How Much Streaming is Really Worth to Artists: a Consumption Analysis

The streaming debate has been a watershed moment in artist empowerment, a discussion which has allowed them discover that they can have a meaningful voice in the digital debate.  Crucially it has also been a democratization of the artist voice.  In the days of Napster it was only the superstar artist who got airtime to argue for (Chuck D) or against (Lars Ulrich) file sharing.  Now in the days of social media the playing field has been levelled.  The streaming debate has also been a coming of age for artists as business people, coming to terms with the wealth of analytics and sales data they now have at their fingertips.

Messy Data

All of this has been good and positive, and it is an evolution that I look forward to seeing continue.  However there has been an unfortunate by-product of the process.  With an artist posting their latest streaming versus download income data practically every week the focus has been on quantity of data not quality and, most importantly, data has often been misinterpreted and stripped of crucial context.  The situation is compounded by the murkiness created by the mass of moving parts that determine how much an artist gets paid. These include: what sort of deal the artist is on, whether they are recouped, whether the artist is just a performer and/ or a songwriter, whether the label is redistributing all of its advance payments from the streaming services with artists, whether the artist is paying additional fees to distributors / aggregators and how good a deal those organizations have struck with streaming services.

The transition from the distribution era of selling units of stuff – whether that be downloads or CDs – to the on-demand consumption era is without doubt a highly disruptive process.  As the overused cliché of corporate managers goes ‘change is difficult’, and the future can look even more daunting when the new world is viewed through the same eyes we understand the old one.  So as much as the ‘how many track streams an artist needs to equal one download’ comparison is understandable, it is not the most useful analysis.  It measures consumption models by distribution model metrics, which is as useful as comparing the speed of a car to a plane.

Setting the Right Benchmark for Assessing Streaming

This week economics academic David Touve compared downloads to radio instead – something which I did back in February.  It is a useful exercise in that it places streaming in a range, somewhere between downloads and streams but it is still only part of the story. After all, radio is meant to be the discovery journey, not the consumption destination.  Artists cannot afford to live off radio alone (especially not in the US).

At the other end of the scale the 1 stream = 150 to 200 downloads comparison is fraught with problems.  Indeed, if you multiply the streaming average of $0.005 by 150 you get a value of $0.75 which is virtually the entire retail price of a download. Clearly this cannot be right.  The retailer needs to take their cut from a download sales, then the label, then the publisher, then collection agencies, distributors, aggregators etc etc.  Only a very small share of artists will ever get near that sort of rate: DIY singer songwriters. And it is no coincidence that they are the ones who have been most active in ingesting data into the streaming debate.  A standard label artist can expect closer to $0.09 from a download (as publicised by Chuck D a year ago) which is only 18 times the streaming pay out rate. Though of course some artists (who are also songwriters and are on 50/50 net receipt deals, that are fully recouped) could hope to earn nearer $0.40 per download.

What is clear is that the ‘moving parts’ of individual artists’ commercial terms are so variable and so complex that they prevent meaningful comparisons between streaming and downloads.

The Consumption Analysis

So to create a more useful set of metrics to work with I have created a comparative methodology called the Consumption Analysis.  This  creates a like-for-like comparison between the value of a stream and a download to artists and strips out entirely the artist’s commercial terms ‘moving parts’.

This is the basis of the approach:

a)      First, downloads are paid for once but played many times, so a price per listen is needed.  This is determined by establishing the lifetime value of a purchased track and dividing the sale price by the total number of plays it will receive after purchase. (I have set this at a modest 12 plays per track over 3 years)

b)      Next the multiple moving parts that confuse the streaming debate need stripping away to enable like-for-like comparison.  Streaming and download services both pay approximately 70% of income to rights owners.  We then work out how much money per stream is paid out to rights owners ($0.0112) and what the average $0.005 artist pay out is as a share of that (45%).

c)       The resulting net-neutral artist-to-rights owners ratio can then be applied to downloads, and then averaged out by the total number of plays a track receives in its life time (i.e. 12 plays in 3 years)

(For sake of complete transparency you can download the entire Excel document here – please go ahead, play around with some of the key levers and feel free to post your own findings.)

Downloads and Streams are Much Closer Than The Current Debate Suggests

The net result is, working on a pure like-for-like basis, the per-play value of a download to an artist is $0.033 compared to $0.005 for streaming.  Downloads are thus 5 ½ times more valuable to artists than streams.  Of course this is still a disparity but it is much, much less than the 150 to 200 times value that has become common currency.

It is also worth noting that the artist streaming pay out rate ($0.005) is actually 45% of the rights owner pay out rate ($0.0112).  So artists are earning nearly the same out of streaming as the labels and publishers.

None of this is meant to belittle what is a massively important issue for artists, rather it is intended to help them understand where a path to solution might lie and to have a more balanced understanding of the value of streaming. Clearly there are many complex issues that need to be addressed between artists and the numerous parties they have commercial deals with and who therefore take a cut of their digital income. There appears to be more ‘noise’ in the revenue transition from music service to artist for streaming than for downloads.  It is likely that much of this is related to the fact that the streaming model is still finding its feet and that levels will balance out over time.   But there is certainly a case for artists taking charge of their own destinies and getting to the bottom of their individual situations.  That does not just mean with the record labels either, it means each and every platform, agency, rights body and rights holder they have commercial agreements with.

What the Consumption Analysis reveals is that on a like-for-like basis, streaming services are clearly much closer to download services than the current debate suggests. The 150 to 200 range is neither useful nor accurate.  All of this should hopefully help build some more confidence in a future in which streaming plays a key role.  This is even before considering the oft touted scale argument that underpins the case for streaming.  Factor that in and we start getting towards a picture of an industry that could genuinely grow after years of decline, if streaming does indeed go mainstream.

I am not suggesting that streaming is the answer to all of the music industry’s ails but it can certainly bring a lot more right across the value chain than the current streaming debate suggests.