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Streaming - Rethinking Payment Structures

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Streaming services like to emphasise that their business model requires a new way of thinking: revenues are generated over a longer time period rather than right after the release of an album and they will grow as more users adopt streaming. But some rethinking has to be done elsewhere too, namely in the question of how labels and artists are actually paid. In this regard Wimp is taking the initiative.

Speculation about streaming and the deals that streaming services are making with labels has reached a level that you hardly ever find in other business models. Streaming services constantly emphasise that they pay out between 70 and 75% of their income to rights holders. Nobody sees what happens to the money next. If artists hardly see any of it, it’s because of individual contracts that are made with labels.

Of course outsiders can’t see the details of these contracts. The claim that we all have a right to Internet privacy doesn’t really help swing opinion about this, as consumers want to know the details – transparency is the most important thing for businesses these days. If you research streaming online you can find many different opinions from equally different artists. For example, established figures like Thom Yorke rant about Deezer, Spotify, et al. However, artists like the Radiohead frontman have already made a fortune from physical CD sales. They’re used to releasing a CD and profiting from it immediately in the weeks that follow. No wonder they’re not very pleased about streaming’s subscription-based model, which generates profits long-term. It’s time to think differently.

Think like a newcomer

On the flip side of the coin, newcomers don’t need to change their attitude. The era of physical CD sales is already coming to an end, in some places faster than others. Exceptions simply confirm the general pattern. Most newcomers don’t expect to make money from selling physical CDs. Many of them simply want to be heard, in order to be able to book a tour, which will eventually earn them some pocket money. For these acts, streaming services are simply another way to reach an audience and gain recognition. They’re prepared to accept that they wont earn particularly large amounts of money from it, especially at the beginning of their careers.

Ron Pope is an independent songwriter from New York City, who has shown that streaming does start to pay off long-term. He released information showing that he earned 334,636 dollars from Spotify in the period between September 2010 and November 2013. He earned more than 200,000 of this amount just last year. Pope releases his music with an independent digital distributor, avoiding major labels. This fact undermines the speculations about rip-off contracts between major labels and artists, showing that these accusations can start to lose their explosive power after a bit more transparency – or can they?

Nobody these days would deny that streaming has reached the mass music consumption market, or is at least well on its way. Fewer artists are withholding their catalogues from streaming services. It seems that people are starting to understand the streaming business model more and more. However, only the inner circle knows whether it’s being beaten down by contracts between artists and majors or not.

Where all the money goes

If you follow the path of streaming income after it’s been paid out to the rights holders, (i.e. the artists or labels involved) then you can get some idea of the situation. We know this much: the money arrives in a big pot and is then distributed further, according to the number of streams. However, whether major acts are given preference over independent artists, or whether they get a higher rate per stream is still uncertain. The only thing we do know for sure is that major labels demand large flat rates from streaming services simply in order for them to be allowed to use the label’s repertoire. The money in the pot does, however, go to the artist, according to the number of streams received. It’s also important to mention that all streams are not the same – there’s a difference between premium streams from paying subscribers and ad-funded streams. We can draw another conclusion about this model by using the following question: if I only stream a Kanye West track for one month, while my neighbour streams 1000 JayZ tracks, the neighbour is affecting where most of the money from the pot goes. Would it not be fairer if every user were considered individually? Shouldn’t my whole monthly payment of €9,99 go to Kanye West, if I only listen to his tracks? This question was first asked by WiMP, a new streaming service hoping to spark discussion in the music industry about the issue.

According to WiMP, the current streaming payment model doesn’t give enough credit to qualitative music consumption – for example, if you listen to one album intensively. A new model that made payments according to the listening habits of each individual streaming customer could change this. “What have we got to lose by discussing this idea?” asked Kjartan Slette, WiMP’s Head of Strategy. He continued: “We believe that this alternative model is fair: What you listen to should determine what is paid out. This would also mean that niche music genres like classical music or jazz could also profit. These genres are not background music; they’re actively and qualitatively consumed. I think that these genres are currently losing out due to streaming, as everything is put into this big pot. Genres that don’t generate as many streams also make less money. This is only my theory, but it seems to make sense. We’ll see…”

According to Slette, a model that was based upon each individual user would be more effective: “Artists would be more motivated to build up a strong fanbase and win over listeners, as they’d know that they could profit more directly from this than previously. I think it’s natural that these discussions have been inspired in Norway and Sweden, as these are the countries in which the streaming model was first established. We think that there’s no way around this discussion, especially now that streaming has become such an important part of music revenue. Hardly anyone is still asking whether they should release their songs onto a streaming service or not. Artists are concentrating instead on the question of how they can get the most out of streaming.”

Finally Slette expressed something that most people would hardly dare to dream about: music revenue could even get back to the level of the ‘golden era’. “These days it looks like we could reach that level again, maybe even improve upon it. Before, there was a limited amount of music available for you to pick from. Now, every streaming service has more than 20 million tracks. This means that even if we did reach the turnovers of the golden era, this amount would be shared between more artists. I would say that this is a fairer model than before. Of course, every artist would earn less on average, but the choice would actually be in the hands of the consumers in the end. I think that this is a democratic model.”

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