More plays, but a smaller slice of the pie: How the music industry is failing its creatives
To say that the technology used by the music industry has advanced at a breakneck speed over the last few decades would be an understatement. How quickly did we move from vinyl records, to cassette tapes, to CDs and then ultimately to mp3s? Around 40 years, tops.
(As a side note, did you know the mp3 turned 25 this summer? We did a double take on that one too!)
All of which brings us to the present day, where you don’t even need a dedicated device to play your entire music library. Streaming requires nothing but a mobile phone and an internet connection, and access to virtually the entire catalogue of humanity’s musical output is at your fingertips, on demand.
The winners and the losers of streaming
Even as we marvel at how convenient it has become to access and consume music, we should acknowledge that, like with most progress, a trade-off was required somewhere along the way. For all of us consumers to be such winners, the system had to create some losers.
In the case of the music industry, and its speedy adoption of digital media, the losers were the artists.
This may not come as a surprise if you’ve heard about the ongoing legal battles between streaming platforms and artists over the last few years. Dominating the streaming market Spotify is growing by an astounding 40,000 new tracks a day, but has been at the centre of the most high profile disputes around compensation for musicians.
Streaming revenues for artists on Spotify are insanely low: around $0.00318-$0.0084 per stream in the US; in the UK, the rate averages around £0.0028. (YouTube is said to be even more tight-fisted, compensating creatives at a per-stream rate of £0.0012.)
“In the case of the music industry, and its speedy adoption of digital media, the losers were the artists.”
To make matters worse, the compensation system on streaming platforms is rigged in favour of a handful of hugely popular artists, as opposed to those who depend on streams to bring in any sort of sustainable income.
If you’re wondering exactly how the system has been manipulated to bring higher profits to the few artists at the top, brace yourselves, because this might put you off your favourite streaming provider. Instead of calculating artists’ pay ‘per stream’, which is what most of us assume happens, streaming sites apply a ‘pro rata’ system to the entirety of their revenue generated by music sales. Everyone’s subscriptions go into one big pot, and the money is then divided between artists according to their overall popularity on the platform.
In other words, if Beyoncé songs made up 10% of all streams in the month of July, then she gets 10% of all users’ fees in that month, regardless of who actually generated that income.
As a result, 43,000 “top tier” artists on Spotify get 90% of the royalties. What does that mean for your favourite indie band? Well, let’s just say they’re likely to receive no more than a couple of hundred euros from their monthly streams. A disappointing bit of news for fans who believe they’re supporting local or less well-known artists through a paid streaming subscription.
“43,000 ‘top tier’ artists on Spotify get 90% of the royalties.”
An imbalance of power
How does the music industry get away with these unfair compensation practices? For one, it’s adhering to an outdated model. The three major music corporations, Universal, Sony and Warner Music, still largely base the way they reward artists on a system created when companies had to cover the costs of manufacturing physical products like cassettes and CDs.
On top of that, with the most popular artists appeased by taking the lion’s share of revenue due to the ‘pro rata’ system we mentioned above, there is little incentive for streaming services to inject more equity into the way they compensate artists as a category.
When pressed to justify his company’s practices, Spotify founder Daniel Ek responded that, if artists want to make more money, they need to create “continuous engagement with their fans” and increase their output. The message was clear: if you want more money, put new music out faster.
While statements like these may come across as unhelpful to struggling artists, they also reveal an important bit of context that helps explain why the music industry has reached this point.
Digital services executives like Ek fall back on the argument that streaming came along in the nick of time to save the record industry, which, in the early days of going digital, was rapidly losing money in no small part due to rampant piracy.
Fans often didn’t want to pay €25 for an album of 10 songs they could download for much cheaper, or free from unauthorised websites. And to be fair to Spotify, Amazon Music and their kind, streaming providers have actually propelled music industry growth, which had previously been stagnating in terms of music sales.
“Fans often didn’t want to pay €25 for an album of 10 songs they could download for much cheaper, or free from unauthorised websites. ”
Where the money flows
The problem we have with the ‘saviour’ argument is that, while yes, the rescue mission was a success, it didn’t exactly fall under the category of charitable work. Digital platforms entered the industry and have since made billions.
