“Row, Row, Row the Lie Gently Down The Stream”

How Spotify, YouTube and other Streaming Services Are Robbing Music Creators

I am a professional songwriter, musician and artist living in Los Angeles, CA where I create original music, perform and teach college-level courses on music production in Hollywood. Needless to say, music makes up a great deal of my livelihood. In fact, I earn 100% of my income from music-related endeavors and have done so for over 30 years now. So it was with great disappointment that I recently opened a quarterly royalty statement from TuneCore and read that although I had received a healthy 40,000 combined spins for my original music on streaming services for the quarter, my check would only be a mere $17.97. Yes, you read this correctly. I did not misplace the decimal. Not even enough to cover the cost of lunch for myself at Bossa Nova on Sunset Blvd. This means, on average, that each person paid me $0.00045 per spin to listen to one of my songs. Breaking it down even further, this would mean that in order for one of my songs to earn me just one dollar (USD) of revenue, it would have to be spun a whopping 2,222 times. Clearly, this is absurd, unfair and most importantly — unsustainable. Let’s begin there.

Streaming V.S. Ownership

Not so long ago, music fans routinely purchased albums from artists on shiny circular discs with 10–15 songs on them. The discs would run about $12 to $15 a pop which worked out to be about $1 per song on average. Fans would stack many of these discs in sleeves, bulky cases, strap-on sun visor holders and wallets. Them seemed to multiply like crazy until they filled a small room in the house. And this went on for many, many years without too much complaint.

And then, without much warning or fanfare, an illegal downloading site called Napster sprung up on the internet (then in its infancy) and made it very easy for people to get their hands on this same music without paying one red cent. Not one cent. And even more amazing was the fact that you could get just the songs that you wanted and not have to deal with getting an entire album of songs for which you only liked one or two songs from. This was magic. This was convenient. You didn’t even need to get dressed and make a trip to The Wiz or Tower Records to get the latest Backstreet Boys project. It was just a few simple mouse clicks away on your home computer. And suddenly, brilliantly, overnight — music became “free” in the eyes of the world.

Record labels freaked out — even going so far as to sue thousands of people (including a deceased grandmother and 12 year old child) for downloading music illegally. Every attempt was made to dam up this hemorrhaging floodgate of illegal free music and file sharing that had reached epidemic proportions. I think I even remember some guy dressed as Paul Revere riding through the city on horseback screaming “it’s killing the industry, it’s killing the industry.” But by then, the damage had been done.

The real damage, however, was not the short-term loss of revenue from missed sales of recordings. The REAL damage was in how it changed the way that the music itself was viewed by the public. There was a shift in the cultural perception of music from one of “product” to one of “privilege.” In other words, music became something that was readily available, simple, unencumbered and complimentary. This new perception proved to be irreversible. And the question for music makers became, “How do you get the king of the ocean to suddenly start paying for water?” Not easy.

Eventually, iTunes and other services popped up and created a more reasonable business model in response. People were willing to pay $.99 to legally download a song. It was still convenient and it was more reliable than Napster and easier to find the songs that you wanted. Downloads slowly replaced physical CDs. The concept of music “ownership” shifted to housing data on your computer’s hard drive instead of storing compact disc after disc in your house. People liked this model better and at least artists were getting some money for their work. No one seemed to care or notice, though, that the quality of the actual audio from downloaded iTunes songs (originally 128kbs) was a fraction of the quality of a real CDs (1441 kps). Few people in the general public could hear the difference (although it is very noticeable to the trained ear) and again convenience won out.

This downloading model went on for several years and seemed to fix or at least slow the file sharing epidemic. Napster was shut down and revamped into a legitimate business. iTunes and other online music merchants upped the audio quality a little bit (256 kbps), and the market shifted from being “album-driven” to “singles-driven.” People liked that they only had to pay for the songs that they actually liked and while record labels highly disliked this “death of the album,” at least there was some revenue being generated for the industry. Enter the streamers.

What could be even more convenient than downloading songs from the internet? Well…..how about just playing them directly from the internet? This would save space on your hard drive. You could even make virtual playlists of all of your favorite songs and even have other similar artists suggested to you by an algorithm. In fact, what if I told you that instead of paying $9.99 for one album from one artist you could have access to 40 million albums from 10 million different artists for that same price? SIGN ME UP!!!! Of course. Who could argue that this wouldn’t be a better deal for the consumer? “You mean that I free up my hard drive for other things and I can hear any music I want from any artist I want and it’s all legal? I’m in.” Except, there is a very real, very serious problem with this model. Everyone wins except the actual music creators themselves. “Oh wait, someone actually made this music? There was real work involved, and money spent on musical instruments, recording studios, musicians, sound engineers and songwriters?” Yes, Mr. Streamer….yes, there was. Let’s talk about that for a second.

