The Music Industry's Looming Royalty Debate: Who Should Get Paid?

Submitted by jon on Thu, 09/14/2023 - 20:07

Earlier this week, Tim Ingham at Music Business Worldwide published an insightful analysis on emerging tensions in how the distribution of streaming royalties might change. Specifically, Tim examined proposals by a major music corporation and a well-known streaming service to implement an "artist-centric" royalty model that appears to take inspiration from approaches used by platforms like those popular for video sharing, social networking, and microblogging.

In this blog post, I want to summarize Tim's original piece, while expanding on some implications and questions it raises. Be sure to read Tim's full article for all the details.

Artist-Centric Royalties: Boosting the Big, Squeezing the Small

The core of Universal and Deezer's proposed artist-centric model is simple: artists with over 500 monthly listeners on Deezer will have their per-stream royalties count double when dividing up the overall royalty pool each month. This means popular artists with over 500 monthly listeners will get a greater share of royalties.

Artists with under 500 monthly listeners on Deezer will see their share of royalties reduced, as their per-stream rates will not receive the same doubling effect.

While novel for the music streaming world, this approach clearly takes inspiration from creator monetization models used by video/social media platforms like YouTube, Facebook, and Twitter. These platforms only start paying creators once they surpass certain popularity thresholds - 10,000 YouTube subscribers, 100,000 video views, 10,000 Facebook followers and so on. Fall under the threshold, and you earn nothing.

Universal and Deezer's proposal is milder. Less popular artists will still earn something - just at lower royalty rates compared to their more popular peers.
Instituting popularity thresholds for higher royalty rates is a notable shift. Let's examine how it could play out in practice.

Winners and Losers: A Case Study on Spotify

To illustrate the potential impact, Tim considers the outcomes of applying this same 500 listener rule suddenly on a popular music streaming platform. The results are telling.
Based on Spotify's own data, only around 873,000 artists on Spotify in 2022 had over 500 monthly listeners. These artists would stand to benefit from the artist-centric model, earning double the per-stream royalties of artists under 500 monthly listeners.
But here's the catch: there were over 8 million artists on Spotify last year who had fewer than 500 monthly listeners.
Of that 8 million, approximately 2.57 million artists had between 10 and 500 monthly listeners. This middle tier of artists would see their share of royalties reduced under the artist-centric model compared to the top tier.
Just look at how monthly listeners on Spotify break down:
•    873,000 artists with over 500 monthly listeners (10%)
•    2.57 million artists with 10-500 monthly listeners (30%)
•    5.6 million artists with under 10 listeners (60%)

Artists vs listeners on Spotify
Artists vs listeners on Spotify

The big winners: those 873,000 artists with over 500 monthly listeners. The big losers: those 2.57 million artists in the middle bracket, reduced to lower per-stream royalty rates despite having moderate followings.

We can already see how this could create divergent incentives within the music industry.

Who Stands to Benefit? Follow the Money

Tim rightly points out that your perspective on the artist-centric model depends on your own commercial incentives.
Independent labels with rosters in the 500+ monthly listeners category may find it beneficial, as their artists are more likely to meet the threshold for higher per stream rates.

Distributors like TuneCore or DistroKid, whose business model is based on unlimited uploads for flat fees, could harm their customer base by reducing royalties for artists with less than 500 monthly listeners.

The debate separates DIY artists and signed acts. If you're running TuneCore, you likely see squeezing the under-500 crowd as detrimental. If you're running a label with 500+ listener acts, you may cheer moves to direct more royalties their way.

Of course, it's unclear if streamers beyond Deezer would ever adopt this model. But if introduced on a platform like Spotify, the commercial impact would be even more dramatic.

Rethinking Thresholds at Scale

Here's where things get interesting. Tim rightly asks: what if you ported over the same 500 listener rule to Spotify, a platform with a user base nearly 60X the size of Deezer's?

Would the threshold have to change?

Some quick math:
•    Deezer has 9.3 million subscribers
•    Spotify has 220 million subscribers - 24X bigger than Deezer
•    Spotify has 551 million total monthly active users - 59X bigger than Deezer

If you took the same 500 listener minimum and adjusted it to Spotify's scale, the required minimum monthly listener count would be:
•    12,000 monthly listeners (24X bigger user base)
•    29,500 monthly listeners (59X bigger user base)

Now the proposal seems far more restrictive. Whereas 873,000 artists crossed 500 monthly listeners on Spotify last year, far fewer likely crossed 12,000 or 29,500 monthly listeners.

