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Author: Subject: As Music Streaming Grows, Royalties Slow to a Trickle

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  posted on 1/29/2013 at 09:15 AM
http://www.nytimes.com/2013/01/29/business/media/streaming-shakes-up-music- industrys-model-for-royalties.html?partner=EXCITE&ei=5043

As Music Streaming Grows, Royalties Slow to a Trickle
By BEN SISARIO

Like plenty of music fans, Sam Broe jumped at the chance to join Spotify two summers ago, and he hasn’t looked back.

Spotify, which began streaming music in Sweden in 2008, lets users choose from millions of songs over the Internet free or by subscription, and is increasingly seen as representing the future of music consumption. Mr. Broe, a 26-year-old from Brooklyn, said that having all that music at his fingertips helped him trim his monthly music budget from $30 to the $10 fee he pays for Spotify’s premium service.

“The only time I download anything on iTunes is in the rare case that I can’t find it on Spotify,” he said.

A decade after Apple revolutionized the music world with its iTunes store, the music industry is undergoing another, even more radical, digital transformation as listeners begin to move from CDs and downloads to streaming services like Spotify, Pandora and YouTube.

As purveyors of legally licensed music, they have been largely welcomed by an industry still buffeted by piracy. But as the companies behind these digital services swell into multibillion-dollar enterprises, the relative trickle of money that has made its way to artists is causing anxiety at every level of the business.

Late last year, Zoe Keating, an independent musician from Northern California, provided an unusually detailed case in point. In voluminous spreadsheets posted to her Tumblr blog, she revealed the royalties she gets from various services, down to the ten-thousandth of a cent.

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.

“In certain types of music, like classical or jazz, we are condemning them to poverty if this is going to be the only way people consume music,” Ms. Keating said.

The way streaming services pay royalties represents a major shift in the economic gears that have been underlying the industry for decades.

From 78 r.p.m. records to the age of iTunes, artists’ record royalties have been counted as a percentage of a sale price. 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. One industry joke calls the flow of these royalties a “river of nickels.”

In the new economics of streaming music, however, the river of nickels looks more like a torrent of micropennies.

Spotify, Pandora and others like them pay fractions of a cent to record companies and publishers each time a song is played, some portion of which goes to performers and songwriters as royalties. Unlike the royalties from a sale, these payments accrue every time a listener clicks on a song, year after year.

The question dogging the music industry is whether these micropayments can add up to anything substantial.

“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.

Spotify has 20 million users in 17 countries, with five million of them paying $5 to $10 a month to eliminate the ads seen by freeloaders.

In a recent interview, Sean Parker, a board member, said he believed Spotify would eventually attract enough subscribers to help return the music industry to its former glory — that is, to the days before Mr. Parker’s first major enterprise, Napster, came along.

“I believe that Spotify is the company that will make it succeed,” said Mr. Parker, who is also a former president of Facebook. “It’s the right model if you want to build the pot of money back up to where it was in the late ’90s, when the industry was at its peak. This is the only model that’s going to get you there.”

As the largest music market, the United States has been a critical proving ground for streaming companies, but competition is also quickly spreading globally. Deezer, a French on-demand service, has announced plans to be in more than 100 countries. And localized streaming services have also sprouted up: Anghami, for example, serves listeners in the Middle East, and the Indian music market has Dhingana and Saavn.

For the biggest pop stars, hit streams can provide substantial revenue. Last week, a Google executive said in a company earnings call that Psy’s viral video sensation “Gangnam Style” had generated $8 million from YouTube, where it had been watched 1.2 billion times, yielding a royalty of about 0.6 cent a viewing.

Many musicians whose work does not reach the top of the charts, however, are not as sanguine.

Complicating the issue, each type of service pays different rates. Pandora’s are set by law. Spotify declined to comment on its rates, but according to a number of music executives who have negotiated with the company, it generally pays 0.5 to 0.7 cent a stream (or $5,000 to $8,000 per million plays) for its paid tier, and as much as 90 percent less for its free tier.

The companies behind streaming are ballooning quickly. Pandora, with 67 million regular users, is publicly traded, with a market capitalization of nearly $2 billion, and Spotify’s investors have reportedly valued the company at $3 billion. Yet so far they have contributed relatively little to the American recording industry’s $7 billion bottom line.

In its last four reported quarters, Pandora paid $202 million in “content acquisition costs,” including licensing fees, and Spotify recently announced that it has paid $500 million in royalties since its inception. Downloads, by comparison, had $2.6 billion in sales in 2011, according to the Recording Industry Association of America.

For those whose income depends on royalties, the biggest concern has been whether streaming cannibalizes CD and download sales by offering a cheap or free alternative.

Cliff Burnstein, whose company, Q Prime, manages Metallica and other major acts, said that even if streaming hurts sales, all is not lost as long as the number of paying subscribers continues to climb rapidly.

“There is a point at which there could be 100 percent cannibalization, and we would make more money through subscriptions services,” Mr. Burnstein said. “We calculate that point at approximately 20 million worldwide subscribers.”

Metallica recently announced an exclusive deal with Spotify.

If those subscriber ranks grow, royalty rates will also climb, recapitulating a process seen whenever new technologies have been introduced, said Donald S. Passman, a top music lawyer and the author of the book “All You Need to Know About the Music Business.”

