Music Royalties Inc.
Musicians Say Streaming Doesn’t Pay. Can the Industry Change?
Services like Spotify and Apple Music pulled the business back from the brink. But artists say they can’t make a living. And their complaints are getting louder.
The heart of musicians’ critique is how payouts are distributed. In Britain, more than 150 artists signed a letter asking Prime Minister Boris Johnson for reforms. In the U.S., a new advocacy group, the Union of Musicians and Allied Workers, is demanding higher payouts.Credit...Jon Han
By Ben Sisario
When the pandemic hit last year, the British singer-songwriter Nadine Shah saw her income dry up in an instant. The concert bookings that sustained her vanished and, at age 34, she moved back in with her parents on the northeast coast of England.
“I was financially crippled,” Shah said in an interview.
Like musicians everywhere who were stuck off the road, staring into the abyss of their bank accounts, Shah — whose dark alto and eclectic songs have brought her critical acclaim and a niche following — began to examine her livelihood as an artist. Money from the streams of her songs on services like Spotify and Apple Music was practically nonexistent, she said, adding up to “just a few pounds here and there.” So she joined other disillusioned musicians in organizing online to push for change. Last fall, Shah testified before a Parliamentary committee that has been taking a hard look at the economics of streaming, raising the prospect of new regulation.
“If we got paid a meaningful income from streaming, that could be a weekly grocery shop; it could contribute to your rent or your mortgage when you need it the most,” Shah said. “That’s why I felt compelled to talk about it. I saw so many artists struggling.”
“When it went to Parliamentary inquiry, I felt like doing a fist pump,” Nadine Shah said. “I felt like, finally, people are listening to us.”Credit...Ollie Millington/Redferns, via, Getty Images
Shah is one voice in what has become a grass roots referendum on the music industry itself. In Britain, more than 150 artists, including stars like Paul McCartney, Kate Bush and Sting, signed a letter asking Prime Minister Boris Johnson for reforms in the streaming economy. In the United States, a new advocacy group, the Union of Musicians and Allied Workers, has waged a guerrilla campaign against Spotify, demanding higher payouts. The terms of record companies’ contracts with artists, like royalty rates and ownership of recordings, are under more scrutiny than ever. Even streaming’s fundamental accounting rules have been getting a fresh look.
The artists’ demands are threaded with anger and anxiety over the degradation of creative labor. But the musicians face long odds. Despite solidarity among many older and independent artists, the most successful current pop acts have largely been silent on the issue. And while many musicians paint Spotify as the enemy, the shift to streaming over the last decade has returned the industry to growth after years of financial decline.
“This whole thing is a punt,” said Tom Gray of the band Gomez, whose dissections of streaming on social media, labeled #BrokenRecord, gave the movement a viral identity. “Can we seize a moment to make an argument, to capture people’s imaginations about a problem that we’ve had for years, and is getting worse?”
A Business of Pennies (and Fractions of Pennies) Artists’ complaints about streaming are as old as streaming itself. Soon after Spotify arrived in the United States in 2011, musicians began combing through their royalty statements, raising alarms about the fractions of a penny they received for each click.
Back then, streaming was an unproven model. Now, with Spotify, Apple Music and services from Amazon, Tidal, Deezer and others, it is the dominant mode of consumption, making up 83 percent of recorded music revenues in the United States. Spotify, which now has 356 million users around the world, including 158 million paying subscribers, paid out more than $5 billion to music rights holders in 2020.
The heart of musicians’ critique is how that money is distributed. Major record labels, after contracting painfully for much of the 2000s, are now posting huge profits. Yet not enough of streaming’s bounty has made its way to musicians, the activists say, and the major platforms’ model tends to over-reward stars at the expense of everybody else. With more music being released than ever before, they say, it has become nearly impossible for any artist who is not a star to earn a living wage.
“To me, we’re not in a period of expansion,” said Damon Krukowski of the group Damon & Naomi, who is a founding member of the Union of Musicians and Allied Workers. “From an individual perspective of musicians, it has just been a downward trend of the rewards for our labor.”
