How much do streaming services pay artists? The question has been asked with increasing frequency of online services from Spotify to Rhapsody and even iTunes, yet is often met by disparate – and thus unenlightening – figures, or naïveté. Illustrating this latter occurrence with nothing but the best intentions, Rhapsody president Jon Irwin stated in an op-ed for Billboard last week that the company has paid out “hundreds of millions” to rights holders since 2001, and that he “trust[s] that this royalty revenue is flowing to artists.”
The accuracy of Irwin’s statement – and the validity of this “trickle down” theory of streaming royalties – may quickly be called into doubt upon the realization that streaming services such as Spotify and Rhapsody are only contractually obligated to pay whoever owns the music, and not necessarily the artists themselves. For this reason, Glenn Peoples of Billboard posits that this post’s initial inquiry misses the target. Streaming services need only concern themselves with making sure the appropriate rights holders are paid, and given the ubiquitous inequities in bargaining power between most artists and their labels, it is far more likely for a label to own the underlying copyrights to the master recordings than the artist. When this is the case, then what Spotify and similar services must pay to the artist is entirely between the artist and his or her label, and artist recording agreements vary widely from deal to deal.
While there is nothing inherently illegal about such an agreement (such is the practice in the music industry), the position of labels as intermediaries between streaming services and artists makes it difficult to obtain any sort of transparency regarding the actual royalties streamed down from the services to the artists. Due to increasing worries about the amounts being paid out by subscription services – and to whom – recent discussions have ignored the steadfast existence of the industry’s financial hierarchy. Perhaps that is a good thing, incentivizing an artist or manager who is unsatisfied with the amount of streaming royalties received to directly approach the label or distributor responsible for negotiating the deal with the streaming service. Or perhaps we need better laws and business models in place to protect uneducated artists and those with particularly weak bargaining power from having to negotiate those rates independently (and probably unsuccessfully).
Coldplay’s recent refusal to license its newly released album, Mylo Xyloto, to any on-demand streaming service speaks to the concern that platforms like Spotify may not provide a financial benefit to the actual artists. Evidence that the free model of Spotify and other similar streaming services may be diverting potential customers away from paid download services like iTunes makes Coldplay’s decision to withhold content even more enlightening. Perhaps larger artists like Coldplay risk losing more income from streaming services than do smaller artists, who would not experience the same volume of paid downloads. In fact, an impressive 40% of Coldplay’s early Mylo Xyloto sales came from paid downloads. To put it simply, there is no way Spotify royalty income will ever come close to the amount a big act like Coldplay could make by selling albums and downloads. A study conducted last year reveals that in order for an artist to earn the federal monthly minimum wage of $1,160, their fans must stream a staggering 4,053,100 plays per month (versus “only” 12,399 digital downloads per month).
The disparity between per-stream payouts and those for actual digital downloads raises the question: is legal intervention necessary to protect artists from manipulative labels pocketing their streaming royalties? Placing the burden of finding a solution to this nearly impossible dilemma on streaming services unfairly attacks companies trying to run legitimate business operations that simply lack the expertise to tackle this issue, not to mention that most services are private companies with no obligation to report sensitive financial details to the public. Could artist and continuing legal education seminars effectively help artists and managers better negotiate terms in their recording and publishing agreements and take full advantage of revenue streams from constantly evolving technologies? Should we ask our legislators to draft more effective anti-piracy laws and/or increase the statutory royalty rate? Anti-piracy laws alone will not directly solve the problem, however, since many former P2P downloaders may instead turn to free streaming. The solution will require an ongoing and candid dialogue between artists, labels, distributors, and legislatures alike.