How Should the Music Streaming Revenue Pie Be Split?

The following MBW op/ed comes from David Israelite (pictured), President and CEO of the National Music Publishers’ Association (NMPA). The NMPA is the trade association representing American music publishers and their songwriting partners.

Beware of op-eds that seem encouraging but actually serve to misinform, blame and divide the music industry.

Deep within a recent piece about how streaming is sustaining the music business, written by the head of a trade association representing the biggest tech companies in the world, was a breakdown bemoaning the fees that streaming platforms must pay for the music that makes their services possible.

To fully grasp their perspective, one must first understand how the math really works.

They assert that, “[a]ny honest reckoning of our business must examine what happens to the 69 cents of every dollar that digital music services pay to record companies, music publishers, and PROs.” Well let’s keep them honest by first correcting their math.

While the services assert that out of every $100 collected they pay over $55 to record labels, it’s actually closer to $52.

They also say that $13.31 from the $100 must go song rightsholders, but the likes of Spotify actually currently pay only about 10.5% to music publishers and songwriters.

That 10.5% is where it is because of the streaming services’ current Copyright Royalty Board (CRB) appeal in the US, which seeks to convince three judges that they should pay songwriters even less.

While these may seem like small deviations, they amount to millions in revenue to struggling creators.

So in actuality, instead of $69, the real figure being paid out to music rightsholders from every $100 is closer to $62.50. This means streaming companies are keeping around 37.5% … to deliver music they didn’t create. Yet they still claim they pay too much. They also cynically blame payments to lawyers and managers and those that directly support creators.

Music is one of those products that has value far beyond the sum of its parts. Many would say that music is invaluable, however unlike the music they deliver to consumers, streaming platforms’ value is quantifiable.

They offer virtually unlimited music for a fee generally determined by what consumers are willing to pay in relation to other forms of music consumption. These platforms deserve credit for creating user-friendly interfaces to deliver songs to fans and for fans to discover music and, sometimes, pay subscriptions for that music. Most people would agree Spotify and others make music consumption cheap and easy, and therefore more people listen to even more music.

“The problem is not how the pie is split, it is the size of the overall pie – and the fact that streaming companies expect to collect even more than a third for themselves.”

More people discovering more music is good for the industry – particularly artists who can tour and sign endorsement deals based off their popularity. Songwriters on the other hand have seen their work consistently devalued by streaming and don’t have the same benefits from exposure.

The problem is that since the dawn of streaming, the services themselves have sought to be seen as more than a music delivery service, and they have resented paying the songwriters who make their services possible – taking them to court time and time again and often blaming record labels for their inability to pay more. This breakdown makes clear that the money is there, they just expect to keep more of it for themselves.

Consider other services and apps that deliver something to you, like Grubhub. The service didn’t create what it’s selling, it’s a vessel. It takes a reasonable commission, around 13% for delivery commission and processing fees, and still ends up profitable. Streaming companies are complaining about taking home many times that amount. So while they keep 37.5% of the revenue, the songs themselves are only getting 10.5% of the revenue. And keep in mind most songs have several writers.

The services go on to allege that record labels and artists take the lion’s share of their payments – roughly $52 compared to publishers and songwriters’ combined $10.50. While this isn’t entirely accurate, this point is made in a cynical effort to split the creator side of the industry, which is not the issue at hand.

The problem is not how the pie is split, it is the size of the overall pie – and the fact that streaming companies expect to collect even more than a third for themselves.

The other problem is that publishers and songwriters’ hands are tied in the US when it comes to negotiating their rates by consent decrees and compulsory licenses – decades-old laws and regulations that amount to over 75% of songwriters’ income being largely controlled by federal government. Streaming services exploit these archaic rules to their advantage. Meanwhile labels and artists are in a free market, and therefore are able to negotiate for far more, as we should be.

In court, Spotify and Amazon continue to argue they cannot possibly pay more, however recent headlines clearly prove otherwise. In December of last year, Spotify stock hit a record high and is valued at over $62 billion. In terms of how it values investment in talent, it just spent $100 million on acquiring the Joe Rogan podcast and a reported $200 million on The Ringer. There is ample evidence that there is no need to undervalue songwriters.

“The facts are that streaming services do a great job of delivering music to users, but they did not create that music, so they should stop devaluing those who did.”

Streaming services know that waging war in court to lower royalties is a bad look, so they have targeted the very top songwriters through public relations programs like Secret Genius where they spotlight successful writers in an attempt to distract from their counterefforts. The program includes award shows, global songwriting camps, and the opening of recording studios.

This is all a smokescreen for the lawyers they are paying millions to convince the Copyright Royalty Board that they can’t afford to pay songwriters their current below-market rates. In fact, when some of the biggest writers honored by the program found out about the double-faced awards, they wrote Spotify expressing their anger saying, “we can see the real reason for your songwriter outreach. You have used us…”.

There is no disputing that a system where people pay for music is better than an illicit one where people steal music. However, the basic premise of the streaming services’ argument is that songwriters and the industry at large should be so grateful that streaming has replaced the rampant piracy of platforms like Napster that preceded them, they should not expect a fair rate. This amounts to a sort of Stockholm Syndrome that we must resist.

The facts are that streaming services do a great job of delivering music to users, but they did not create that music, so they should stop devaluing those who did. While these services celebrate that streaming music has sustained much of the industry during the difficult past year, at the same time, those same companies are fighting to lower what they pay music creators by a third.Music Business Worldwide

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