The Streaming Revenue Game….Who Are The Bad Guys?

August 25, 2016

Artists, publishers, and songwriters continue to be up in arms with the size of the royalty checks they receive for their work. The target of their wrath has been the streaming companies.  The streaming companies tell them to take it up with their label, or distributor if they are an independent artist.  They paid billions and cannot control what happens to the money after it goes out to the labels and distributors. Spotify claims an undocumented “over 2 billion” paid out in royalties for the year.

Labels have different deals with each artist and deduct their costs (marketing, promotion, production, manufacturing, distribution, etc) before distributing money to artists/publishers/songwriters.  This makes for complex accounting even if it were done honestly.  Labels, however, are famous for their insidious accounting practices.

According to a joint study done by the French trade group SNEP and the public accounting firm Ernst & Young and published in Music Business Worldwide, after platform fees and taxes are paid, labels keep 78.1% of the money received from streaming services while paying out 16% to be split between publisher and songwriter and 10.9% to the recording artist. These numbers would be unfair even if manufacturing and distribution costs were still large line items.  In this digital world both of those numbers are much smaller than they were in the CD age.

Let’s look closer at the label role.  Given that increased royalty rates from streaming services would benefit both label and artist/publisher/writer, one would think that they would be on the front lines petitioning them for that higher rate. In fact, the streaming services are proposing LOWER rates for next year!  But wait….the big three (Sony, Warner, UMG) collectively own 20% of Spotify!  This is a conflict of major proportions.  Labels will profit from either outcome while one of their partners takes a hit.

Also…as publishers/writers/artists, through the two major non-profit Performance Rights Organizations (BMI & ASCAP), were asking the Dept of Justice for adjustments to the existing antiquated (written pre-WWII) and unfair copyright management rules, lobbyists for the streaming companies were working to block their proposals.  Not only did the DOJ reject their proposals…they hit them with a new, unexpected and devastating regulation….the 100% Licensing Rule.  That states that any party with any % ownership of a copyright…no matter how small… can license 100% of a song to anyone they choose. So now the streaming companies (along with film, tv, etc) can negotiate a deal directly with a 1% owner of a song without concern for the wishes of the primary rights holders. It is going to create an accounting nightmare for publishers and discourage creative collaboration. This was a bold piece of lobbying on the part of the streaming companies, and as part owner of Spotify, the big three label groups had a hand in it.

Streaming companies are trying to get as much as they can for as little as they can….a classic business plan. It is the major label groups that are the bad guys here. Is anyone shocked?

Solutions will require some sensible and fair government regulations. Until then the only chance for things to improve is highly unlikely transparency.

Hug a songwriter today.

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