What is the value of exposure when exposure is all there is?

There is an existential debate going on at the moment, around whether streaming is paying artists enough. It may feel like a rerun of old debates but it is catalysed by COVID-19 decimating artist income. These are some of the key narratives: here, here and here.

In this piece I lay out the underlying economics of the argument. I also focus wholly on artist income as songwriter income is another topic entirely.

COVID-19 has reset the debate

The latest streaming royalty debate is not an isolated event. It is happening because COVID-19 has decimated live income, leaving many artists worrying about how to make ends meet. Last week, just before this whole debate kicked into gear I wrote:

“Live’s lockdown lag may have the knock-on effect of making artists take a more critical view of their streaming income. When live dominated their income mix, streaming’s context was a meaningful revenue stream that built audiences to drive other forms of income. It was effectively marketing artists got paid for. Now that artists are becoming more dependent on streaming income, the old concerns about whether they are getting paid enough will likely come back to the fore. It is in the interests of both labels and streaming services, that labels use this as an opportunity to revisit their streaming splits with artists. Labels cannot afford to have artists united against the labels’ primary income stream.”

None of this makes the debate any less important, but it explains why it is happening now, and with live revenue potentially set to take years to fully recover, it is a reality that streaming services and labels need to adjust to. It is in the interests of both labels and streaming services that artists feel like they are being treated fairly. But it is crucial that this debate is grounded in a firm understanding of streaming economics and that we do not return to the mudslinging of more than half a decade ago. A debate which, by the way, did not result in any fundamental change to how artist royalties are paid and was eventually followed by labels negotiating smaller revenue shares with Spotify and others.

Where streaming has got us to

Firstly, let’s lay some ground markers:

  • Streaming has driven half a decade of recorded music revenue growth, with the market now 42% bigger than it was in 2014
  • The wider streaming economy has globalised fandom and engagement
  • More people are listening to more music now than before

Streaming has been the change agent that turned around 15 years of decline. But it also completely reframed artist income from recorded music. In the old sales model artists would get a large sum of money in a relatively short period of time. Streaming income is more like an annuity, a longer-term return where the music keeps paying long after release. In the old model artists had smaller but high-spending audiences. With streaming they have larger but lower-value audiences.

For example, a recouped independent artist might expect to earn $4,500 for selling 1,500 copies of an album. That is roughly how much an artist would get from 5,000 people streaming the album 20 times each. The average revenue per user (ARPU) has gone from $3.00 to $0.90 for streaming. The artist has traded ARPU for reach.

This model worked fine when live and merch were booming because more than three times as many monetised fans meant three times more opportunity for selling tickets and t-shirts. This of course is the ‘exposure’ argument streaming services are fond of, which works until it does not. Now that live and merch have collapsed, as the trope goes ‘exposure does not pay the rent’. The previously interconnected, interdependent model has become decoupled.

Put simply, artist streaming economics do not work without live.

midia streaming royalty payments

The question is: what levers can actually be pulled and what effect can they have? In the above chart I have used Spotify’s 2019 premium revenues to illustrate how changes in royalty shares can impact what artists earn. I have used a total per stream rate of $0.06 as the base case, which could look on the high side for some artists, but the purpose is to show the relative change. Whatever amount the base rate is, it will increase by the same percentages.

The tl;dr of the chart is the most radical of the options (label rate returns to 55%, podcast dilution is removed from the royalty pot, a 25% increase in retail price and therefore royalties) results in a very meaningful uplift of 42% in royalties for artists from today’s current state. But, the three problems here are:

  1. Such measures could damage the commercial sustainability of streaming
  2. It does not change the underlying annuity model shift that streaming represents
  3. We are about to enter a recession. Music subscriptions are at risk, increasing the prices right now could accelerate subscriber churn. Meaning a bigger slice of a smaller cake for artists.

Let’s take the first two points in turn.

1) Spotify lost $184 million in 2019. With this royalty model it would have lost more than $1 billion. Spotify would have to reduce its operating costs by a fifth just to get back to losing $184 million. Critics would argue this represents trimming the fat. It might, but it would also likely lead to Spotify:

  1. Cutting back on product development
  2. Cutting back on growing its subscriber base
  3. Finding new ways to charge labels and artists for additional services

None of these are reasons not to pursue the strategy but they are prices that labels and artists have to be willing to take. Spotify revenue growth will slow. Furthermore, it will skew the market towards Apple, Amazon and Google who can afford to make music loss leading. In the mid term this may benefit artists, but in the longer term (i.e. when Spotify is sufficiently squeezed) these tech majors are likely to follow their MO of ‘reducing inefficiencies in the supply chain’. So be careful what you wish for.

