Friday, December 12, 2014

Is Spotify Overpaying Musicians?

There’s a lot of recent discussion about whether musicians are being adequately paid via streaming services, such as Spotify. Spotify doesn't calculate royalties based upon a fixed “per play” rate, but as they point out on their website, the variables involved in producing payments for rights holders have led to an average 'per stream' payout of between $0.006 and $0.0084.

At first glance this rate seems abysmally low. David Byrne reinforces this assessment by providing us with the following bit of math:

“For a band of four people that makes a 15% royalty from Spotify streams, it would take 236,549,020 streams for each person to earn a minimum wage of $15,080 a year. “

Similarly, Radiohead’s Thom Yorke has complained that new artists ‘get paid fuck all' by the streaming service. I wonder how this compares to what new artists could expect before the streaming service existed?

It seems to me that this aspect of the economic journey from bedroom studio to stardom hasn't changed. What has changed is that record labels no longer act as a monolithic gateway to public discovery. You want to stream your music on Spotify, you can.  And if you do elect to make your songs accessible on Spotify, and the world loves your work as much as they love Taylor Swift's tunes, say, then Spotify will write you some pretty hefty checks.

Either way, making a million dollars shouldn't preclude one from inquiring whether or not the fruit of one's labor, talent or intellect makes one deserving of a million more.

In making a separate case for assessing the fair retail cost of an album, Trent Reznor presents us with his own view on the value of his music:

“I'm saying my personal feeling is that my album's not a dime. It's not a buck. I made it as well as I could, and it costs 10 bucks, or go f--k yourself.“

Unfortunately,  for Reznor, however, Price is not independent of Value, and Consumers, not Producers, determine Value. So, if you set the price too high above the commonly perceived value for any given item or service, then be prepared to sell nothing.

Byrne appears equally upset by Spotify's royalty payment algorithm as he is by the split that recording artists potentially share with other rights holders to the material, if they exist –maybe not for indie artists, probably so for those signed to a major label.

He has a point: Per Herrey, an attorney for the Swedish Musicians’ Union, suggests that musicians may only collect between 6 to 10 percent of revenues paid to record labels from Spotify and other streaming services. If you believe that artists are being short changed by participating with streaming platforms, it’s not because those platforms may be withholding monies from artists; it’s because artists have accepted agreements whereby the parties that fund and market their recordings, and which collect payments on their behalf,  are granted the lion's share of returns.

Reznor and Yorke, on the other hand, are united in their affinity for an economic paradigm that resembles the traditional model, whereby the public front monies to recording artists for an undetermined number of plays, as in 'You pay me ten bucks, you get a lifetime of music, regardless how many times you play the music'. This model certainly favors rights holders, but should we really allow the same criteria to define this modern market? After all, when I want an apple, I don't buy a lifetime of apples just to eat one now, nor do I pay an artificially high rate to obtain the apple, or even what the orchard owner wants for an apple; I pay the market rate.

Either way, if you love music as much as I do, you've no doubt also probably attempted to solve the following riddle:

How much should a single stream be worth?

Like Reznor, I think ten bucks is a pretty decent price for an album. Personally, I don't think 20 bucks –or even 30 bucks– is unreasonable for a 12-song playlist album, given the power of music in my own life. However, recalling my 13 year old self (which would never use the word 'however'), ten bucks seems just about right.

So, let me make an argument, and for the sake of this argument, let's agree that the typical number of songs per album is 12 songs. Maybe it's actually less than that, –maybe it's 10 songs–,  I don't know, but either way, I'm simply thinking out loud here, and I may make some assumptions based on purely anecdotal evidence.

Anyway, if we sell our hypothetical album of 12 songs per album for  a fair price of $10.00, then the initial price of each song at retail is fairly assessed at $.83 cents. Certainly, one might argue that the unbundled product should cost more than the bundled product? I agree; therefore, let's pin the value of each individual song at aprx a %20 higher rate than the bundled price and call it $1.00 flat. By those terms, the bundled album is not only fair, but actually a much better deal for the consumer (because at $10.00,  it's like getting 2 songs for free!)

At this point, we must then inquire from both manufacturers of the product and consumers of the product, what should be the product life expectancy for an album? Is it the lifetime of the buyer?

Before the Internet and purely digital products, product life expectancy –be it for vinyl, tape or compact disc– was from point of purchase until it broke, or we chose to replace a given title produced in one medium for an otherwise identical purchase of the same title in another medium.

