Who’s Paying For The Digital Music Revolution?

At the turn of the Millennium there was a school of thought that the potential for music’s digital future would be a new dawn for writers, artists and performers; one which held the promise of a fairer deal for all, technology allowing them to be as self sufficient as they pleased.

Unless you’re like Taylor Swift that dawn has proven to be a false one. Revolutions – such as the one started by the file sharing portal Napster – are after all usually as disruptive for the subjects as the provocateurs, and without question the medium’s shift from our house to our pockets has caused plenty of collateral damage for everyone concerned.

At Swift’s lofty status there lies opportunity; micro-players and streaming services are the well marketed talent’s entry visa into the developing markets of South America and Asia. Yet to be fully saturated, these infrastructure-lite territories are ones in which America’s sweetheart has an almost unique amount of leverage, enabling her to combine transcontinental appeal with a hard headed my-back-scratches-yours ethos, in turn putting the planet’s leading digital music houses in a headlock.

Whilst her and a tiny amount of heritage acts and pop moguls have prospered through our need for curation, vinyl’s hipster-led revival – or both – this century, the industry itself has spasm-ed wildly, unable at first to come to terms with the unprecedented new patterns of behaviour its customers quickly shifted to. The contraction was shattering: the IFPI’s annual State Of The Music Industry report published earlier this year reveals that until 2016 global revenues had declined every year since since the turn of the century, an overall slide of almost 40%.

The report also goes on to talk hopefully of the floor being reached, touting the recent year-on-year increase in cash generated of almost 6% as the beginning of a return to growth. Most significantly, they pointed out, revenues from digital – i.e. streaming and legal download services – increased by more than double that number, overall accounting for half of the total.

Put simply, in their expert view there’s no stopping it now.

The problem is that the utopia the futurists of the very late nineties envisaged, where musicians owned both the means of production and needed little capital to make and distribute their work, has become only partially true. Leaving aside the issue of outright copyright theft once knowingly facilitated by websites like The Pirate Bay, the rise of streaming has complicated rather than simplified the mechanics by which music creators and performers get paid, exposing them to Silicon Valley’s sharp practices and in turn its peculiarly sunny moral vacuum.

Streaming’s increasing relevance was recognised in July 2014 as plays began contributing to positions in the UK Singles Chart, almost a decade after downloads. Whilst collating information for singles is simple, for albums it’s less so: measurement is in what’s known as the Album Equivalent Unit (or AEU) and counting is done by taking an album’s most streamed twelve tracks, down-weighting the two most popular and then dividing by a thousand.

Whilst this may seem a convoluted approach, it’s probably the easiest for anyone new to the subject to get their heads round; stay close here, because otherwise Kansas is going bye-bye.

Let’s deal first with placement. In theory the process for producers should be as simple as being able to upload work directly to Spotify, Deezer, Apple Music et al. In practice, however, unless they’re of Swift-ish status, they can’t as these platforms don’t entertain one to one contracts. Instead, the role of matchmaker is played by a digital music distributor such as TuneCore, Routenote or CD Baby, with them doing the liaison work to make songs available to both streamers and download services – although they may not deal with all of the latter. As you might expect, almost all of these will have fees for setting up an account with them (and also each time they upload any new material). For their part, if it’s possible – many companies use non-negotiable pro-forma contracts – the artist may take the option to pay a percentage of revenue, say 15%, to the distributor in lieu of these standard fees.

The money isn’t rolling in yet however. Don’t forget, both streamers and downloaders pay the distributors, not the artists, and it’s worth looking more closely at how streaming platforms in particular work out those amounts.

Anyone familiar with the labyrinthine workings of a traditional record deal will know that their complexities were legendary; Tony Wilson’s bonded-by-blood approach at Factory was altruistically generous, but Factory went bust owing millions, a fate most labels and publishers are keen to avoid.

The big problem with streaming services is the way they monetise what their customers listen to. For income, many employ tiered levels of subscription fees, often with ‘freemium’ punters getting ad-sponsored access for nothing. After some early misgivings, this approach has been popular; the IFPI claiming that there are now in excess of 100 million paying subscribers worldwide, with Spotify the market leader at nearly 50% share.

The Swedish based company in particular has in the past been very prickly when fending off criticism for the money it generates versus what ends up back with the creatives. It’s important to recognise here there is yet another side to their equation; disbursements are made in line with how much they make each month, as well as how many streams a track earns. In addition, those which are heard by paying customers attract higher royalty rates than those being listened to for free, whilst other complicating factors include understanding the territory from which a stream originates (as an illustration say you’re on holiday, on hotel wi-fi, in Greece), as income is dependent on things like discrete in-country advertising rates.

All in all, it’s a pretty opaque set of sums. According to Buddi Voogt’s excellent blog on the subject, Heroic Academy, Spotify themselves claim their average payout per stream is between $0.006 and $0.0084 – or to put it in starker terms, a million streams may earn something like $6,000 gross, this being the figure before the publishers and distributors take their cut and the final royalty is calculated for the artist.

To earn that sort of exposure it would be handy to feature on one the platform’s much feted playlists, the highest profile being Discover Weekly, effectively a dynamic mixtape, the selections being personalised based on an algorithmic study of the user’s listening habits. Even here though emerging talent attempting to DIY it may find some challenges; some of the other compilations most accessed are actually curated by major labels, whilst more recently the company’s executives issued a robust denial to accusations that their darker recesses are in fact haunted by ‘ghost’ producers, commissioned to create what is effectively royalty-free content.

It’s something of a minefield then, wrapped in a nightmare. But ignoring if you can the two clicks it may take you in a search engine to find out how to rip streamed music with the same ease of downloading an mp3 of it, the elephant still in the room is a giant that doesn’t want to play by the rules; it’s name is YouTube, and the fig leaf it hides behind is known as safe harbour.

Two paragraphs to precis the situation is criminally scant, however space dictates, so: YouTube is the biggest music streaming service on the planet, with a billion users a month. But it’s out payments are a fraction of even what Spotify pay, and safe harbour means that they’re absolved of legal responsibility for unlicensed material loaded by their users, just as long they pay the rights holders, or take down copyright infringing content. As you can imagine, this has left pretty much everyone in the industry unimpressed and both in the EU and in America there have been moves to address the balance from a legal and regulatory perspective, despite YouTube’s recompense to the industry coming in at a healthy $3bn a year.

These are ongoing, but it’s worth remembering that the authorities are ultimately dealing with the most powerful private sector Internet company in the western world in Google, so the chances of a better deal anytime soon are open to debate.

For performers from the analog old school of the last century, digital music’s newspeak minefield may well cause feelings of cynical deja vu; the man may now wear jeans on dress down Fridays, but he’s still sticking it to you like the bread heads of old. For listeners, it’s more like the ever evolving brave new world we were told about.

We can only hope that its algorithms don’t kill the radio star.