In the first and second articles in the series, we looked at the streaming industry’s revenues, how they’re shared out between the music we listen to and how we choose that music. This week, we’re going to look at who ultimately receives the money – and at how the industry could or should change.
First, a clue as to where the money and power lie. Midia Research estimate that in 2019, the three major music labels, Sony, Universal and Warner, controlled 67.5% of the global recorded music market. As they put it, “each major has the equivalent power of a UN Security Council veto”.1
The players and the pie
The businesses and people who share in the royalties pie are the following:
The platforms (Spotify, Apple etc)
The composers/songwriters
The music publishers
The artists
The record labels
The rights management organisations (RMOs, e.g. PRS in the UK, ASCAP in the US, SACEM in France)
Sometimes, the artist and the composer are the same person. Sometimes, the publisher is also the record label. For simplicity, I’ve left out a number of other intermediaries: if you want more detail, take a look at the terrifyingly complicated last chart, entitled “The Music Maze”, in this post.
The pie itself is in several parts, which tend to be named after their equivalents in pre-internet days of recording and broadcast:
Mechanical royalties – when a copy of a recording is made
Synchronisation royalties – when music is used in a film or TV soundtrack
Public performance royalties – concerts, background music, radio
These parts have different flavours in each country according to local copyright laws. For example, public performance royalties are payable for radio broadcast in most countries, but not in the US. Another US law2 provides for artists to be permitted to reclaim their rights from their record label after 35 years – much to the disenchantment of the labels. Streaming generally falls under the ambit of mechanical royalties (you’re copying the track onto the user’s phone or computer).
The rules are also different for different categories. Composers’ rights tend to be fixed in law (they’re described as “unwaivable”) and collected by an RMO, as are public performance rights for artists. The metadata issues described last week come clearly into view here; RMOs have struggled to adapt their systems to the exploding volumes data (the PRS processed 19 trillion usages of music in 2019 and an estimated 25-30 trillion in 2020).3
By contrast, mechanical royalties for artists are generally a matter for negotiation: artists depend on the contracts with their labels. An exception is Spain, which, in 2006, became the first EU country to implement an unwaivable remuneration right for performers for online music services.4
Because the main relevant international law, the World Performances and Phonogram Treaty, was adopted in 1996, when downloads existed but streaming did not, there are impassioned debates over how to map streaming onto its provisions: the apparently sterile question of “is streaming a sale, a rental or a ‘making available’” makes a crucial difference as to how royalties get divided up.
Who gets the money?
Here’s a chart of where your €10 per month Spotify subscription goes. To estimate the numbers, I’ve taken the published figures about their income and costs, added various items of data from elsewhere and made a certain amount of assumption and guesswork. The numbers are in line with other estimates I’ve seen, and I think they’re good enough for a broad understanding.
For shorthand, “artists” means the featured artists who performed on the recording. You can check my sources and working and/or plumb in your own numbers by downloading the attached spreadsheet.
There are two big numbers in here:
Just under a third of the pie is accounted for by Spotify’s expenses and cost of sale, which splits into marketing (13%), research and development (11%) and everything else (6%, of which hosting and legal costs are presumably large components). The amount that goes to Spotify’s shareholders and financiers is close to zero – the company is still loss-making. Compensation for Spotify’s leadership team (pay, stock options, etc) amounts to 0.3% of their turnover.
Another third of the pie is taken up by the labels’ expenses. This includes salaries, overheads and marketing spend, but none of these companies declare much in the way of detail.
The three major labels have average profit margins of around 16%, amounting to 8% of your subscription money (although Warner, unusually, made a loss in 2020). Together, the labels’ shareholders and lenders are making more money out of your subscription than the composers, and nearly two thirds as much as the artists.
Royalty rates are lower for composers and they are typically split 50/50 between the composer and the publishers. As a result, the publisher’s expenses and profit form a smaller part of the overall pie.
That leaves the money for the creators: around 7% for composers and 13% for artists. Those numbers are low enough to spark a great deal of resentment, which tends to get focused on the record labels.
The role of the record label
Once again, let’s wind the clock back to 1981. At this point, the label performs three main functions that are hard to replicate:
Making professional quality recordings requires eye-poppingly expensive equipment and hard-to-find specialist skills.
Mass manufacturing and distribution require significant investment in factories and retail distribution networks.
Promoting recordings requires significant marketing skills and networks of relationships with broadcasters.
This set of activities requires a large business that can take financial risk and operate at scale (in business jargon, the barriers to entry are high). That’s what made the record labels the most powerful businesses in the industry.
Things are different today. With a PC and a few hundred pounds worth of microphones and audio interface, a solo artist can make a thoroughly respectable recording. A $20 subscription to Distrokid will get you all the streaming distribution you need.5 What that leaves for the labels is their marketing clout: for a classical musician, being a Recording Artist for Decca or Sony (or their peers) remains an unequalled cachet – so much so that contracts with major record labels can include the artist paying commission to the label on several activities outside the realm of recording.
Perhaps more importantly, the labels take risk. They have people whose expertise is in picking music that will succeed and they’re prepared to make upfront investment. If an artist isn’t making enough money from live performance and teaching, that investment buys them the time to create their music. That willingness to invest in promotion is what keeps the labels healthy.
