Wednesday, December 28, 2011

Spotify's Royalties Actually Greater Than Radio

Spotify logo image from Bobby Owsinski's Music 3.0 blog
OK, here's a surprise. An article by Billboard magazine cited some interesting research by David Touve, an Assistant Professor of Business at Washington & Lee University who has long studied the music industry. The study found that Internet streaming, specifically Spotify, actually pays a higher royalty rate than radio airplay.

Touve found that a spin on terrestrial radio results in royalties that range  from $0.000186 to $0.000372 in the U.S. and from $0.0004 to $0.0007 in the UK (at current currency rates). That's not much, is it?

Now consider that Spotify pays about 0.3 cents per stream (an estimate based on Billboard sources and media reports), which is 16.1 times greater than $0.000186 and 8.1 times greater than $0.000372.

There are a couple of differences though. Radio royalties feel bigger because so many people listen to radio. On-demand royalties feel small because relatively few people use services like Spotify. Also, the way radio royalties are shared makes a big difference in how much you earn.

The way that works is that ASCAP or BMI is paid a huge lump sum by the broadcaster for the right to use that organization's member's music, and it's then divided up between writers by taking a survey of national airplay. The more plays you get during the survey, the more money you get....maybe. The trick is that it all depends on the time of day, the market, and how many plays you get during the survey period that determines how much is in your royalty check. If you happen to get a big amount of plays either before or after the survey period, you probably won't get credited for them. And to make it even worse, ASCAP and BMI have different ways of weighting the different types of plays, so you make more from radio airplay from one, or television broadcast from the other. One of the benefits of streaming is that you know the exact number of plays and where they come from (or at least you should).

That said, with restricted playlists and decreasing airplay due to stations converting to news or talk, it's harder and harder to make any dough from radio airplay, even if the royalty rates were even.

Okay, so the cash cow of the music business is turning out to be thin and sickly, so what else is new? If you were in music to make a ton of money, you're in it for the wrong reason anyway. To real musicians, producers, execs, and all manor of other people working in the biz, it's all about the music; any money that comes in is a bonus. If you don't have the passion for it, go be a banker and make some real money.

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David Gaines said...

This would be a fair comparison and thus a cogent argument if traditional broadcast radio were a legitimate source of revenue for independent songwriters/composers, but it never has been and is increasingly less so. The situation is even worse for jazz and classical people. Let me clarify.

I'm a classical composer. A look just now at my December digital streaming royalty statement includes stream rates from Spotify ranging from 9/100 of a cent ($0.0009) to 9/10 of a cent ($0.0090). The average is a little over 2/10 of a cent ($0.0022), which I suppose fits in with your "about 3/10 of a cent" estimate, but it's still not exactly encouraging. For us, comparing Spotify with traditional radio is pointless since only a small handful of radio stations surveyed by performing rights organizations (ASCAP/BMI) even play music written after World War II, let alone music by living American composers like me.

A more relevant comparison would be between Spotify and the listener ACTUALLY BUYING the music. For example, if you buy my "Music For Winds" album as a CD, I get several dollars at a minimum (depending on where you buy it). Even if you buy just one track as a digital download, I still get about 64 cents (iTunes, Tradebit, Rhapsody, CDBaby, etc.). Do the math: with the Spotify model, someone would have to listen to one of my tracks (on average) 291 times in order for me to earn 64 cents from it. It's the same for everybody - rock, hip-hop, or classical. But the numbers are worst for us because they've always been the worst for us, because this culture of ours has never been able to grow an appreciation base for contemporary art music above the size of a small cult following, with very rare exceptions (Philip Glass, John Adams, Henryk Gorecki's Symphony No. 3).

The answer, I'm afraid, is not as simplistic as saying "well, you shouldn't be in it for the money anyway." Sorry - we who have spent literally decades training/studying/practicing/working/creating, at a very high financial cost (not to mention the emotional, physical, and social costs), in order to be able to practice this profession at the highest artistic level possible, do not do this simply as a hobby or merely to spread musical joy wherever we go. We are hardly out of line in wanting some sort of rational remuneration for our efforts. I doubt that accountants, physicians, attorneys, architects, etc. would take kindly to being told that they should pursue their profession for the love of it and that it's unseemly for them to want to be compensated for what they do, let alone actually make a living at it. Musicians have to put up with this constantly. It will not change until the public at large starts valuing music, which they claim to love so much (sincerely, I have no doubt), above $0.00.

SpotiDJ said...

@DavidGaines My latests statements show a rate of $0.0068 per stream. A little better, still not much. But a more important factor in my view is the number of streams. 10 million users in 12 countries may look like a lot but that's just 2,9% of the market. In the US Spotify has just started. Once streaming really takes of I expect the number of streams to explode.

Bobby Owsinski said...

The payments per stream are all over the place, which is why everything is averaged. I've yet to hear a good explanation as to why different royalty rates exist.

David Gaines said...

@Bobby Owsinski When you hear one, let me know. It might have something to do with how much of the track you listen to before turning it off or moving on to something else, but that's just a guess.

@SpotiDJ The argument I've heard is that the loss of income is made up by exponentially more people streaming. In other words, to follow up on what I said above, 291 people streaming my track but not paying for it instead of 1 person buying that track. And then that track will continue to generate income every time someone listens to it, unlike the one-time purchase.

That sounds nice but I have yet to see any evidence that points to such a huge increase in the number of people listening to the kind of music I (and a lot of other people) write. I don't see a major increase in Spotify users resulting in anything other than my getting a few more cents, at best. I'd rather people just buy it if they really want it. Then they can listen to it wherever and whenever they want, whether or not they have an Internet connection.

The other, less quantifiable problem is that Spotify feeds the American obsession with convenience, immediacy, and self-gratification at the cost of two things. The first (and this is quite important in the classical music world) is sound quality. We're talking about compressed streaming audio with reduced dynamic range and lack of clarity/definition at both extremes of the frequency range. This is OK for casual listening or for auditioning a sample of something, or for most pop music that even its creators consider to be basically disposable and part of the latest fashion trend, but doesn't cut it for a massive orchestral symphony or, for that matter, for a double bass and piano sonata. Also, who listens to Spotify through a proper stereo system? The kind of music we write becomes pointless when it's only ever heard through a tiny pair of earbuds that can't handle the dynamic range or a cheap pair of 3" external speakers that can't handle the frequency range (even with a so-called "subwoofer" added to computer systems...don't get me started about those).

The other thing that fades away with the Spotify model is that when you have access to everything - and for free, to boot - you essentially have a commitment to nothing. Classical music requires time (my first symphony is 35 minutes long and I DON'T want you listening just to one movement of it), it not infrequently requires patience, and it requires an agreement on your part that you will engage your brain and get it to struggle with the music if necessary. It's not unlike being in a gallery of modern art in that respect. "Classical music" is not a synonym for "easy listening," although you might think that it is because of what occurs to most people when they hear that phrase.

We need listeners who are willing to engage for the long haul with what we produce. Buying what we produce is one way of demonstrating this. It's also a way of demonstrating - since, in a capitalist economy, dollars are votes - that they approve of it, want it to be a permanent part of their lives, and want to do something to help the creator keep on creating. I'm afraid Spotify, which is understandably built mainly on the needs of the music-as-fashion world (referring to every piece of music as a "song" makes this pretty clear), is making that even more difficult than it always has been anyway.

Mr. King said...

David Gaines,

I have started up your "Music for Winds" on Spotify just now, as I head to sleep.

Here's a question: aren't you able to have your music removed from Spotify? That is to say, if you think it's a rotten deal, don't you have the option to mot have your music available on Spotify?

Mr. King


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