Clegg: The unintended consequence of streaming music

BY CHRIS CLEGG | JUNE 23, 2015 5:00 AM

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Since the dawn of the 21st century, Americans have fundamentally changed the way they listen to music. With the emergence of companies such as Pandora and Spotify, technology has all but replaced traditional methods of purchasing music, such as buying CDs (remember those?) or even individual songs off of iTunes. 

While these services are no doubt advantageous for the consumer, because they provide access to millions of songs for relatively cheap, what about the artists? How do the companies fare? 

Well, it is complicated, and there may not be an all-encompassing answer to that question. I would argue that the music industry’s shift toward a streaming-based system is actually more beneficial to artists than models of the past that relied on album sales and individual song downloads.

First of all, it is important to understand how streaming services distribute their revenue to the ones that provide their content. Take Spotify, for example. The company makes its money in two ways: through premium subscriptions, in which the consumer must pay a monthly fee to gain unlimited access to all the songs in Spotify’s database, and (of course) through advertisers that pay Spotify to run commercials on its free service.

After all this revenue is collected, according to Spotify’s website, it retains “approximately” 30 percent, while distributing the other (“approximately”) 70 percent among its content providers as well as those who generate the most streams, thus receiving the most money. 

This is where it gets tricky.  Spotify pays royalties to the “rights holders” of the music. Be it a label or, in some cases, an independent artist, Spotify then distributes X amount of dollars to everyone who helped in the production of that music from the artist themselves all the way down to, say, the songwriters. So, even if Artist A is generating a million streams a month, he or she could still make less off the service purely because of contractual obligations than, say, Artist B, who is an independent and doesn’t have to share the money.

Logically, one could make the argument that, unless you are an independent artist, streaming services will generate less revenue for particular artists because their share of royalties is split among three, 10, or maybe even 50 people. However, what an artist may lack in payment from streaming is made up in the consequential power that streaming services give to the artist. 

The entire existence of streaming services depends on rights holders to agree to give their content away. This, combined with the International Federation of the Phonographic Industry’s report that more and more people are turning to streaming sites than ever before, puts the artist in an extremely powerful position. 

If the top-five artists streaming on Spotify pull their content, which they have every right to do, the streaming site could most certainly feel the hit more than the artists themselves — take, for instance, Taylor Swift’s recent removal of her songs from said website.

Going on this logic, if artists band together and pulled their content, much like how a union bands together workers, they would have the ability to demand more from the service, and have the power to change it.

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