“Artists didn’t make big money from CDs when they were introduced, either,” Mr. Passman said. “They were a specialty thing, and had a lower royalty rate. Then, as it became mainstream, the royalties went up. And that’s what will happen here.”


 
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True Peach



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  posted on 1/29/2013 at 10:51 AM
The music industry - especially the recording part has been slowly and steadily committing suicide for the past 20 years.

Streaming and CD burners (especially the bulk ones) can have no other effect on the industry and the artists. There is no way that this DOESN'T have a negative impact on record (CD) sales.

Live shows are probably the only real means of income for most acts these days. Thus - the number of fans who tire of hearing the same set lists over and over. The musicians have to make money somewhere.

 

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World Class Peach



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  posted on 1/29/2013 at 10:53 AM
This is why so many older groups are touring again. No longer can they sit at home and reap the rewards of their creations.

And; to become my broken record again; along with the death of vinyl - then CD - move to digital - has come a "dumbing down" of sonic quality. What person younger than 30 has ever purchased a high fidelity sound system?

 

True Peach



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  posted on 1/29/2013 at 11:05 AM
quote:
This is why so many older groups are touring again. No longer can they sit at home and reap the rewards of their creations.

And; to become my broken record again; along with the death of vinyl - then CD - move to digital - has come a "dumbing down" of sonic quality. What person younger than 30 has ever purchased a high fidelity sound system?


"Creative marketing" has lead to the idea that DIGITAL means better. It's not true in audio, video or even cable television. For the latter, it's simply a means of cramming (by crushing the video levels) 1000 channels onto a band that use to accommodate 50.

 

____________________
Music is love, and love is music, if you know what I mean.
People who believe in music are the happiest people I've ever seen.

Bill Ector, Randy Stephens, Dan Hills and a guy named BobO who I never met - Forever in my heart!

 

Extreme Peach



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  posted on 2/6/2013 at 05:52 PM
I do wonder exactly what direction a lot of these things will move in the future.

I for one, love owning the music I like in some form. What happens when artists renegotiate a contract and all their music is pulled off of Spotify. This stuff happens a lot (music goes out of print) all those people who got used to listening to "Ramblin' Man" whenever they wanted won't be able to, because they don't own a copy...

I do realize that the general public does not care about music the way they care about sports and other things and it won't matter to them.

 

Peach Master



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  posted on 2/8/2013 at 01:50 AM
The problem I see is that except for a few niche markets/artists, consumers still can't download in FLAC and other lossless file formats. I still buy cds. When they're not made anymore I won't buy anything. Not unless I can download in FLAC. Then I guess I will make a complete switch to streaming from Spotify or another such service for new music.
 

A Peach Supreme



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  posted on 2/8/2013 at 02:36 AM
I don't know if this will be viewable outside of the UK - maybe someone can let me know - but this discussion about the joys of the vinyl album had me engrossed and very nostalgic:

http://www.bbc.co.uk/iplayer/episode/b01qkvxr/Danny_Bakers_Great_Album_Show down_File_under_Rock/

If it's viewable, there are two more - on Pop and R & B - which I can post.




[Edited on 2/8/2013 by Shavian]

 

Extreme Peach



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  posted on 2/8/2013 at 11:05 AM
I'm 27 & I still prefer to buy an actual cd. I like having the physical copy in my hands. The only time I purchase anything itunes is if someone gives me an itunes gift card, but even then I will purchase the entire album, never just one song.
 

Peach Master



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  posted on 2/8/2013 at 11:50 AM
I have purchased thousands of CD's over the years and and have an investment in a serious audio system...sound quality is important to me and sadly people growing up today couldnt care less what their music sounds like....i listen to music in my living room with CD's on my stereo system and my son listens to music in his room using his computer and speakers that cost about 10 bucks and earbuds worth about a nickel....very sad
 

A Peach Supreme



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  posted on 2/8/2013 at 01:01 PM
I may be wrong but I think that physical music media will continue to exist, at least for classical music and opera.



 

Zen Peach



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  posted on 2/8/2013 at 08:04 PM
Over 75% of new releases I purchased last year (2012) were vinyl.

 

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A Peach Supreme



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  posted on 2/9/2013 at 11:23 AM
quote:
I don't know if this will be viewable outside of the UK - maybe someone can let me know - but this discussion about the joys of the vinyl album had me engrossed and very nostalgic:

http://www.bbc.co.uk/iplayer/episode/b01qkvxr/Danny_Bakers_Great_Album_Show down_File_under_Rock/

If it's viewable, there are two more - on Pop and R & B - which I can post.

I watched this when it was aired, what a great piece of vinyl nostalgia. I could relate to everthing about it.




[Edited on 2/8/2013 by Shavian]

 

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Peach Master



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  posted on 2/12/2013 at 01:44 AM
I gotta admit, for right around ten years now, I in large part listen to freely traded live shows of the bands I like, I borrow the studio releases I like from the library and I continue to attend shows when I can......................Peace..........joe
Maybe the "Instant Live" can generate somekind of revenue for bands, I own probably 15 ABB and 10 Mule "IL's" and am glad I bought every one of them

[Edited on 2/12/2013 by crazyjoe]

 

Ultimate Peach



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  posted on 2/12/2013 at 07:09 AM
13 years or so ago everyone hated on Lars Ulrich for saying that illegal downloading of music would kill the industry. It turns out he knew what he was saying.
 
 


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