This could squeeze the royalty share of middle tier artists even further in the name of boosting the upper echelon.

The Slippery Slope

This brings us to concerns raised by companies like Believe Digital (owner of TuneCore) that fear where artist-centric models could lead in the future.
Namely, what stops streamers from raising the thresholds over time? 500 monthly listeners today could become 1000, 5000, 10,000 or more. With each increase, the total pool of artists benefiting shrinks.

We've seen this movie before on other user-generated platforms:
•    YouTube originally allowed monetization at just 10,000 views. Now it's 10,000 subscribers and 4,000 watch hours/year.
•    Facebook's original Live creator monetization threshold was just 100 followers, now it requires 600,000 minutes watched/month.

Platforms have a habit of raising the bar as they scale. There's always more advertising money to chase with a smaller pool of content.
Deezer and Universal's artist-centric model may be an innocuous starting point, but its future evolution—and how it could spread to other streamers - raises serious questions.

What's at Stake? Diversity, Opportunity and Innovation

Stepping back, the two visions at odds here represent contrasting worldviews.

One values consolidation, prioritizing established hits and artists with commercial traction. For companies operating successfully in the mainstream music industry today, this makes sense. Value accrues to what's already valuable.

The other worldview values diversity, opportunity, and plurality of voices. Allowing all artists to earn something creates an inclusive ecosystem. It recognizes that today's 500 listener artist could be tomorrow's stadium headliner - but only if they're given a fair shot to develop from the start, not squeezed out by changing monetization thresholds.

This second viewpoint is why companies like Distrokid and TuneCore see cause for concern in artist-centric royalty models. It's also why deejay organizations like Digital DJ Pool have spoken out about the risks of excluding niche genres if thresholds keep rising.

The Long Tail theory argues that the collective value of minor artists, niches and back catalogues can surpass the value of hits alone. Streaming royalties for indie artists may be small individually, but collectively they add up to millions in revenue.

Squeeze out middle tier and developing artists, and you lose much of this long tail value while cutting off the possibility of tomorrow's stars rising organically from the grassroots.

The Question of Discovery

Tied to this debate over diversity and opportunity is the question of how streaming services help artists find an audience. If platforms won't adequately promote developing talent, can they then justify redistributing royalties to established artists and away from indies and unknowns?

Platforms often point to playlist adds as career-making discovery opportunities for indie artists. But landing coveted spots on leading playlists requires building relationships with curators or paying promotors—privileges often out of reach for bedroom artists.

Pure algorithmic listening drives streams towards the most mainstream and already-popular tracks. This compounds the wage gap, as critical playlist plugs and promotions go to those seeing success.

Without meaningful, equal opportunities for audience discovery and growth, reducing royalties for smaller artists is a double blow - first limiting their potential reach, then limiting their earnings.

The Solution?

Rather than reducing royalties for indie artists, streaming services could consider alternative solutions like:
•    Investing more in developing truly personalized recommendations to expose niche music instead of lean-back listening.
•    Instituting caps on how many tracks by the same top artists can appear on flagship playlists to drive diversity.
•    Featuring developing artists in popular playlists but geofencing their tracks to limit streams until they graduate to higher listener counts.
•    Paying out bonuses when developing acts hit monthly listener milestones to reward fan growth.
•    Weighting per-stream rates dynamically based on an artist's recent listener growth to encourage rising independent artists.

The Takeaway

There are no perfect solutions. Streaming economics involves complex tradeoffs between creators, platforms, and rights holders.

But the questions surfaced by proposals like artist-centric royalties are critical ones for the industry's future. Operations like DistroKid give power to the smallest of artists. Companies like majors and streamers naturally gravitate towards premium content.

Reconciling these opposing forces will require nuance, creativity, and an eye towards what's best for music culture. Because a landscape without strange niches and surprise rising stars looks a lot less interesting.

What do you think?

How can we distribute streaming royalties in a way that's fair to mainstream hits, indies and developing talent alike? I'd love to hear your thoughts in the comments below!