Maybe our new car had a cassette player instead of an 8-Track, so out with the 8-Tracks, for instance.

Sometimes we even bought the same product twice, not because it had worn out, but because we needed the product in two different mediums to serve two different functions: Olivia Newton John, for instance, 'Let's Get Physical', vinyl for dancing around the living room, and a cassette for the Walkman and the gym.

Since vinyl is making a come back today, I'd like to suggest that the general product life expectancy for recorded music be assessed by the same measure.

Now, some people might tell you that they’re still playing their original Ramones records that they bought 30 years ago and they still sound great. However, for those of us who lived through the mass transfer of record collections from vinyl to Compact Disc, it was pretty common activity to abandon a worn out 'Kiss Alive' double album with a threadbare jacket that you bought in 1975 for its CD equivalent in 1988.

To my mind, this suggests that, pending technological advances or ever evolving novelty options, most consumers will be happy if a given recording on a given medium provides them with 13 years of service.

We might therefore say that after 13 years of possession, whether we have listened constantly without interruption (highly unlikely) or intermittently (based on our taste and the options available to someone with an ever growing music or media collection), that our investment in a specific media unit is thus satisfied.

However, if we strictly amortize the cost of a single song over 13 years, not to mention 30, the cost for each unit declines to a profoundly shallow level. From another angle, some would argue that given the fickle fashion which pop music is subject to, that the expectation that any given song enjoy an active life expectancy of more than year is unreasonable. I disagree, but I accept the argument to a degree, if only to weight the value of a musical work in favor of the artist and other rights holders.

Therefore, let us agree that for the purpose of defining the value of a single fixed play stream, that we pin that value (reminder: $1.00 per song at retail) to the expectation that we will listen to that song as much as once daily for 365 days –one full year–, and whether those days are consecutive or not.

In other words, one buck buys us 365 plays of a given song, regardless of medium. Likewise, $10.00 provides us with a product life expectancy of 4380 total plays a year when we buy all 12 songs bundled as a complete album (and 730 of those plays are essentially 'free').

If instead we consider music a service rather than a product, it's still an exceptional deal:

If the average song is 3 minutes (and some analysts suggest that it is as much as 40 seconds longer), then $1.00 provides us with 1095 minutes of pure listening, dancing, grooving, flirting, having sex,  burning-calories-on-the-treadmill or blotting-out-your-co-workers pleasure. Or to put it another way, $1.00 buys you an 18 hour soundtrack with which you can enhance any life activity you can imagine. Wow.

So, it should be surprising, then, to learn that when we finally reach the summation of our inquiry, using the reasonable prices that others propose, that the fair fixed cost per stream of a single individual song comes out to a whopping $0.0027 per play, per single listener ($1.00/365 days).

Since Spotify pays rights holders between $0.006 and $0.0084 per stream, is it reasonable for its critics to turn about face and now ask if the service provider is in fact over paying rights holders?

Or maybe an album is worth more than ten bucks.

The simple fact is that even if albums were $50.00, and singles moved for $5.00 a song, once we amortize over the same time frame as above –1 year–  rights holders are still only entitled to a little over a penny per play ($.0136). Perhaps in the future, given the ever increasing cost of living, singles will be $5.00, but is that time now?

But wait –there's actually no reason to think that the retail cost for music will ever rise much higher than it is now, or if it does, that it will remain elevated for long. As streaming gains in popularity, production and distribution costs will drop, and with them, one expects, also the cost to the consumer.

In the past, music manufacturers were able to sidestep the determinants of economies of scale because they changed formats every twenty years, thereby motivating consumers to re-purchase entire libraries in a new medium, and usually at the higher cost of a brand new thing. Now that audio no longer requires bonding or embedding in or on a physical container, and as manufacturers and distributors achieve increasing populations for streaming,  the average price per unit will likely decline, and with it the per stream average payout to rights holders.

Of course, it's reasonable to suggest that this should have happened already, given both the exponentially diminished cost in producing music, packaging it and distributing it, relative to just about any time during the last half century.

Nevertheless, if major music industry stakeholders can't establish another means of sustaining artificially high prices, then in another decade or two, there may be yet another zero to the right of the decimal. –And if that happens, then we may even look back on this time as the glory days when rights holders earned not as little, but as much as $0.006 and $0.0084 per play.

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