Damon Krukowski of the group Damon & Naomi is a founding member of the Union of Musicians and Allied Workers.Credit...Jordi Vidal/Redferns, via, Getty Images
Part of the dispute is over streaming’s basic economics. Spotify, Apple Music and most other major platforms use a so-called pro rata system of royalty distribution. In this model, all the money collected from subscribers or ads for a given month goes into a single pot, which is then divided by the total number of streams. If, say, Drake had 5 percent of all streams that month, he (and the companies that handle his music) get 5 percent of the pot — meaning that, effectively, he gets 5 percent of each user’s money, even those who have never listened to his music.
This system, critics say, favors artists with mass appeal. Features like playlisting (where songs are selected for curated lists with sometimes gigantic followings) and algorithmic recommendations, they say, also contribute to a network effect in which popularity leads to more popularity, putting niche genres at a disadvantage and extending the gulf between music’s haves and have-nots.
Industry estimates put Spotify’s payout rate for recordings at about $4,000 per million streams, or less than half a cent per stream. Since that money may pass through a record company before making its way to an artist, hundreds of millions of streams may be needed for a musician to net anything substantial.
The Union of Musicians and Allied Workers have called on Spotify to pay one cent per stream, which may be impossible under Spotify’s current model — the company says it pays about two-thirds of its revenue to rights holders, and that amount is dependent on how many users and streams the service has at any given moment. Spotify also has a free tier that allows users to listen to music with ads, which reduces the average amount that each listener contributes to the pot. Apple, which does not have a free tier — and is warring with Spotify over antitrust issues in Europe — seized this opportunity to say that its Apple Music service pays an average of about a penny per stream, counting payments for both recordings and songwriting.
In March, Spotify released an online report, “Loud & Clear,” meant to provide detail about its payment structure and respond to musicians’ calls for transparency. It became a Rorschach test over the company’s role as an industry paymaster.
To Spotify, the report was proof that its payments are robust, and that a growing number of artists are earning substantial sums. Last year, 870 artist catalogs generated more than $1 million in payments, nearly twice as many as had done so in 2017, the company reported; Spotify paid out $100,000 or more for 7,800 acts.
According to Spotify, the music of 57,000 acts make up 90 percent of monthly streams on the platform.
“All the numbers we are seeing lead us to feel very confident that this is a less hit-driven and less star-dominated industry, one that is much more supportive of niche genres and niche fan bases,” Charlie Hellman, a vice president at Spotify, said in an interview.
To many artists and critics, those same figures told a different story. The number of artists that generated more than $1,000 was 184,500 — but since there are more than six million artist profiles on Spotify, that means that about 97 percent of them failed to reach that level. Spotify counters that only 472,000 artists have crossed a certain threshold of professional activity, which the company defines as having released more than 10 tracks and drawn more than 1,000 monthly listeners at some point in 2020; 5.6 million artists have never released more than 10 tracks in total.
But even among that subset of presumptive professionals, at most 39 percent of them earned $1,000 last year from Spotify.
Do Labels Share the Blame? In October, the British Parliament’s Digital, Culture, Media and Sport Committee opened an inquiry on the economics of streaming music, and the hearings — with aggressive questioning of tech and record executives — have riveted the industry. Its report is expected in coming weeks, and speculation has bounced around industry inboxes over what recommendations, if any, the committee will make.
In an interview, Kevin Brennan, a Labour lawmaker who has been an outspoken critic of streaming, said the committee might consider “whether this is an industry where there is a case for some kind of independent ombudsman or regulator to look at whether the industry operates in a fair manner toward the musicians and consumers.”
Some of the harshest testimony has focused not on streaming services but on the major record companies. As critical as musicians are of streaming, they often save the worst for their record labels and the terms in their contracts, like royalty rates and the recoupment of costs, that can keep artists’ accounts in the red for years. And the ownership of their copyrights? Just ask Taylor Swift or Kanye West how important that is.