Adding Up The Costs

Consider for just a moment the birth of a song. There is the initial inspiration and thematic idea for it. Maybe a working title comes next and then fragments of a melody begin to emerge over the course of a few days or weeks in the composer’s mind. Maybe some piano chords are sewn together to form a harmonic bed for the melody to sit on top of. Songwriters spend hour after hour manipulating the various elements of the song’s lyrics, melodic texture and phrasing. They add a second verse and then a bridge and spend more time developing the themes and storyline of the song. Lines are worked, reworked and then worked again. Melodies and chords are changed around, reversed, replaced and rearranged.

The producers step in next. They must decide how the song will actually sound on the record. Will there be a live band? Will we use synthesizers, guitars, conga drums? Who is the vocalist going to be? Musicians are called in to play various parts for the song. Recording studio engineers must set-up microphones and use years of experience and skill to capture the sounds that the producer is going for. Hours and hours are then spent editing and balancing all of the various performances and ideas. A mix engineer then adds reverb and equalization to make the various sounds into a cohesive whole. The song is then sent to a mastering house where the final compression and polish is added before it is finally sent to duplication/manufacturing plant and distributed to the world. Sound free? Not even close.

And yet, people happily click down the Spotify playlist and enjoy all of these hard-won fruits for fractions of pennies. It’s commonly called “streaming” but if you take out the letter “R” and the letter “M” and add a “L” it will reveal the true word for this phenomenon — “STEALING.” I know. I hear streamers saying, “but I paid my subscription fee. I paid to listen.” To that, let me offer this analogy. The early settlers gave the natives a little something for this land we now call America too, but I don’t think any sane person would deny that they essentially “stole” this land. The same is true here. Fractions of pennies are NOT fair compensation for the amount of work, skill and time that went into creating the actual music that you are enjoying. And we haven’t even talked about the time, hours of practice and study that it took each musician and singer to reach the level of mastery on their chosen instrument before the record button was ever pressed at the studio.

I get it. Music, for most people, is fun and easy. You listen to it at the BBQ or the coffee shop. It gets you to work on your morning commute. It’s the soundtrack for your daily life. The last thing you want to do is think about “work” when thinking of this great leisurely past-time. In addition, Hollywood has done a great job portraying the craft of music making on the big screen as a carefree, romantic, magical thing that happens in minutes and takes absolutely zero effort to create. Not so! Now, speaking for music creators — we don’t want to spoil the fun. We really don’t. We just want to be paid for the work that we’ve done. Fair enough?

Streaming Payouts, A Closer Look

Let’s look at how streams are actually calculated and paid out to music creators. Each streaming service pays the artist a different rate per stream (yet another problem) and each offers different options for how the end user can enjoy the music. Some have a free subscription that requires you to watch advertising after a few songs, while some are paid subscriptions only with no ads. Others allow you to download the song to your computer’s hard drive to enjoy offline (we really need to talk about this) and some allow you to pay annually for an even cheaper rate.

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If we step back for a minute and think about this setup, it is easy to see that there is a huge, fundamental flaw in the subscription model as it stands currently. Let’s say for the sake of simplicity that Napster, currently the service with the highest payouts to music makers at $ .0167 per spin, has 30 million song titles in their catalog and charges $10 per month for each subscriber to have access to these titles. Let’s say, further, that Napster builds up its total subscriber number to 5 million subscribers (which they have) and that each of them pays this monthly fee. That would be a gross revenue of 50 million dollars to Napster. If we reserve a reasonable 20% of this to cover their operating overhead, maintenance and payroll for employees, it would leave them with 40 Million to distribute to music makers. This means that no matter how many spins subscribers demand for that month, the absolute highest payout to all music makers can be no more than 40 million dollars.

