COPYRIGHT
Internet, recorded music, artistes, music publishing

 

As Music Law Updates finalised the November Updates, news broke that streaming platform Deezer had postponed its planned IPO (initial public offering) on the Paris Stock Exchange due to difficult ‘market conditions’. MBW opined that the least of Deezer’s worries were competition from Apple Music and Spotify, a declining subscriber base and a currently loss making business model. In a timely article, George Chin looks how streaming has developed and the major players in the field – against of background of the success of streaming being blamed for declining physical product and download sales, but conversely offering a workable alternative to piracy to many consumers as habits change, and a valuable new source of revenues, at least for the record labels.

 

The latest Music 360 report from Nielsen (9th Sept 2015) confirms that sales of recorded music are down and that streaming is growing with 75% of the population (in the USA) listening to music online.  Given that there is now a wide choice of music streaming services available, the report reveals that when making a choice, over 80% of users cite cost and ease of use as their deciding factor with 73% citing the song library.  The cost element breaks down to 46% of those polled saying that the cost is too expensive while 42% say they can stream for free.

 

The RIAA (Recording Industry Association of America) published data (22 Oct 2015) which revealed among other interesting facts, that revenue from sales of streaming music topped $1 billion for the first time and that the trend is likely to continue.  Streaming sales has finally surpassed sales of physical media (CDs and vinyl); and they are forecast to overtake digital distribution (downloads) by the end of 2016.

 

Not to be outdone, YouTube announced on October 26, 2015 that they had ‘generated over $2 billion in revenue for the music industry in the last few  years’ (my emphasis).  Compare this to Spotify who announced in June 2015 that the streaming service had now paid out more than $3 billion to music rights-holders, with $300m in the first quarter of 2015.

 

All good news for the future of the music industry.  But the question is how do these earnings translate into royalties for the artists?  Notably, Taylor Swift removed all her recordings from Spotify in November 2014 with a memorable quote “music should not be for free” in reference to Spotify’s free ad-based service.  She claimed that artists receive between $0.006 and £0.0084 per song play.

This is only half the story.  These are Spotify’s own figures published on their website and apply to the free ad-supported service.  Spotify also claims that ‘The effective average “per stream” payout generated by our Premium subscribers is considerably higher’; and that they pay 70% of their revenue from streaming to the rights–holders i.e. music labels, publishers, and digital distributors.  The website states: ‘That 70% is split amongst the rights holders in accordance with the popularity of their music on the service. The label or publisher then divides these royalties and accounts to each artist depending on their individual deals’.

 

Following the trail of the individual deals has proven to be a near impossible task.  Very little information is available.  Spotify’s main competitors are Deezer, Pandora, Apple Music and Google Play Music.  Not all have followed Spotify’s lead in publishing data on percentage shares and payment per stream to rights-holders.

 

Earlier this year, The Verge, published online a leaked contract between Sony Music Entertainment and Spotify.  Agreements of this kind had been a secret prior to this point.  Not exactly an individual deal between artist / label, it was a two year agreement which revealed Spotify are contracted to pay Sony a $25 million advance with a further £17.5 million advance for an optional third year; totalling $42.5 million in advances.  Speculation has been raised whether this money has ever been distributed to Sony’s artists.  Music industry insiders claim that labels routinely keep advances paid outside of direct usage.

 

Other details reveal that Sony is the recipient of free ad space on Spotify’s ad-supported service at discounted rates.  This amounts to a total of $9 million dollars over three years.  This would mean that Sony’s artists on Spotify’s free ad-supported service may be in receipt of even less than the stated $0.006 and $0.0084 per song play – possibly nearer to zero – as revenue ads supporting Sony’s artists would be reduced by $3 million per year.

 

Another significant revelation is how much Spotify is contracted to pay Sony per stream. The premium tier is based on a formula of Sony’s label usage percentage multiplied by the number of Spotify premium subscribers (15m), multiplied by $6.00.  Hence, a 20% label usage would produce £18 million for Sony.  A similar formula for the free tier is based on a revenue share equal to 60% of Spotify’s monthly gross revenue multiplied by Sony’s percentage of overall streams.  So, if Spotify grossed $100m monthly; then if Sony’s percentage of streams is 20% of $60m, that would pay out $12m.  Considerably less.

 

So, drilling down on these potential earnings, how much do artists get paid? The leaked contract is a good template of the deals done between the streaming services and the rights-holders.  It reveals how much Sony Music and other labels are likely to get in advances from Spotify and their likely monthly earnings.   No artist agreements have come to light.   To try to find an answer to the question, it is necessary to refer back to the Spotify website.   How much each artist receive depends on their individual deals with with their labels, publishers and digital distributors .. the conclusion to be drawn is that no two artists may have the same deal with their label, and quite possibly no two labels may have the same deals with Spotify, thus muddying the waters even further.