From left, Brett Hite and James Sunderland of Frenship. The duo credited Spotify with turning their song “Capsize” into a streaming hit.Credit...Blythe Thomas
One example of this tension is the Los Angeles pop duo Frenship.
In 2016, the group, featuring Brett Hite and James Sunderland, had a breakout hit with “Capsize,” recorded with the singer and songwriter Emily Warren. Frenship released the song independently, and it was quickly added to a prominent playlist on Spotify. “Capsize” notched 40 million streams in 10 weeks, yielding $150,000 in payments, the group said. “Spotify gave us our career,” Hite said in an interview.
Then the group signed with Columbia Records, which started a radio promotion campaign around “Capsize.” The song failed to crack the Top 40 of the Billboard Hot 100 chart, but it remained a steady streaming success, now at about 570 million clicks on Spotify. The band declined to disclose specific details of its time at Columbia — in its separation agreement with the label in 2018, it agreed to confidentiality — but Hite encapsulated his time in the majors with an anecdote about shopping for a car in the months after “Capsize” took off. “I’m looking at BMWs, and then when I start doing the breakdown I ended up leasing a Honda CR-V,” he said. “I’ll let that be the narrative for where our hit song got us.” The group is now preparing its next release independently. Columbia declined to comment.
Despite artists’ gripes about their labels, contracts at the major record companies have been evolving steadily in recent years in ways that benefit performers. Joint-venture deals and shorter commitments are now more common, according to music executives, lawyers and artist managers.
And the all-important royalty rate is going up, too. A study by Steven S. Wildman of Michigan State University in 2002 that looked at hundreds of major-label contracts from that time found that, on average, artists getting their first contract from a label were offered royalty rates of 15 percent to 16 percent. Speaking to the Parliamentary committee in January, Tony Harlow, the chief executive of Warner Music UK, said that since 2015, the company’s royalty payments to artists have “raised from 27 to 32 percent.”
That may be cold comfort for older acts that are stuck with lower rates. Eve 6, the alternative-rock band whose 1998 hit “Inside Out” has over 100 million streams on Spotify, is not recouped on its original contract, and so earns nothing from streams of that song, said Jon Siebels, the band’s guitarist.
Can the Streaming Economy Be Changed? Online campaigns by loose coalitions of musicians would seem like long shots. But they have already made more progress than expected, gaining the attention not only of Parliament but of Spotify and Apple. Last month, responding to years of pressure from the music industry, Spotify raised prices on some of its subscription plans in the United States, Britain and Europe, which could result in slightly higher payouts to musicians (but only slightly). And some proposed changes about the economics behind streaming have been taken up. Last month, SoundCloud moved some artists to a user-centric royalty plan — an alternative to pro rata accounting that some in the industry, including many artist groups, see as a fairer and more transparent system.
Instead of dumping all the money from users into a single pot, the user-centric model segregates what each user contributes and then distributes that money based only on what that person listens to. Proponents say this model pays out streaming income more equitably, helping smaller acts. For example, a fan who listens only to jazz would see their money go only to jazz artists, not to pop stars. When SoundCloud announced its change, it highlighted some independent artists whose monthly payouts, it said, would increase by as much as five times.
Yet as with some other proposals favored by musicians, like a switch to “equitable remuneration” requested in the recent letter to the British prime minister — a program that would give some money to artists directly, rather than going through a record company — the user-centric model faces some opposition in the industry. As critics see it, the plan would have minimal impact and would actually be less transparent, resulting in a confusing situation in which one artist’s million streams would be worth a different amount than another artist’s.
And in any redistribution plan, there will be winners and losers. The losers under user-centric would most likely be pop stars. Who wants to tell Ed Sheeran or Drake they are going to make less money?
For many artists, the campaigns have already received far more attention than they ever expected, which may be encouragement enough. “When it went to Parliamentary inquiry, I felt like doing a fist pump,” said Nadine Shah. “I felt like, finally, people are listening to us. People are taking this seriously. We just have to keep up the momentum.”