We recently published a column about Spotify’s new pay-to-play initiative. This week we’re looking at what could practically be done to improve artist royalties from streaming. 

Last week Spotify announced that they intend to resurrect payola via their ‘Amplifying Artist Input in Your Personalized Recommendations’ initiative – by offering artists a lower royalty rate in exchange for promotion. Which would mean that Spotify would be getting paid by their users AND by the artists on their platform who already generate their not insubstantial income. 

Unsurprisingly many artists and producers objected to this brazen attempt to chisel even more money out of an artistic community ravaged by the pandemic and whose streaming royalties under the current model are already incredibly low (an estimated $0.00318 per stream).

The issue of streaming royalties isn’t going away soon, because like it or hate it, streaming isn’t going away soon either. Many in the music industry may well long for a return to an older system where people paid actual money to own actual things and that transaction could in theory sustain smaller recording artists and producers – but the streaming genie isn’t going back in the bottle any time soon. 

If your reason for running an inequitable near-monopoly to the detriment of music creators is that your computers aren’t good enough, maybe you need to get better computers. 

So if we’re stuck with what, from the position of smaller artists and producers, looks very much like an unsustainable business model, what can we actually do, aside from writing snarky columns about it? Is there a way of reforming the system that might be more equitable?

Well yes there is – we need to talk about a new, user-centric streaming model. Robert Hood has a new album out at the moment and his fans may well choose to stream nothing but this album for the next month. You might think then, that whatever portion of their subscription fee isn’t taken up by Spotify’s costs and outgoings (an estimated $5.20 of a $10 monthly subscription fee) would go directly to Robert Hood right? Wrong. 

In fact, due to the strange way that Spotify allocates streaming income, a large proportion of this hypothetical Robert Hood fan’s $5.20 would actually go to Drake and Taylor Swift. Yes, that’s right, most of your Spotify subscription goes to artists you never listen to, to artists you might actively dislike. They’re getting your money. 

This is because Spotify runs on a pro-rata model which means that they take all income generated from users, and also their ad revenue, and put this into a central pot. Once they’ve taken their cut what is left is then divided by the total share of streams that each artist receives in a month. So, for the sake of argument, if next month Spotify were to distribute $100 million to artists and Beyonce accounted for 2% of the streams then she (or whoever owns the right to her music if we’re being precise) would receive $2 million. 

That means that 2% of our Robert Hood fan’s subscription would go to the rights holders of Beyonce’s music, even if they’ve never actually listened to her. So, even if you only ever used Spotify to play Robert Hood, huge amounts of your subscription would be paid to the world’s most popular pop stars. Is this fair? No. It’s a system that benefits more popular songs over music from smaller artists. 

Think of it as moving the ‘Overton Window’ in streaming discourse a little towards the interests of artists and away from the interests of corporations

For the rest of this article, we need to put aside Spotify’s woefully low royalty rate. Whilst the long term goal, should, in my opinion, be a higher royalty rate, a user-centric model of streaming might be a step in the right direction that the general public could get behind. In this model, every part of your $5.20 that is distributed to artists, would only go to the artists that you actually listen to. It’s a way more equitable way of distributing streaming royalties. A study carried out in 2017 with Spotify’s cooperation found that a user-centric payment model would “in principle, increase the compensation of the right holders of less listened tracks, and, on the other hand, reduce the compensation of the most listened music.” Jari Muikku, the executor of the study and Digital Media Finland consultant:

”In the user centric model, the consumer has a better chance of having an influence on whom the money (s)he is paying for will be allocated to. This is a benefit for the entire music industry as it can, because of transparency, encourage more users to order the paid service.”

So if we’re going to take a pragmatic approach and attempt to reform streaming, then the user-centric model seems like a good place to start, not least because research suggests while many streaming users don’t seem to be bothered about low royalty rates, more of them would prefer their fee to actually go to the artists they love. User-centric streaming could be the cause that the public rally around. Think of it as moving the ‘Overton Window‘ in streaming discourse a little towards the interests of artists and away from the interests of corporations.

It’s only fair to mention that counter to this, a paper co-written by Spotify’s Director of Economics states that a user-centric model would be so computationally expensive as to be too costly for Spotify to manage. But it seems to me that if your reason for running an inequitable near-monopoly to the detriment of music creators is that your computers aren’t good enough, maybe you need to get better computers. 

User-centric streaming is one of the recommendations suggested by the #BrokenRecord campaign; more details are on the Musicians Union website.

Harold Heath is on Twitter.

Author Harold Heath
24th November, 2020

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