2) Taking an artist straw person, with 20% of her total income coming from streaming, if live and merch only gets to 25% of its previous level, the 41% increase in streaming income would still see her total annual income fall by 40%.

No streaming lever can be pulled hard enough to offset the decline in live revenue.

So, let’s pull together all the pieces:

  1. Streaming royalties can be increased meaningfully if prices are increased and rates revisited but it may slow the streaming market
  2. Now is probably not the best time to be increasing streaming prices for consumers
  3. Even a big increase is not going to offset the fall in live income

There is not a simple, single answer to fixing the current crisis in artist income. A blended, pragmatic solution would be:

  1. Increase royalties at a middle option rate (do not increase prices until after the recession)
  2. Artists push their fans to buy their music at destinations like Bandcamp
  3. Professionalise and commercialise the livestreaming sector, with a strong focus on charging for events in order to create some live income
  4. Innovate virtual fandom products to drive new, additional income streams

It is not going to be easy for artists for some time yet. The hard truth is that income levels will not return to full strength until live does, and that is a way off yet. Streaming is more important now than ever so any solution must balance maintaining its momentum and scale with sustaining artist careers.

17 thoughts on “What is the value of exposure when exposure is all there is?

  1. Another great piece of analysis. Thanks.

    On Wed, 6 May 2020 at 10:37, Music Industry Blog wrote:

    > Mark Mulligan posted: “There is an existential debate going on at the > moment, around whether streaming is paying artists enough. It may feel like > a rerun of old debates but it is catalysed by COVID-19 decimating artist > income. These are some of the key narratives: here, here an” >

  2. The labels need to pay the artists more.

    The issue is with the masters owners NOT the DSP’s!

    Best wishes. Darren.

    On Wed, 6 May 2020 at 10:37, Music Industry Blog wrote:

    > Mark Mulligan posted: “There is an existential debate going on at the > moment, around whether streaming is paying artists enough. It may feel like > a rerun of old debates but it is catalysed by COVID-19 decimating artist > income. These are some of the key narratives: here, here an” >

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  5. Your posts today and on May 1 are important. But, no discussion about label/artist share of royalties can be isolated from song shares. Songs already get less than 1/4 the amount paid to labels. That is unconscionable. Strategies to increase the record share will further depress the song share. Songs can get more only if labels get less. Songwriters are getting crushed into oblivion. I’ve written about this for years. Your May 1 article inspired me to add this post: https://www.linkedin.com/pulse/songwriters-meet-new-boss-same-old-jody-dunitz/

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  7. Pingback: Un débat existentiel est en cours en ce moment, autour de la question de savoir si la diffusion en streaming est suffisamment payante pour les artistes – printzblog

  8. Forget it. I have six Cds and over 20 singles in streaming rotation. Over 100k plays per month. My average is $80-$120 a month. For endless hours of writing, recording, mixing, costs of mastering, artwork, etc. It’s just not worth it anymore. I haven’t written or uploaded a song in months. Just lost interest. “Oh look….such and such song got 14,000 plays this month. And made….$1.40!”
    Why bother, really. I can make $80 teaching a couple half hour guitar lessons.

  9. Are these numbers correct?

    “A recouped independent artist might expect to earn $4,500 for selling 1,500 copies of an album. That is roughly how much an artist would get from 5,000 people streaming the album 20 times each.“

    You’re talking about 100,000 streams here which actually = $400 by my reckoning you’d need 1Million streams to hit $4000 .

    Also, there should at least be mention of the user centric model (as being touted by Deezer) Which emphasizes potential benefits of “user-centric payment system” versus market share-based artist payments. That could actually make a significant difference and rebalance the existing model which clearly favours the biggest acts.

  10. The part of the argument stating streaming income is like an annuity makes no sense at all when applied to music. The vast majority of commercial music has an extremely short shelf life. Popular songs come and go off the charts and playlists quickly. People are not going to continue to stream the same song for 10, 20, or 30 years like some anuity. Another point talked about is driving fans to purchase music directly. Not going to happen. Fans know they can access millions of songs for free by putting up with some commercials, or pay a small fee to access music without commercials. The business model has changed from purchasing to accessing or renting music.

  11. Streaming services are middle-men sales reps. If they can’t afford the price of the product they shouldn’t be in business.

    If a car dealership can’t afford to pay for the car models it wants to sell it goes out of business. The manufacturer doesn’t eat the cost. Why should the musician?