Compensating the creatives, without whom the sector would collapse, should not only be a matter of principle, it also makes sense in order to nurture a diversified and rich pool of talent that will shape the future of music.
For too long, the industry has also partly justified under-compensating artists by suggesting, much like Ek, that artists have the option to generate income through avenues other than digital record sales, such as live performances. This argument is weak at the best of times, and in the present moment, rings particularly tone deaf.
Simply put, the pandemic has turned off many taps for artists. There are plenty of campaigns—Keep Music Alive and Broken Record, to name a couple—that are trying to raise awareness on this very issue.
Live gigs have been put on hold for the foreseeable future (along with the associated sales of merchandise) and fewer music licenses are being purchased by businesses like bars and hairdressers. It’s clear that most artists’ already precarious livelihoods are being squeezed to the point of unsustainability.
Disruptive technologies to the rescue
And yet, this relatively grim picture for artists may soon change. The solution may lie in a more user-centric approach, and unexpected support is coming from diverse corners of the tech industry.
Deezer, a French music streaming service that already offers a whopping 56 million tracks is testing out a cutting edge User-Centric Payment System (UCPS) under their #MakeStreamingFair initiative.
Simply put, the system aims to correct the imbalance that prevails across the more popular streaming platforms, by compensating artists in proportion to their actual streams.
For a glimpse into the difference such a system would make, Deezer has created a UCPS Simulator. It shows music fans “exactly how much of [their] Deezer paid subscription today goes to artists [they] actually stream” and compares it to “what would happen if a user-centric payment system were in place” instead. Deezer is reporting rising support for the viability of their model, stoking hope for a better future for artists.
“The system aims to correct the imbalance that prevails across the more popular streaming platforms, by compensating artists in proportion to their actual streams”
Another user-centric solution that has been proposed comes in the form of blockchain technology. Blockchain advocates, like cryptocurrency startup Ledger, think it’s about time we abolish the current “fragmented and intermediated industry”, cut out the more parasitic elements in the value chain and increase the transparency of the entire system of remuneration.
Some examples already in place include US-based eMusic, which offers a “decentralized music distribution and royalty management system to better reward artists and their fans”. Artists can use the platform to independently crowdfund projects, promote their music, and retain a larger share of their revenue.
Closer to home, Malta-based startup Bitsong promises “a simple global blockchain infrastructure that empowers the music industry”. Their model involves artists uploading their creations for free, but earning tokens and being compensated in real time per stream.
What drives these advocates is the core belief that, in an era where digital technologies have democratised the tools of music creation and distribution, there is no reason why musicians cannot sell their music directly to their fans. It goes without saying that in such a model, their income would be a good deal more representative of their actual sales.
The revolution is nigh. But will it arrive in time?
From the point of view of artists, as well as their fans, changing the system in favour of adopting user-centric models and cutting out the bloated middlemen makes total sense. Not only would it be a fairer way to remunerate artists and distribute royalties, it would also better support niche and local music, increase opportunities for smaller artists to get the funding they need, and ultimately strengthen cultural diversity in the music industry.
The question then becomes: How soon can we make this happen? Emerging technologies are offering an amazing array of alternative solutions that can bring more equity to the music industry, but they are of no use if they don’t come in easily implementable, user friendly packages.
While most online music fans experience little difficulty in using Spotify or similar streaming services, blockchain platforms are still out of most music fans’ technological comfort zones, even if they do promise rewards like exclusive content, promotional offers and cheaper prices relative to other streaming platforms.
However, as Ledger is quick to point out, the internet itself didn’t start out terribly user-friendly and only gradually became the place it is today: so easy to navigate that everyone from toddlers to octogenarians can surf the web without difficulty.
As these innovative platforms get closer to providing a seamless experience, and online users gradually become more familiar with once-groundbreaking technologies, there is every reason to expect the strangleholds on the value chain by mainstream music providers will progressively weaken.
With these technological solutions heading swiftly towards mass adoption, perhaps artists can look forward to being winners after all.
Arne van Vliet is the founder and director of BECCA Europe. He’s passionate about the creative arts and specialises in finding funding for innovative creative projects that are reshaping the arts landscape in Europe. Need some advice or direction on your next creative project? Contact Arne here.