Are the labels contracts with artists fair?
A typical recording contract involves the label funding the costs of recording and making an upfront “advance on royalties” to the artist – £300k has been quoted as a typical advance (not necessarily for classical), which may be split amongst several musicians.3 Royalty rates vary but the median is said to be 25% (with 50% the highest I’ve heard, and 15%-20% coming up frequently also). However, when royalties start coming in, they are “recouped” by the label until the advance has been paid off (in some contracts, the cost of the recording also has to be recouped). Only then does the artist start receiving further income.
Whether or not terms are fair depends, unsurprisingly, on who you talk to. The labels argue that they are spending more money on artists than ever and are taking big risks on dozens or hundreds of new acts whose recordings may never sell. The artists argue that the labels dominate the market and are profiteering, accusations that are supported by the fact that just three highly profitable companies control such a huge proportion of the world’s recorded music.
There is certainly a lack of transparency: non-disclosure clauses abound and artists don’t get to see the contracts between their labels and the streaming platforms. Older contracts have clauses that seem unjustifiable in the streaming age, such as the retention of a percentage of royalties for “breakage” (originally to allow for such things as LPs broken in transit). Session musicians are bitterly upset at being cut out of the royalty pie altogether.
My analysis: where does classical music sit today?
You’ve now read through a lot of facts. What follows are my opinions.
Streaming revenue isn’t as high as it should be because of low income from YouTube and widespread piracy.
Inequities in payouts are happening because of bad or absent metadata.
Classical music isn’t getting a fair share of the money that its fans are paying.
Artists feel unable to take control of their recording destiny because of the complexity of the landscape and the lack of transparency in contracts.
The major labels are controlling the landscape. Classical artists need that balance to shift in their favour.
Income distribution in recorded music is highly unequal (as it is in many walks of life). A lot of income is concentrated in a small number of people at the top of the ladder.
My opinion: what should government do?
“Recording Artist” is a career like “Professional Footballer” or “Movie Star”: there are far more artists hoping to make major recording careers than are ever likely to do so and it isn’t the job of governments to try to fix this. They are, however, responsible for the tangle of copyright legislation and treaties; they also have a duty to maintain fair and open markets. Here are some steps they should take:
Require platforms to meet a minimum standard for metadata quality and audit them for this: if a platform can’t demonstrate a high degree of certainty that a track has correct metadata, it should not be permitted to stream it.
Require platforms to implement a “take down and stay down” mechanism: taking down an upload for copyright infringement should prevent it from being uploaded by others.
Change the “Safe Harbour” rules to apply only to true user-generated content and not to content where the user has uploaded someone else’s creative work.
Require platforms to implement some basic ‘know your customer’ provisions for anyone to whom they are paying out money (an anonymous email address shouldn’t be enough).
Require transparency of any commercial input into playlist creation or recommendation algorithms, via the Advertising Standards Authority or a similar body.
Require transparency of contracts between streaming platforms and any label which controls more than 20% of the overall music market (singly or in a group).
Revert copyright to artists after a fixed period, regardless of any contracts (as is done in the US) or in the case of a major technological change (should a new disruptive model arrive).
I would love to see the government mandate a user-centric payout system. But I accept that as being a more debatable recommendation than the others on this list.
My opinion: what should classical artists do?
Until and unless the industry (with or without government prodding) fixes some of the problems in the current system, classical artists who are making derisory money need to extract themselves from it, selling more directly to their fans. Here are some of the alternatives that may be open to them:
Upload their music only to streaming services like Idagio or Primephonic where they’re not in competition with genres other than classical (or, when available, one that implements a user-centric payment model).
Sign up to a service like Sonstream or Bandcamp where their audience’s money is being channelled to them directly (there are several pay-per-view video platforms also, and crowdfunding is another option).
Control the sale and/or download of their music on their own websites (essentially, that means setting up one’s own label as LSO have done with LSO Live).
Combine their music with desirable physical assets (following the example of the “music books” published by Jordi Savall’s Alia Vox or by Palazzetto Bru Zane).
If they have an older recording contract, review it with the label to attempt to bring its terms into the 21st century.
None of these are perfect: it would be far better if the major streaming platforms transform the landscape into a more fertile one for younger musicians in niche genres. But until that happens, I can only suggest that artists vote with their feet.
Sources
1. DCMS Committee on Economics of music streaming: Written evidence submitted by Midia Research
https://committees.parliament.uk/writtenevidence/15109/pdf/
2. Termination of Transfers and Licenses Under 17 U.S.C. §203, US Copyright office
https://www.copyright.gov/docs/203.html
3. DCMS Committee on Economics of music streaming: Oral evidence, 19 January 2020
https://committees.parliament.uk/oralevidence/1535/pdf/
4. Spain: The First Member State to Implement a Remuneration Right for Streaming, Pay Performers, 12 November 2020
https://www.payperformers.eu/post/spain-the-first-member-state-to-implement-the-remuneration-right-for-streaming
5. Distrokid home page, viewed 5 March 2021
https://distrokid.com/
Additional references shown in the attached spreadsheet.
My thanks to composer Stuart MacRae, Didier Martin of label Alpha Classics, Chris Kennedy of Rident Royalties and Hylke van Lingen of Interartists Amsterdam for their help with my research for this series of articles.
