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Greed Will Kill The Streaming Star

I mentioned in an earlier post how the greed from the major record labels could end up killing streaming services. Since then, Swedish musicians are threatening to sue major labels Universal Music and Warner Music over streaming royalties. This is following a similar pattern from the lawsuits against the labels over iTunes sales and how those sales got paid back to the artists as royalties. Artists like Whitesnake, Def Leppard, Don Henley and Eminem led the way.

Even Billy Bragg stated the same via his Facebook account;
“These artists have identified that the problem lies with the major record labels rather than the streaming service and are taking action to get royalty rates that better reflect the costs involved in digital production and distribution. UK artists would be smart to follow suit.”

The major labels operate with a digital (streaming and mp3 sales) business model that is rooted in the past. The majors still pay a less than 10% royalty rate to artists for digital income. The 10% average rate is based on the age when the record companies produced a physical product like vinyl or CD, stored it in a warehouse and then transported that product to a brick and mortar store. Of course at that time all of these steps in the process where accounted for.

However in the digital age, there is no need to even produce a physical product like vinyl or CD however the labels are still short-changing their artists. If the streaming rates paid to the labels were so bad, trust me, the majors and the RIAA would be the first ones screaming theft. By being silent on the matter means that the majors are making real good money from streaming.

Spotify pays 70% of its revenues to music rights holders. By the end of 2013, they expect that those payments will exceed $500m. How much of that money gets passed on to musicians depends on the terms of their contracts with labels. Maybe the RIAA should be lobbying hard to get a bill passed where streaming is seen as a license and seventy percent goes to the artist. But we will never see that, as the RIAA is there to protect the record labels, not the artists. However they claim in their rhetoric that they are working on behalf of the artist.

From a metal perspective, Century Media Records pulled their music from Spotify in August 2011, citing that physical sales have dropped drastically in all countries where Spotify is active. Then in July 2012, they opted back in. By February 2013, they released a Spotify app. What a turnabout by the label? Metal Blade pulled music of Spotify in September due to no real agreement in place.

If you are on a major label roster you should have followed the Def Leppard route. Due to disagreements they were having on the digital payment terms with their label, they then refused to let their label put their catalogue on digital services.
However, then in order to cash in on the Rock Of Ages movie and the sudden interest in “Pour Some Sugar On Me” and “Rock of Ages”, they released digital “forgeries” of these classics and they released them on their own terms. Do you hear Def Leppard complaining about streaming and iTunes rates for those two songs? This year, they even released their “Hysteria” forgery.

Once upon a time, the artists had the power. Then in the Eighties, the labels stole it back. With the rise in revenue due to the CD, it made the labels mega rich powerhouses. Well it’s time for the artists to take back the power. Basically the labels without any artists are worth nothing. However, a lot of the artists just don’t see the big picture.

Those times of when recording was really profitable are over. Long gone. Recording revenues are shrinking. Streaming is trying to bring back some of it. If more and more people are paying for it the overall pool of money grows. These services need time to grow. However, as I mentioned previously, how much of that money gets passed on to musicians depends on the terms of their contracts with the labels?

Maybe Spotify and Deezer should become a label and start signing artists themselves as it is obvious that the major labels don’t care about their artists.

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The War Between Streaming and Black Box Revenue – Will The Record Labels Kill The Streaming Star?

The public has voted. It prefers streaming. The war is over. Case Closed. Maybe not.

Spotify pays millions to copyright holders. Now unless the artist is a DIY artist who controls their own copyright, most of the copyright holders are the major labels. So if the major labels are getting the millions each year for the blanket license to access their catalogues, where is that money going.

There is a term doing the round, called “Black Box Revenue.” This is the name given to income that the record labels collect that cannot be directly tracked to the recordings of a specific artist.

To put it all into context, streaming services pay the labels and upfront fee to access their catalogues. In addition, they then pay the labels royalties for each stream.

In time, this streaming system will be challenged by artists, much the same way the mp3 sales system was challenged by Eminem and other artists like Whitesnake, Rob Zombie and the band White Zombie.

In all of these cases, the artists said that their record label violated their contracts by counting a digital download as a sale instead of a licensing. Most artists get a royalty of 10 percent for the sale of a CD, minus a lot of deductions, while licenses pay a royalty of 50 percent and in most cases are not subject to any deductions.

When the same thing happens to the labels streaming revenue, the long-term viability of streaming services will be less than certain.

The main part of streaming that the critics and the record labels fail to understand is that it is a tool that is in place now, to PROVIDE REVENUE STREAMS later.

Of course the record labels and the executives in charge are all about the NOW, and a lot of their label rosters are designed for the NOW, so they don’t have time to allow things to grow. Spotify is growing in users, however the company still hasn’t made a profit after so many years in operation. The streaming system employed by the record labels that I mentioned above doesn’t allow it to make a profit.

Spotify wants to reduce piracy to ZERO. At the moment the critics of Spotify like Thom Yorke are complaining that it simply doesn’t pay enough. The truth is, creators have always been ripped off. However, if a song is great and it gets some traction, expect it to pay well.

Daft Punk passed 100 million downloads. The $700,000 that comes with that in streaming payments is enough for a band to live off, however artists see very little of the dollars paid to the record labels for the right to stream their content.

However with YouTube dominating in music, why do people need Spotify? Actually, Thom Yorke has no issues with YouTube, an unofficial streaming platform which is interesting. So I am thinking that Thom Yorke’s issue is with the record labels stake in Spotify.

Personally, I am quite content to listen to three songs on Spotify and get an ad break. I have no interest in paying for a package even if Spotify caps the limit of free songs I can listen to in a month. I will just move to YouTube when that happens, or to my iTunes library or to my physical collection of LP’s and CD’s.

What about the songwriters who write the songs? How do they get paid in the streaming age. It’s simple. They get paid, the same way everyone else gets paid that provides a service. Songwriters need to stop being greedy. What they need to do is hand in the song, get paid the agreed monies and off they go, writing more songs for artists. If a songwriter gets paid $1000 for each song they hand in, then they know they need to write 50 songs in order to earn $50,000. If one of the songs gets traction and gets 100 million streams, the songwriters should be using that as a piece of promotion and up their song writing fee. It’s simple business practices.

It is a revolution that we are experiencing.

Musicians can still make a living. Is it harder now compared to the past? My answer is NO. Musicians always had to work hard to get somewhere, that part hasn’t changed and it will never change.

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