Streaming’s remuneration model cannot be ‘fixed’

The #brokenrecord debate continues to build momentum and new models such as user-centric are getting increased attention, including at governmental level in the UK. But as Mat Dryhurst correctly observes, there is a risk of the market falling into streaming fatalism; that the obsession with trying to fix a model that might not be fixable distracts us from focusing on trying to build alternative futures.

I have previously explored what those new growth drivers might be, but now I want to explain the unfixable problems with the current streaming system for creators and smaller labels. Streaming’s remuneration model cannot be ‘fixed’, but that is mainly because of its inherent structure. Tweaking the model will bring improvements but not the change artist and songwriters need. Instead of exploring sustaining innovations for streaming, it is time to explore new disruptive market innovations

Product remuneration versus project remuneration

Smaller independent artists and labels are outgrowing the majors and bigger indies on streaming, so why are we having the #brokenrecord debate? Why isn’t it adding up? The answer lies in how artists and songwriters are remunerated. In all other media industries other than music and books, creators are primarily remunerated on a project basis. An actor will be paid an appearance fee for a film or TV show; a games developer will be paid for their time on a project; a sports star paid a salary; a journalist paid for a story. In many of those cases the creator will sometimes have the opportunity to negotiate a share of profit too, an ability to benefit in the upside of success. But, crucially, the media company has assumed all of the risk. Also, of course, the media company owns the copyright.

Artists and songwriters might get an advance, but that is a loan against future earnings, not a project fee. Artists and songwriters, like authors, are remunerated via product performance. They shoulder the risk, and most of the time they do not even own the copyright. Actors and sports stars do not have to worry about slicing up a royalty pot; they have been paid for their creativity whatever the outcome of the project. Any royalty splits are an upside, an ability to benefit from success rather than a dependency for income.

The consumption hierarchy has become compressed

Music used to be split into a neat hierarchy, with radio and social being about passive enjoyment and generating usually small royalties, while albums were about active fandom that generated large income. Streaming fused those two together into one place and created a royalty structure that, in artist income terms, resembles radio more than it does album sales. The problem does not lie with how much streaming services pay (c.70% of income is a hefty share to pay out), but instead:

  1. how those royalties are divided up
  2. the way they monetise consumption
  3. the fact royalty rates are determined by how much streaming services charge

Streaming rates are going down because users are listening to more music and streaming services are charging less per user due to promotions, trials, multiple-user plans, telco bundles, student plans etc. Even before you start thinking about how the royalty pie is sliced, it is getting ever smaller in relation to consumption – and there is no onus on streaming services to protect against rates deflation because they pay as a share of income rather than a fixed per-stream rate (for subscriptions).

Monetising fandom

Music fans care about artists and songwriters, and given the opportunity and the right context many fans will support them. But that context is often artificial and happens outside of the normal consumption experience; for example, a music fan listening to a band on Spotify then going to Bandcamp to buy an album. It requires a conscious decision for the fan to say ‘I want to support this artist’. No such decision is necessary for a sports fan or movie fan because the remuneration system already ensures the talent has been adequately remunerated. On top of this, most music consumers are not passionate fans of most artists, so most will not make that step.

There are two natural paths that follow:

  1. Build fandom monetisation into the streaming platforms, e.g. virtual artist fan packs, virtual gifting, premium performances, creator support etc. I have written at length about how Chinese streaming services do well at monetising fandom, but there it is the platform that benefits most, not the artists. Western streaming services have an opportunity to monetise fandom for the creators, not for the platforms.
  2. Create new models where consumers pay for artist-centric experiences. These will always be more niche and have the challenge of building new audiences rather than tapping into existing streaming audiences, but the decision does not need to be ‘either/or’.

The third way

There is additionally a less obvious third path, that would reframe the entire basis of artist/label/publisher/songwriter/streaming service relationships: direct licensing for creators. No streaming service is going to want to do this (they already prefer to negotiate with aggregators rather than small labels) and labels and publishers are unlikely to want to cede such power. But a pragmatic compromise could be a new generation of artist and songwriter contracts that provide for the creators to set stipulations for royalty floors to ensure that they do not pay for streaming services cutting their prices via promotions and multi-user plans. This would also require rightsholders to ensure that streaming services set a royalty floor which in turn would compel streaming services to start pushing up the average revenue per user and perhaps even introduce metered access for users.

Options 1 and 3 are not exactly easy to do and they would require seismic industry change with wide-reaching impact. But if the industry wants a significant change in creator remuneration, then it needs to embrace truly disruptive innovation rather than spend its time tweaking a model that simply cannot change in the way many want it to.

3 thoughts on “Streaming’s remuneration model cannot be ‘fixed’

  1. I don’t agree that it can’t be fixed to being “good enough” personally. I think it would be quite simple to do so actually.

    Prices for unlimited tiers need to go up a bit. Maybe $15 a month? Maybe $20 for unlimited at higher bitrates? Fewer discounted plans.

    Then mid tier options need to actually be tried. Nobody has ever even really tried a sensible mid range plan, but I know they’d work for a lot of customers. Not everybody wants to spend $15 a month, which is fine! Somebody should be able to get saaay 250 ad free plays for $4.99 a month. 500 for maybe $7.99, 750 for $9.99… Funny thing is on a per stream basis that’s all better than pay is now. Notice the lower tiers are paying double or so what current per play payout rates are? Heck, maybe offer a straight a-la carte per stream thing, or booster packs if you go over your lower limit so you don’t get ads thrown your way after you hit your cap. There’s also windowing and limited selection ways to go, ALL could be offered to tailor things to the customer, while still not giving away the farm.

    Then free tiers need to get considerably worse in terms of more ads, probably less selection, and maybe an ultimate cap even with those things.

    That pushes people to actually pay for the lower tiers. The problem with streaming isn’t even really what paid subscribers are paying really, it’s that such a huge portion of the population doesn’t pay and uses a waaaaaay too good free account to do so. The free stuff doesn’t bring in enough ad revenue to work. If every streamer had even a half baked paid plan there would be plenty of money to make the music business work again IMO. Not that the other stuff shouldn’t happen too, like tipping in app, premium content for artists, etc. You don’t have to do one or the other.

    How can the majors not like the idea of getting double per stream from a lower tier like the above? How could Spotify not like the revenue? Fact is, it would be great for all parties, and I am mystified as to how every major company has been so stupid as to not try something as simple as: If you buy more of our product, you get a better price per unit. Which literally every other business on earth does!

  2. Pingback: MIDiA: Streaming’s remuneration model cannot be ‘fixed’ – RightsTech Project

  3. Pingback: Le streaming musical doit-il migrer vers un nouveau modèle de rémunération des ayants-droits ? – ESSEC Chaire Media et Digital

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