What’s the problem? Here it is. Napster’s payout rate to unsigned artists is about $0.0167 per spin. Doing the math, let’s say the biggest hit song of the month is “L.E.M.O.N” by N.E.R.D (Pharrell’s band) and it gets 14,000,000 spins for the month. At the current rate, that song would earn $233,800. Let’s also say that the top three songs under this one each get 10,000,000 spins at the same rate. Each earns $167,000. Napster is now on the hook to pay out $734,800 to four artists for four songs. We have already exhausted nearly 2% of the total 40 Millions dollars of revenue from subscription fees on just 0.1% of the song catalog. If each song in the remainder of the catalog is spun just once, the total payout would be approx. $501,000. Which means that on average the remainder of the catalog (some 29,999,996 songs) could only be spun a total of 78 times each before the payout would be more than the remaining revenue received. Put simply, there is no spin limit in place to control the amount of spins that can be demanded within the subscription model. Therefore, as the spin count increases, the already ridiculously low payout per spin must be made even smaller because it is bottlenecked by the fixed monthly rate paid per subscriber. Or, if the streaming service holds the payout rate constant, they would begin to lose money for every song spin over their 40 Million budget. This is a big problem!

Realistic Payouts for Independent Artists

What about artists who do not get nearly as many spins as the major label artists with big promotional budgets and multinational corporations backing them? What would it take for one such independent artist (like myself) to earn a simple minimum wage from their work under this model? As of July, 2018, the minimum wage in Los Angeles is $12 per hour. For a 40-hour work week, that works out to be about $480 per week and $2080 per month ($24,960 per year). Let’s forget (for the moment) that there is no way in hell to actually live in Los Angeles on this amount of money (without a gaggle of roommates). We will pretend that this minimum wage would be okay. What would it take for a hard-working music maker to earn a minimum wage from streaming revenue? Using the Napster rate of $.0167 per spin, it would take about 124,551 combined spins per month to total $2080. ONE HUNDRED AND TWENTY FOUR THOUSAND!!!!

This number may not seem so high after reading about the millions of spins that major label artists are getting, but the average independent artist receives less than 5000 spins per month. And even when you spread that number across all seven streaming services, the number is still under 36,000 spins per month for most independent artists. Further, Napster is currently the highest payer at $ 0.167 per spin, so the payouts from other services would be even less. 36,000 spins X $ .00664 (the average rate across services) would only be $230.40 per month.

And, as if that were not crushing enough for independents, Spotify payouts are actually calculated so that the artists in top 10% of spins get the bulk of the loot.

Right now, Spotify pays out royalties on the industry standard “pro-rata” basis, meaning that it takes the total pool of payments from subscriptions and ad revenue and divides it up by the total share of streams each artist receives. As Rolling Stone has reported, this system has produced a situation where the top 10 percent of artists receive 99.4 percent of total streaming payouts; it also means that even if you don’t stream an artist, your subscription money could still be going to them.” (From the artcicle “More Than 18,000 Musicians Are Demanding a Penny Per Stream from Spotify” by Josh Terry, Chicago)

Clearly, this model is unsustainable. Clearly, this is unfair to the people who did the work to create the music. What WOULD be fair compensation then? What am I proposing?

A Possible Solution

Fortunately, there is a bill currently in the house called the Music Modernization Act that is designed to update antiquated pay rates and give streaming payouts to legacy artists who released music prior to 1972 (they are currently excluded from streaming payouts as this technology did not exist when the current laws were put into place). A big part of the MMA proposal is dedicated to setting a fair rate for payouts to music makers including one that would require streaming services to increase their artist payouts to reflect the current market value for music being demanded by consumers. It is summarized as follows:

Willing Buyer/Willing Seller Standard Section 115 of the Copyright Act has regulated musical compositions since 1909 — before recorded music even existed. Section 115 allows anyone to seek a compulsory license to reproduce a song in exchange for paying a statutory rate. Current law directs the Copyright Royalty Board (CRB) — the government body responsible for setting the statutory rate — to apply a legal standard to determine rates that does not reflect market value. The Music Modernization Act replaces the current flawed legal standard with a standard that requires the court to consider free-market conditions when determining rates. (Taken from “Overview of the Music Moderization Act” by Ted Lieu)

Setting a Fair Rate

In order to come up with a standard rate for streaming payouts that would be fair to music creators, consider for a moment the differences between “ownership” and “streaming” when it comes to actually playing songs. When we owned CDs, we paid a one-time fee ($10–15) and received a physical disc with multiple songs on it that we could hold in our hands and show friends. There was artwork and credits to mull over and sometimes “bonus” songs and stickers inside for lucky fans. If we really liked it, it went into the car’s CD changer where it would stay for weeks, sometimes months. And as I think back on these times, I’m asking myself how many times did I actually play one of my favorite songs on average? The first song that comes to mind is a song by Juvenile called “Ghetto Children” which came out in the mid 90’s. When this song came out, I played it everyday for about a week. It was the bassline and that crazy, down-south accent that Juvenile had that kept me glued to my stereo. As time went on, I played it a lot less. But I still listen to it occasionally to this day. I estimate over the years that I have played that song about 30 times and I would consider that number to be about an average amount of times to play a song that I like. Now that CD had about 15 songs on it (not counting intros and interludes) and I probably paid $12 for it at the mall. That’s roughly $ .80 per song, however, I never play any of the other songs on that project. I only like that one. At any rate, if I had streamed this song over the years on Napster instead of bought the physical copy, it would have earned Juvenile just $ .50. Keep in mind, however, that it has taken over 20 years for me to reach 30 plays of this song. How fair does it seem to make an artist wait 20 years for a half-a-buck payout?

