I was at a rather good concert last night and while pondering what share of the few thousand in the room had actually bought the artist’s latest album I came up with the germ of an idea for how artists can be better compensated from streaming. This is the proposal…
The overriding artist streaming concern is that streaming will cannibalize album sales and result in lower income. Many labels and others counter that streaming will deliver at least as much revenue but over a longer period of time. Because labels have big catalogues of music they benefit from ‘scale’ more quickly than artists how have much smaller catalogues. A label may measure the increased income from a million more subscribers in hundreds of thousands of dollars, but an artist may measure it in 100’s of dollars.
So is there then not a case for labels changing their income distribution models with artists? Namely increasing advances by a factor of X and then instead of paying that in one lump sum, distributing it to the artist say every quarter for 3 years? Let’s call this the Staggered Advance. This would effectively give the artist a salary from the label and take the worries about income per stream out of the equation. The down side is that many more artists may never see actual royalty income than do so now, as it will be harder for them to recoup.
The challenge is what ‘X’ should equal. To address that question, see the workings below. This hypothetical artist income model assumes the following:
- 100% of an artist’s fan base are now paying subscribers
- The artist is a performer and songwriter
- An artist earns $2.00 from a CD
- The artist receives 50% of a $0.01 per stream pay out
- A typical album is bought by only 60% of an artist’s fans and that the remainder, if they were on subscription services, would stream the album
- Streamers would also listen to some back catalogue
The net result of this model is that an artist can expect to earn from his/her fans about half what s/he would have earned from selling an album. Which means that a Staggered Advance needs to pay out twice the amount to the artist than is currently paid for standard advances.
Bear in mind that ‘at scale’ streaming services should expand that base of listeners further with streams from casual listeners, and new additional income from core fans when the album is re-listened to as a catalogue album in the future. So the total income (i.e. not just from fans) will be higher.
Also a crucial assumption here is that the artist’s core fans will listen to the album an average of ten times. But that is predicated upon the album being good enough to make fans want to listen to the album that many times. This means that if an artist releases a duff album that fans only listen to twice on average then the income difference will be 80% less than from album sales. So there is a clear implication here: a poor album will earn an artist a lot less on streaming compared to albums sales, but the difference will be a lot less for a good album. This is the democratization of music spend.
There are of course multiple additional variables and extenuating factors but the point of this exercise is to create a strawman for directional comparisons (you can download the excel model to test yourself by clicking on the link below). This proposal also comes at a time when labels are moving away from bigger up front advances, but it may be that this is the only truly viable tool the labels have at their disposal to be able to soften the impact of the transition to streaming for artists. Labels and streaming services alike need artists onboard and artists need streaming to make commercial sense for them.
Is this a step in the right direction? Download the model, play around it, stress test the assumptions and let me know. Hypothetical Artist Income Model – Music Industry Blog.