How are musicians paid

Again and again it gets loud, the demand of musicians: Streaming services like Spotify should pay them more money. It has long been no secret that there is little to get for the vast majority of them if one regards streaming as an economic substitute model for the dwindling sales of physical sound carriers. All of this is happening in an industry climate that - at least before the corona pandemic - shows clear signs of recovery. Previously, digitization had torn away the pleasant and lucrative habits of the music industry from the CD era.

After five consecutive years of growth, the global music recordings trade and related rights grew another 8.2 percent in 2019. Music publishers and collecting societies such as the German GEMA also published new success messages on an ongoing basis until 2020. The latter generated the majority of its sales from the live business, even if streaming was the strongest driver of growth. The fact that this live area will be different in the coming annual financial statements does not require any further explanation in the corona crisis.

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But back to streaming. It is the decisive growth engine in the industry, the determining factor in the profitability of companies. Globally and in this country. Even in technologically conservative Germany - homeschooling, anyone ?! - In 2018 digital sales overtook their physical counterparts, driven by the use of services such as Spotify, Apple Music and Co. The following graphic, updated annually and published by the Federal Association of the Music Industry, clearly shows the role streaming plays in the music business (and will play). The digital market share is currently 64.4 percent, and the trend is rising.

All good?

So you might think that the store is running. The only question is: for whom? On the one hand, large parts of the music industry agree when it comes to the common digital cause. User upload platforms such as YouTube do not have to acquire the usual licenses for the content, which they curate using their algorithms and sell advertising space through it. A lot of advertising space for a lot of money in what is de facto the largest music streaming service in the world - because that's YouTube. This imbalance has been denounced by creatives and their partners for years. Working hand in hand, they baptize this gap in their value chain “Value Gap”. So if you call on censorship on the Internet in the debate about supposed "upload filters", it is worth asking who will benefit from the erosion of the European Union's copyright directive, which has now been adopted. Certainly not the musicians.

In short: there is a lot to be done to overcome the teething troubles of the digital music industry within a long grown-up body. In the arena with the tech giants, you gather in a corner if you stick with the artists for financial and / or idealistic reasons. It is also part of the truth that it was usually companies outside the music industry that first brought about a liberation from digital lethargy through their innovations.

Spotify should pay more money - but how?

But what about in your own ranks? After all, apart from the argument about the “value gap”, people are enjoying growing sales figures. Especially now, when the financial mainstay of live shows for musicians is no longer available, the call to arms against streaming services like Spotify seems to be particularly attractive. The battle cry is quickly found: “Pay us more money!” Hardly surprising, given all the news about micro amounts in the accounts of Spotify. However, such an advance in itself cannot be a solution if one does not ask for the “how” at the same time.

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Basically. Streaming services do not pay musicians directly. They distribute the money to record companies as long as there are direct contracts, as in the case of the major labels. Also to digital distributors (these in turn to smaller labels), music publishers and collecting societies. All of them pass on the contractually agreed shares in the income to the musicians. Of course not without keeping their share. How much ultimately ends up in the pockets of the creative minds also largely depends on the terms and conditions they agree to.

At least one agreement with a digital distributor is necessary. Direct uploading to the streaming services is not possible. This also means that the contractual partners between the musicians and the streaming services have a say, depending on their size, when it comes to possible changes in the streaming business. That brings us almost to the heart of the matter.

How do Spotify and Co. pay the rights holders?

Also: Spotify and other streaming services do not pay per stream, although often suggested. So you cannot simply multiply the much-quoted per-stream rate, which initially does not exist in your universe. About 60 - 70 percent of the income of a company like Spotify from subscriptions and advertising is distributed to the named rights holders. In order to be able to pay out more, either this percentage would have to be increased or the cake as a whole would have to be enlarged. Despite sales growth, the music industry is still a long way from the spheres of the golden years. However, the barriers to entry into the market due to digitization have been massively reduced. So there are more mouths to feed with less cake.

If you now receive a statement from Spotify, you can divide the amount contained in it by the number of your streams within the relevant period to get sums of € 0.006 per stream. So no matter how many petitions you can sign calling for an increase in the pro-stream rate, it will certainly not happen in this form. The really relevant question is rather: How is the cake distributed in the first place?

Not all streams are created equal

Logical: If more people pay for subscriptions to streaming services and / or more money per capita is spent on the services, the amount that can be distributed increases. How to get as many people as possible to take out such a premium subscription, and how high a reasonable price for it is, is another matter. The fact is, however, that not all streams are created equal.

Complicated distribution keys are used in the so-called pro rata model to account for market shares. Depending on their origin and type, the streams are worth different amounts. If a Spotify Premium subscription in a western industrial country like Germany costs € 9.99 a month, in India you have to pay the equivalent of € 13 for a whole year. Means: The same number of streams from Germany and India brings in different amounts of money. The streams from advertising-financed offers are also worth less than those from a premium subscription. One more reason why it doesn't make sense to use a per-stream rate as an argument. It varies extremely due to several factors.

