneath the question are some important issues, however. Artists and their managers are increasingly worried about the amounts being paid out by subscription services. Recent discussions have led to a healthy debate but ignore the sequence of the supply chain. And that's a good thing. But an artist or manager who doesn't like streaming royalties should take it up with the label or distributor who negotiated the deal with the streaming service.
Another topic that deserves open dialogue is the practice of subscription services paying large upfront fees to acquire rights to large catalogs of music. There is little transparency about how -- and if -- that money makes its ways to artists. Even less transparent is a scenario in which a label takes equity in lieu of cash. Subscription services could help artists if they were able to refuse equity ownership to rights holders, but they can't tell labels what to do with their licensing payments.
Asking streaming services an impossible question unfairly demonizes legitimate companies that are operating honestly. And it implies a company is hiding important information that deserves to be made public. If only it were that easy. Most services are privately held companies with no obligation to report its financial details to the public. And details related to specific contracts are especially sensitive. A direct answer can put a company in breach of confidentiality agreements. So the fact that a company won't give a direct answer should mean absolutely nothing to readers. Besides, that's why journalists have confidential sources.
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This hire follows the addition of Gerrit Meier, the former chief operating officer for digital at Clear Channel Radio who became Spotify's GM Distribution and Partnerships. Last month the company hired a chief revenue officer, former AOL and Google executive Jeff Levick, and a General Manager Asia-Pacific, former Google executive Dan Brody. In August Spotify hired Zynga executive Teymour Farman-Farmaian to be Chief Acquisition & Retention Officer ( MediaMemo)
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