In Tuesday’s paper, I wrote about the royalties that musicians and record companies earn from online streaming companies like Spotify, Pandora and YouTube.
As an overview of a complicated issue, the article made only brief mention of some important points, and it omitted others altogether. So to flesh out this issue a little more, and, I hope, to answer some of the questions that readers have asked, here are a few additional points â€" call them footnotes â€" about royalties, streaming and the music business.
1. The role of record labels. When it comes to royalties, the relationship between artist and label has long been fraught, but it has become especially strained in the streaming age, for two reasons.
First, digital services generally don’t do business with musicians directly, but instead go through labels or distributors, which arethen responsible for paying royalties. But exactly how those royalties are calculated is often in dispute. Older artists may have no provisions in their contracts for such streaming services, or digital music at all. And despite some major lawsuits on similar issues, the issue is far from settled.
Second, there is wide suspicion in the industry about the deals between labels and digital services. Labels own equity in some of these services, as a condition of licensing their content. (The major labels, for example, own a minority stake in Spotify.) Critics say this creates a conflict of interest, in which labels could accept a lower royalty rate in exchange the benefits of ownership, like profits from a sale. Artists â€" and, especially, their managers and lawyers â€" worry that this money would never trickle down to them.
2. Apples and oranges. It! ’s tricky to compare Spotify to YouTube, Sirius XM to Pandora, Rdio to your favorite radio station’s Web stream. Subtle differences in technology and in law can result in very different payouts.
For example, the royalty rate Pandora pays to record companies and performing artists is set by federal statute; last year it was 0.11 cent a stream, which in the company’s most recent fiscal quarter amounted to about $60 million, or half its revenue. But because of different legal standards, Sirius XM’s statutory rate for the same royalty is only 9 percent of its revenue. Radio companies pay yet another rate for their Web streams.
When it comes to terrestrial radio, however, the biggest issue is that in the United States broadcasters do not pay any of these royalties, which cover the use of a sound recording. Instead, radio stations pay only music publishers and songwriters. (Changes to some of these rules may be considered in Congress this year; they have been proposed before but usually failed to pass.)
All of this makes it difficult to generalize about royalties but not impossible. In my view, all the numbers and standards and rates become equalized when it comes to the artist’s bottom line.
3. What ownership means. Will customers care about owning CDs and downloads anymore, or will they be satisfied by the access to huge song libraries offered by streaming There is no conclusive data on this, but it gets to the heart of why streaming is both loved and feared.
If services like Spotify become as prevalent as, say, cable television, one argument goes, then it is possible that they could replace or even surpass lost earnings from CD sales. But how will they do that if so much music is available free
Spotify says it has 20 mi! llion use! rs around the world, a quarter of whom pay the monthly subscription rate. Others that started out as paying subscription services have felt pressure to add free tiers, and research increasingly shows that the youngest listeners simply go to YouTube. Some analysts believe that all of this could force subscription prices down, which in turn would very likely reduce royalties.
A different aspect of ownership is also relevant: the question of who owns recordings. Zoe Keating, the cellist quoted in the article, owns her own copyrights, so she may earn a higher royalty than another artist whose music is controlled by a record label. Other hands are in the pot as well, like distributors’, which may take as much as 20 percent of the paycheck from Spotifyor iTunes before an artist sees his or her cut.
4. What about touring and T-shirts Since the start of the digital music era, one consolation for artists is that even if their CD sales plunge, they could still make money on the road and through direct sales to their fans. But can these â€" and other forms of revenue, like sponsorship â€" completely make up for lost music royalties
Some might say this is already the reality facing many artists, and it may only continue to spread if royalties fall. But as a general business model, it is problematic.
For one thing, the devaluation of a recording means not only that a musician will not earn money from it now, but also in the future â€" long after a musician may have given up touring. Also, any musician who has lugged a drum set and a vanful of amps across the country will know that touring is expensive. Even for those who can tour regularly â€" which isn’t everybody â€" there is no guarantee of profit.
5.
All of these are great developments. But I don’t believe that any of them can completely insulate artists from the prevailing business practices of the industry, and royalt rates are one of the fundamentals that, one way or another, wind up affecting everybody.
Ben Sisario writes about the music industry. Follow @sisario on Twitter.