  12. A lot of problematic musings here, many of which were already well accounted for by previous comments. The simple fact is: artists (AND LABELS) should be re-negotiating their revenue shares from streaming services. Spotify was valued at over $150 billion just months ago — why then is it not even proposed that a higher revenue share be worked out for artists & labels? Their infrastructure is not that expensive, nor is it entirely original or un-adoptable by other companies looking into the streaming game. If there is a coalition of the willing who will remove their material from a cut-throat, artist-hostile operation, it will force Spotify’s hand to either ADAPT (maybe losing some of their billions to spare) or settle for being a second-rate service with only CDBaby/Distrokids/up-and-comers desperate for plays. Fans will migrate to other services, and will be rewarded with better content and access to their favorite artists (see: Bandcamp).

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  14. Luke and Jody – label / artists shares absolutely need looking at. I’ve written about that a lot in the past and I assumed that this was taken as read as part of this discussion. In fact, what I was pointing at is that there is relatively little opportunity for significant increases from streaming services paying more without disrupting the entire model. Therefore labels also need to look at what they pay their artists. This is one of those problems where there is no silver bullet but instead an interconnected, blended approach is needed.

  15. First off, there ARE good label deals and bad. Sometimes labels aren’t worth their cut… And what cut a given label is “worth” is dependent on what they can do for you… But if you’re signed to a major or an on point indie they sure as heck are worth a big cut. People forget that almost every album ever released LOSES MONEY. The way labels stay in business, so they can book you on tour with a bigger act, get you on a TV show, make sure you show up as featured on major services, get your album reviewed in magazines/big music websites, etc is by spending the money they make on the albums that succeed and use it to pay for the albums that lost money… Which is most of them.

    Most artists are ultimately OVER PAID by the label, because their project lost money. The ones that recoup complain about the royalties, ignoring that they’re often only well known because of what the label did for them (IF it’s a good label). If they want to complain to anybody, complain to the artists that lost the label a ton of money, because that’s where the extra money their project made went! If every project was break even or profitable labels wouldn’t need a 50% cut, but they aren’t, so they effectively steal from the rich (popular artists) to pay for the poor (unpopular artists). Labels aren’t rolling in money nowadays guys, this isn’t the friggin’ 80s! Most of them are struggling just to survive. You can’t get blood out of a turnip.

    People never like to think about that side when bashing the “evil” record labels, but it is the truth.

    The REAL solution is prices need to go up for streaming services. PERIOD. Free needs to be far more limited, to drive people to subscribe. PERIOD. That is what is holding things back.

    I also think there need to be in between tiers that offer variable levels of service. How many people might pay for a “half as many ads” tier at $5.99 or $7.99 a month, but won’t spring $9.99 or the $12.99 (or higher) a full unlimited package should cost? How about a certain number of ad free plays a month? 250 for $3.99, 500 for $5.99? Then it reverts to having ads if you hit the limit. Both of those on a per play basis are higher priced than unlimited tiers pay now, hence on the “pay more to get a better deal per unit” pricing curve, which people tend to accept without question.

    There are obvious alternative pricing strategies that have never even been tried by a serious service. There are many other ideas worth exploring not mentioned above, like windowing of various types, genre or time period based subscriptions, etc. Then there are various deal sweeteners, some of which have been tried but not fully exploited IMO. Things like HD audio, music video access, and a million other potential options. The revenue per play from free tiers is so low that if you made free tiers worse and lost TONS of users, the streaming company and music creators would still be bringing more through the door. If you had conversion rates of barely 10% you’d be break even money wise. If you “forced” 20-30% of people to start paying, it would be a massive win for creators.

    No artist OWES the entire world free access to their creations. Many listeners clearly don’t care about the artists being able to make a living, so why should the artists care about pampering listeners that think they should be able to listen for an unsustainably low amount of income for the artist? They have no moral obligation to do so. Not even including population growth, just inflation, the US music industry would be over $20 billion a year right now if we use 2000 or 2001 as our starting point. Toss in population growth and it should be a might bit higher than that. If people would spring it then, they’d probably spring it now. Especially since real income is up on average since then.

    Music has value. The only problem is big tech refuses to ask for the money, and the major labels are dumb enough to let them get away with it.

    It may not be the best timing to jack prices right now, but it sure as heck needs to happen ASAP once the economy is on even slightly better footing. More people on paid subscriptions, and those subscriptions being at higher prices, is the only way to make things work for musicians themselves and the professionals who work with them to get their music out there.

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