The pro rata model

So it is billed according to market share. If, for example, Drake can collect 5% of the streams via a service within a certain period of time, he will also receive 5% of the income according to the aforementioned distribution key. Also included are the other rights holders of his songs such as label, producer, songwriter, etc. It doesn't matter at all who exactly is responsible for these streams. Even if someone only listens to Tibetan monk chants, 5% of his or her pennies, after subtracting the portion of the streaming services, will end up in Drake's pocket. The consequence is obvious. Only a fraction of the musicians and their partners benefit financially from streaming, and disproportionately well. The winner takes it all. The rest of them have to be content with the crumbs that fall from the table, which those with particularly large market shares can enjoy.

In a system in which algorithms repeatedly recommend to users what is already successful, oligopolies are created that maximize their profits by maximizing their market share. A process that by no means only applies to the music recording business. The German concert promoter Berthold Seliger describes it in detail in his book "Vom Imperiengeschäft" for the live industry.

A user-centered billing model as a solution?

The good news: there is a possible alternative to the pro rata model. User-centered billing, also known as a user-centric payment system, would distribute the money of a certain fan to those musicians who this person has actually heard. The main argument of the proponents of this system is first of all fairness. In addition, the opportunities for fraud through streaming farms and click buying would be significantly reduced. Among the major streaming services, there is already an avid supporter of the model in the form of the French provider Deezer.

But: Deezer in particular and streaming services in general cannot simply decide whether to switch. They are dependent on being granted the licenses for the catalogs to rights with which they can fill their offers in the first place. And thus making it attractive to fans. Those who have particularly large catalogs have a particularly favorable negotiating position. Major labels and major music publishers. Another aspect of this power game can be found in 2008. Universal Music, Sony Music, Warner Music, the then still existing EMI Music and the digital association of independent record companies MERLIN acquired company shares to varying degrees in Spotify for 8,804 euros, as the company acquired the licenses for the catalogs at this time could not yet afford. When Spotify went public in 2018, those shares were worth $ 2.6 billion.

No Robin Hood in sight

So far, Deezer has not come very far with his efforts, which is mainly due to the lack of willingness to cooperate on the part of the particularly powerful catalog holders of master's rights. Most of them are simply not interested in changing a system that they prefer disproportionately due to their market share. The consequences of a user-centered billing model are by no means set in stone. The exact implementation is also being debated.

Studies from Finland, Denmark and Norway have shown that a change would ensure a more even distribution of income from the streaming business. What remains unchanged, of course, is the fact that even in the new system, only those who have a minimum number of fans behind them really earn something through streaming. The cake is limited. That brings us back to the big music companies where the superstars of this world are usually under contract. The decisive factor is that the user-centric payment system would have the fundamental possibility of a fair share of sales in streaming.

From unsuspecting politicians

In the current discussion, it is also worth taking a look at Great Britain. In a series of hearings, a committee from the UK Parliament identified different perspectives on the streaming business, with artists like Ed O’Brien from Radiohead and Guy Garvey from Elbow speaking out, as expected. A successful social media campaign had previously referred to the topic under the hashtag #brokenrecord. In a further meeting nine parliamentarians questioned the British heads of the three major labels Universal, Sony and Warner as well as representatives of the collecting societies PRS and PPL.

Instead of addressing the essential points such as a user-centered billing model - although Universal CEO David Joseph even pushed the door open a crack - the MPs were content with distributing complaints based on poor information. There it was, the unique opportunity to take a really big step towards fairer market conditions in the digital music industry. It was not used.

Quo vadis, music streaming?

One thing is certain: music streaming is and will remain a topic that is neither easy to grasp nor particularly persistent. Constant in the sense that the framework conditions are constantly changing, even changing. New market participants appear in the ring, such as the Hipgnosis investment fund, which sees music rights as an investment. There is no question that streaming the Usage method of the present and future is. Even early streaming refusers like Thom Yorke have now realized this. For good reason: practically and completely legally, music fans have the almost complete abundance of songs in the world at their disposal. Despite all the inadequacies of algorithms and recommendation mechanisms, new music is discovered, shared, and fan groups are tapped. With the appropriate measures, streaming can also become a potentially lucrative source of revenue for artists, even if they are not among the top 0.1% of the most streamed people.

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All of this is important, but it will take time. In addition, there have long been economic alternatives for artists who have passionate fans, but who are quantitatively completely worthless in the mechanisms of the attention economy in the truest sense of the word - not in the figurative sense. Membership models such as Patreon and Fan Club make use of the quality of the Fantum and rely on the emotional connection between musicians and their followers.

There is a world in which esteemed artists with significant social influence have a stable financial future. It is not a law of nature that the power struggle of international corporations exhausts them. The question that ultimately matters is: do we want this?

Federal Association of the Music Industry Federal Association of the Music Industry
Kevin Mazur Getty Images for The Recording A
Federal Association of the Music Industry Federal Association of the Music Industry

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