Music Royalties: Who’s the King and Queen of Digital Music?

Spotify launched last year, giving wireless users access to virtually any artist or album in its massive music library. Those who pay a premium of $9.99 month can take these features on the go- eliminating the need to purchase music again. Would you rather pay $10 for an LP when you can pay the same amount of every LP? Spotify knows that most people would choose the latter and has therefore created a pretty outstanding business model.

As a broke college student, the thought of a monthly payment for something other than rent and utilities makes me a little dizzy. I also like owning my music. So I was pretty resistant to download Spotify in its early stages. How does the artist benefit? Do bands and songwriters willingly request to join this service? Ignoring my nagging feelings, I finally signed up for the free service this summer and use it in tandem with my iTunes library. It’s much easier than searching for an mp3 on YouTube and encourages continuous listening. If I like a song enough, I download and listen to it from iTunes.

Of course, Spotify isn’t the only music streaming service that threatens artist royalties. Pandora, 8tracks, and Last.fm create playlists based on listener preferences and recommendations. They essentially read your mind in a really convenient way. Spotify is different, for it enables free range listening, letting users switch amongst albums and artists as frequently as they’d like, rather than create radio-like experiences that only allow listeners to skip songs four times per hour. (Spotify does have a Pandora-like radio setting, but in my opinion Pandora’s is way more developed.)

Speaking to my guilty conscious, Damon Krukowski of Galaxie 500 and Damon & Naomi recently published an article through Pitchfork called “Making Cents” that analyzes the royalties paid to artists through music streaming websites.  According to his math, Krukowski estimates 321,000 plays on Pandora would equate to the profit of one LP sale. The earnings from Spotify are a little less at 47,680 plays per LP cost. 1) That’s A LOT of playtime for only $10 profit. 2) Keep in mind that Pandora radio is randomized based on preference. Galaxy 500 must rely on listeners who request their specific sound. He compares this to when they sold 7” singles for about 98 cents in 1988, saying, “Pressing 1,000 singles in 1988 gave us the earning potential of more than 13 million streams in 2012.”

Krukowski then explains how “non-terrestrial” radio stations like Pandora also must pay individual artists royalties for using their music, but since Spotify is not considered radio, royalty laws become muddled. (Interesting twist: apparently Pandora views this as a HUGE “burden” and is lobbying to change the law) Krukowski then explains the complications that come with Spotify streaming in fantastic detail, since it’s not considered “radio” in the same way as Pandora.  Click here for the article.

Moral of the story: the old music business model is battling a newer, speculative one. Spotify and Pandora and all those other websites aren’t making any profit since they, “are not selling goods; they are selling access, a piece of the action.” Here, Krukowski makes a small jab at the crowdsourcing technique I praised a few posts ago. While both sell something that “doesn’t exist yet,” at least crowdsourcing is a productive investment. When people buy a Spotify or Pandora subscription, they purchase access; when people donate to a crowdsourcing website, they at least sponsor the creation of new music. The PR student in me wants to believe that audience involvement will benefit artists in the long run, and I don’t necessarily see music streaming helping this cause. I’m optimistic and want free streaming to also help musicians I care about, but realize this currently isn’t the case.

If you’re still somehow reading this rant, I highly suggest you pay a visit to the aforementioned Pitchfork article. It’s beautifully written and insightful. Krukowski admits he subscribes to Spotify for the scope of music it provides, yet clearly disapproves of the direction the music business is pointed.

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