 

One artist who has self-published on Spotify and other streaming services is Zoe Keating who has revealed on her website (www.zoekeating.com) that nearly 97% of her income come from sales of her music on iTunes, Amazon and her own Bandcamp website (via downloads) .   Her streaming income during a six month period from Spotify was less than $300 compared to $47K from iTunes, $25k from Bandcamp and nearly $11.2K from Amazon.

 

A 2014 digital music report from The International Federation of the Phonographic Industry (IFPI) stated that the number of paying subscribers rose from 8 million to 28 million and that music streaming and subscription is now the mainstream model for the music business.  They backed this up with claims that subscription and streaming rose from 19% in 2012 to 23%, while the number downloading fell from 28% to 27% globally; while in Britain downloaders remained static and  subscribers grew from 19% to 22%.  Also, streaming is more popular than downloading in Sweden, France and Italy.  However, these are figures released in 2014 based on data collected three years prior.  It is debatable whether these figures, now outdated in a fast moving market, may be a natural uptake driven by smartphones and tablets and which may have peaked,

 

Like a fly in the ointment, SoundCloud appear to be bucking the statistics favouring subscription streaming.  It now has more than 175 million unique users per month.  It started out as a free music streaming service providing a digital distribution platform for creators to upload, record, promote and share music.  Significantly, as a free music streaming service with the largest declared users per month; their nearest rivals Spotify and Pandora have 75m and 77m users per month respectively.

 

The downside to this is that SoundCloud do not pay musicians or their collection societies or labels any royalties and are currently in dispute with the performing rights society, (PRS), for copyright infringement.  Their defence lies in the safe harbour provisions which protects them from claims on the basis that SoundCloud is a hosting service.  They claim they have no actual knowledge of illegal activity or information uploaded to their platform and as soon as they are made aware of it, they remove the offending material immediately on notification.   In June 2015, they announced that they had struck a deal with over 20,000 independent labels to pay royalties.  How long can SoundCloud remain a free service, remains to be seen.

 

And now in the very latest update (Oct 28, 2015) Deezer announced it was abandoning its IPO launch to raise $300m by going public, quoting tough market conditions.  Its prospectus revealed revenues increased from €63.6m in 2012 to €92.8m in 2013 then €141.9m in 2014, while its net losses over that three-year period were €28.8m, €22.1m and €27.2m respectively. Published IPO documents reveal that Deezer ended June 2015 with 3 million subscribers and 3.34 million “monthly inactive bundle subscribers” – people who get the service as part of a mobile or broadband contract, but do not use it.  (Meanwhile, Apple Music has claimed 6.5 million paid subscribers in its first month of paid subscriptions, September 2015, but how many of those are iTunes ‘inactive bundle subscribers’?)

 

Rival Spotify recorded net losses of €58.7m in 2012, €55.9m in 2013 and €162.3m in 2014, while Pandora (which went public in 2011) reported net losses of $40.7m in 2013, $30.4m in 2014, and $24.5m for the last 11 months of 2012.

 

Jay Z’s tidal has barely half a million users since its star studded launch on 30 March 2015 which attracted global publicity.  Google Play Music have no published figures for monthly users.

 

It’s an ever changing market set against a background of new business models, new players and developing technologies – some of which look destined to fail:  so watch this space!

 

© George Chin 2015

 

http://www.nielsen.com/us/en/insights/reports/2015/music-360-2015-highlights.html

 

http://www.techradar.com/news/audio/spotify-and-co-have-officially-overtaken-the-old-music-scene-1304860

 

http://www.musicbusinessworldwide.com/youtube-says-paid-2bn-music-rightsholders-really-mean/

 

http://www.theguardian.com/music/2014/nov/04/taylor-swift-spotify-streaming-album-sales-snub

 

http://www.spotifyartists.com/spotify-explained/

 

http://www.theguardian.com/technology/2015/oct/20/apple-music-people-paid-streaming-service

 

http://www.theguardian.com/technology/2015/oct/28/deezer-ipo-music-streaming

 

Streaming Reaches Flood Stage: Does Spotify Stimulate or Depress Music Sales? https://ec.europa.eu/jrc/sites/default/files/JRC96951.pdf

 

http://www.musicbusinessworldwide.com/deezer-scraps-ipo-that-could-have-raised-400m-heres-5-reasons-why/