Now that example was using a song that I really liked. Most songs these days do not reach the 30 play mark for most listeners. And now that there are so many more artists to listen to in 2018, each song is getting played much less by end users. Typically a song will get played 3 to 5 times. If it is really liked by the listener 10 to 15 times. Super fanatic, borderline stalker- level users may go 20 times. Just kidding, but let’s use the number 20 to represent the maximum number of times an end user would likely play an average song today. At twenty spins they will have played the song to their heart’s content. They have “owned” the song for all intents.

The current market value for owning a song (downloading) is $.99 to $1.29 on iTunes and Amazon. Therefore, i’m proposing that we set the payout rate for streaming services to be $.05 per spin. At $.05 per spin, 20 spins would about equal the current market value ($1) for ownership (downloading). Surely if you are going to play a song 20 times you would not mind giving the artist $1 for it! This would better represent the use it receives by the end user and would better compensate the music creator for the work involved in creating it. For those streaming services that offer an “offline” mode, allowing users to download the song to their hard drives, either a fixed rate of $1 per download should be imposed, or the application used to download the song must keep the data in a proprietary format (only playable by that app) and the application must have a way to calculate the number of spins the end users demands even while offline. If users are not limited in the number of spins for offline use, then we are essentially saying that there is no difference between streaming and ownership (downloading). A distinction MUST be made!

The second piece of the solution would be to either set a cap on the amount of spins that streaming service subscribers are allowed to consume for the flat subscription rate, or simply charge per use like a utility company or pay-per-view service. If streamer number one consumes 150 spins, his bill is $9 for the month ($7.50 + 20% overhead cost). Another streamer, we’ll call her a “super music fan” consumes 325 spins for the month, then her bill is $19.50 for the month ($16.25 + 20% Overhead) — roughly the cost of a commercial CD and a Starbucks Latte. By doing it this way, each user pays for exactly what they actually consume and there is no chance of spins greater than the available revenue from subscriptions. Also, music creators are fairly compensated for the use of their work.

Music Moving Forward

As a music creator, I am overjoyed that it is now easy for people virtually anywhere in the world to open up a laptop or cell phone and with a few clicks, hear my original work. I completely embrace the technological changes to the way our music is consumed that we have seen over the last 10 years and are continuing to see develop each day. The point of this article is to bring attention to the real need for better compensation for music creators and to illustrate how the current model is not only unfair, but truly unsustainable in the long-run. In his book, How To Make It In The New Music Business, Ari Herstand asserts that streaming would actually provide better compensation for the artist in the long-run and that stories in the media of $2000 payout checks for 4 Million spins are far-fetched and overly dramatic. Let me first state that, other than a very few points (this being one of them) Ari’s book is an excellent, well-written resource for any aspiring music maker. I highly recommend it. That said however, I disagree with him that artists would stand to make more money from streaming than traditional downloads or purchases in the long-run at the current payout rates. Doing the math, for an artist to make the same $10 payout that they would make from one traditional CD sale or album download it would take 1,506 spins at the current average payout rate of $.00664 per spin. To put that in perspective, if those same 1,506 people who spun the song would have purchased it (download), the payout to artists would be $1,485 — much better. Considering that the average independent artist gets less than 36,000 combined spins per month across all streaming services, it is unrealistic to expect a greater return from streaming over traditional sales. It would take only 24 CDs sold traditionally at $10 each per month to equal the amount paid out for 36,000 streams. Staggeringly unfair.

I hope that this has helped to shed some light on this streaming payout issue. I hope that it has helped make a better music community for both patrons and artists alike. In the next few years, I do expect that we will see great improvements in the way that the music creators are compensated for their work. The Music Modernization Act has has the overwhelming support of the entire music making industry and is positioned to fix problems that have gone unchecked for decades. I also trust that music listeners will benefit from these legislative and technological changes because there will be greater incentive and support for artists to actually create more and better music if they are better compensated. It truly can be win-win. Here’s to fair pay for fair play!

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