By DAVID BYRNE – JULY 31, 2015
Putting together a picture of where listeners’ money goes when we pay for a streaming service subscription is notoriously complicated. Here is some of what we do know: About 70 percent of the money a listener pays to Spotify (which, to its credit, has tried to illuminate the opaque payment system) goes to the rights holders, usually the labels, which play the largest role in determining how much artists are paid. (A recently leaked 2011 contract between Sony and Spotify showed that the service had agreed to pay the label more than $40 million in advances over three years. But it doesn’t say what Sony was to do with the money.)
The labels then pay artists a percentage (often 15 percent or so) of their share. This might make sense if streaming music included manufacturing, breakage and other physical costs for the label to recoup, but it does not. When compared with vinyl and CD production, streaming gives the labels incredibly high margins, but the labels act as though nothing has changed.
Consider the unanswered questions in the Swift-Apple dispute. Why didn’t the major labels take issue with Apple’s trial period? Is it because they were offered a better deal than the smaller, independent labels? Is it because they own the rights to a vast music library with no production or distribution costs, without which no streaming service could operate?
The answer, it seems, is mainly the latter — the major labels have their hefty catalogs and they can ride out the three-month dry spell. (The major labels are focused on the long game: some 40 percent to 60 percent of “freemium” customers join the pay version after a trial period.)
I asked Apple Music to explain the calculation of royalties for the trial period. They said they disclosed that only to copyright owners (that is, the labels). I have my own label and own the copyright on some of my albums, but when I turned to my distributor, the response was, “You can’t see the deal, but you could have your lawyer call our lawyer and we might answer some questions.”
It gets worse. One industry source told me that the major labels assigned the income they got from streaming services on a seemingly arbitrary basis to the artists in their catalog. Here’s a hypothetical example: Let’s say in January Sam Smith’s “Stay With Me” accounted for 5 percent of the total revenue that Spotify paid to Universal Music for its catalog. Universal is not obligated to take the gross revenue it received and assign that same 5 percent to Sam Smith’s account. They might give him 3 percent — or 10 percent. What’s to stop them?
The labels also get money from three other sources, all of which are hidden from artists: They get advances from the streaming services, catalog service payments for old songs and equity in the streaming services themselves.
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