Poor songwriters: The hidden costs that are butchering musicians’ income

Songwriters are getting angry.

The disparity between the money paid by streaming services to record labels (plus artists) and publishers (plus songwriters) is, as Sony/ATV’s Martin Bandier puts it, threatening the ‘entire livelihood’ of his clients.

It’s leading to public outcry over Pandora, for instance – notorious for paying Pharrell Williams (pictured) just $2,700, as a songwriter/producer, for 43 million spins of his uber-hit Happy.

But insider industry experts have explained to MBW that there are also other, less obvious factors gnawing away at the earnings a songwriter takes home in the digital age.

We’re here to tell you about them.

The easiest way to explain this monetary erosion is by theoretically tracking a single premium streaming payment from a customer of Spotify in Europe.

A month of premium action on this service would cost you €9.99.

That’s our gross revenue. Lovely, lovely gross revenue.

Savour it. It doesn’t stick around for long.

The first deduction from our sum total is taken direct from Spotify and is very upfront: Value Added Tax (or equivalent).

In the UK, this would be a 20% cost, but in other European countries, it’s higher: Spain at 21%, for example, or 25% in Spotify’s home country of Sweden.

With the tax paid, our subsequent net revenue now sits at around €8.33.

Time for the next deduction: Spotify’s own charge of 30% of the remainder – with 70% given out to music rights-holders.

Bingo! The music industry now has €5.83 to share.

Songwriters, you are permitted to start licking your lips.

Oh no. Here comes the really painful bit: when the lion’s share is gobbled up by artists and labels.

Sources close to Spotify tell us that just under 1/5th of this €5.83 works its way to the publishing side of the music business, leaving ‘musical works’ owners with a mighty €1 to share between them.

This €1 equates to around 12% of Spotify’s post-tax revenue (€8.33).

We’re told that is actually a higher share than songwriters/publishers would have received from leading download sites, where they were typically passed 8% of post-tax revenue.

Okay, come on, we’re left with €1. It’s not so bad. Chin up.

This money is, of course, collected and distributed by a collection society (CMO) – which naturally takes its slice in commission.

Although these CMOs are usually ‘not for profit’, they certainly have admin costs. Some more than others. Much more.

This is controversial territory.

A good CMO will use this commission to hire more staff, for example, to call up businesses that use songwriters’ music and obtain licensing fees (yay!).

A… less good CMO might use it for pension plans and rent payments on large fancy offices.

Very much not yay.

We’re told that at an average rate across Europe, a collection society’s cost-to-income ratio will sit at around 14%.

In the case of our Spotify payment – now at a single Euro, remember – that equates to €0.14.

Disclaimer: this is a very rough average commission rate calculated across the EU based on standard industry practice.

Things vary according to many factors, especially whether a given collection is from abroad or domestic.

Some publishers tell MBW that they have seen their income savaged to the tune of 20%-25% when it comes to certain collection societies on occasion.

The reason for this discrepancy is because CMOs often won’t charge commission on collected money that is passed to them from abroad – handily bringing down their average cost-to-income ratio.

BMG CEO Hartwig Masuch told MBW in our recent interview that the CMOs “need to feel some economic heat”.

“These very important industry players effectively charge you what they need in order to cover what they spend. That’s the wrong way round,” he commented.

Sadly, that’s not the worst of it.

The €0.86 left in our pot hasn’t even departed the collection societies before another cost can hit.

And for songwriters, this one’s a real stinker: ‘Social & Cultural Deductions.’

What the heck are S&C Deductions and why do they exist?

Good question – and one the likes of PRS For Music (UK) and STIM (Sweden) will certainly echo, refusing as they do to skim this money off their members’ revenue.

Yet elsewhere, in territories like Spain and Denmark, good ol’ S&C removes somewhere around 10% from the ever-decreasing (€0.86) songwriters’ paycheque.

(S&C is definitely applied to non-digital revenue, and our sources tell us it’s likely to apply in these territories on digital income too.)

This cash is supposedly reinvested into a country’s ‘serious’ artforms (opera, classical) and cultural standing – although many question where it ends up in reality…

Back to our Spotify cash chain.

If you’re unfortunate enough to have had to cough up S&C, that leaves you with around €0.77.


Finally, after 93% of that Spotify customer’s original €9.99 payment has been taken by other parties, you’re in the money!

Ah, no. Not quite.

If you’re signed to a publishing deal, it’s time to pay the piper.

This obviously comes down to a wide variance of contractual agreements, but an 80%/20% split isn’t outside the realms of many modern contracts – equivalent to €0.15 of our weedy-looking €0.77.

Now, once a royalty statement has been issued (however long it takes), it really is time for songwriters to collect their cash!

Your change, ma’am: €0.62.

What’s that? You co-write your songs with three other people?

Erm. Let’s deal with that one tomorrow. You’ve had a hard day.

IMPORTANT: Here is a key talking point in this very feasible value chain: rewind to the point after Spotify and the taxman took their cut – and then 1/5th of the remainder was passed to a collection society.

Quite understandably, that part of the process is currently attracting the most public outrage.

As a consequence, though, we still had €1.

Yet by the time this money landed in the bank accounts of songwriters, nearly 40% of this sum had just… disappeared.

At a time when musicians are apparently struggling to make a living, this must burn.

Was it all – collection society commission, S&C Deduction, publisher share etc. – worth it?

This is, quite literally, the €0.62 question.Music Business Worldwide

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