Thursday, July 18, 2013

The 2 Questions from Yorke/Godrich/Spotify

Thom Yorke and Nigel Godrich's decision to remove some of their music from Spotify hinges on 2 questions, both of which have been asked repeatedly since streaming services matured. One question is tactical and specific, the other more philosophical:

1. How much is a single stream play worth?
2. Are artists entitled to a living?

How Much Is A Single Stream Play Worth?

Busker image courtesy of Wikipedia
I have written and spoken about this before, to much controversy. I have yet to see anyone arguing against Spotify, Rhapsody, MOG, Music Unlimited, RDIO, etc. provide their answers to this question.

This is a critical point to resolve. If we're going to claim that (new) artists aren't getting paid enough for plays, we need to know what "enough" is.

A few years ago, I gave a talk where I looked at what similar industries were charging "per play":

  • Jukebox in a bar: $0.25-$0.50 per play. Yeah, that's a lot...but how much of this actually goes to the artist?
  • CDs: $0.10 per play. The average CD is played fewer than 10 times after purchase. Assume $10 price for 10 tracks, each played 10 times. That's $1 per track, divided by 10 plays. 10 cents. How much of that goes to the artist? Depends on the size of the band and the organization, but maybe 10% overall.
  • Downloads: $0.10 per play. Assumes similar usage for purchased CDs, but the artist gets less money because Apple takes 30% of the retail price and pockets it, and because the labels typically pay artists less for downloads than CDs. 
  • $0.10 per stream, infinite plays. Lala failed because they, in their words, could not make this model a viable business. Don't know how much went to the artist, but you can assume similar or worse economics compared to CDs and downloads.
  • SiriusXM: $0.002 per stream play (on the internet). [Updated]. I am using SiriusXM's internet streaming rates, based on the NAB rates, not its satellite broadcast payment rate (yes, the two are different).

    SiriusXM's satellite rates went up in January 2013 as part of a new CRB ruling, and the company currently pays 12.5% of their retail subscription price to copyright holders (either $1.81 or $1.25). (I could write about how logically weird it is that the rate increases .5% each year, implying somehow that the value of music is rising).

    The only data I can find is a little bit old, but it suggests that satellite radio listeners play 44 hours a month. Assuming that 25% of that time is ads and drops (a generous estimate), that means 33 hours of music, or 495 4-minute songs. Divided by $1.81, that yields $0.0037 and divided by $1.25, that yields $0.0025 per play for satellite plays, which is close enough to the internet rates and doesn't change the argument much.

    SiriusXM is a relatively large company delivering a fairly lame product. Very limited choice for users. It's taken them a decade to get to scale, including hundreds of millions in advertising and merging the only two companies in the space together. They're barely profitable after all that, even with extremely low churn and now, no competition.
  • Generic Internet Radio (USA): $0.0012-$0.0022 per stream play. Depends on a bunch of things, like whether or not you're rebroadcasting FM radio or other programming, what your revenues are, and how big you are.
  • Pandora: $0.0012 per stream play. That's a tiny bit more than a tenth of a cent. Pandora is the undisputed king of internet radio, and they have not been able to make a profitable business of it, even at massive scale. 
  • FM radio (in the USA): $0.00 per play. You might get something if you're the songwriter, but if you are just the performing artist, you get nothing. FM radio remains a relatively strong and viable business, even if the variety of music offers continues to shrink along with their target demographic.

This comparison deliberately ignores how much more difficult it is to get people to do things higher up on the list (buying anything) than items lower on the list (listening to something for free).

It also ignores the huge difference in scale between items. We're just focusing on the gross possible payment to the artist or cost to the user.

The intentionally inflammatory conclusion I drew? The optimal price per stream, in order to have a successful business, needs to be somewhere between $0.00 and $0.002, because anything higher all but guarantees your business will fail.

Even the high end of that admittedly meager scale means you, as a business, will barely be hanging on. It's possible all of the market leaders in their respective industries - Pandora, SiriusXM, and so on - are total idiots and are running their business badly. But it seems more likely these rates are just punishingly high . Even mighty Spotify is not really making any money.

But who cares about business! Fuck those guys! What about artists? What's a fair rate for artists to charge per play?

Well, you clearly can't charge more than what CDs offer - $0.10 per play - or users will just buy CDs and the question is moot. And we're talking about a single stream play, not ownership or "infinite" plays (which is what ownership gets you), and thus you can't really charge more than what ownership costs.

Assuming you stick the rate you need at $0.10 (using my $10 CD with 10 tracks gets played 10 times math), and assuming you can find companies that will pay you those rates to stream your content, you need to generate 11,600 plays per month (139,200 per year) to earn minimum wage of $1,160 per month, or $13,920 per year.

Is that a lot of streams? I guess it depends on how you figure it. If you assume someone listens to your song every week, you need nearly 3,000 fans reliably playing your song once a week all year to make minimum wage. Then again, if you're Daft Punk, you blow past those numbers no problem.

Based on conventional wisdom and misleading graphs, you'd probably decide that artists should sell CDs, and perhaps everything else should be outlawed.

But you'd be condemning most artists to starvation.

Here's why:
According to Soundscan, in 2009 there were 98,000 CDs released (that means physical CDs that sold at least one copy registered by SoundScan).

Of those 98,000 CDs, only 2.1% sold more than 5,000 copies for the entire year.
Of those 98,000 CDs, only 1% sold more than 10,000 copies for the entire year.

Assuming you are a solo performer on a label, you need to sell 1,161 CDs per month - 13,932 CDs per year - to earn minimum wage.

Which means that less than 1% of artists on labels selling CDs earn minimum wage.

(If you go totally indie and do everything yourself, it's much better. You can get by selling 1,716 CDs per year. But remember, you are now doing everything yourself - running the label, collecting payments, shipping, marketing, etc.)

Being an artist is a tough job. Which leads us to the next question...

Are Artists Entitled To A Living?

Daft Punk: Professional Artists
One problem with having this discussion: Some people will pillory you for even asking the question. "OF COURSE!", they shout. "Artists are special and magical people who speak what cannot be spoken and address the human condition and enrich life!" And so on.

To answer this question, you need a clear view of art and business. The way I see it, if you are truly an artist, you create because you want to or have to. Financial remuneration for said creation is a secondary consideration.

On the other hand, if you are doing it for the money - if "the money" is your primary concern - you are an entertainer or businessperson. And you're going to focus on giving your broadest possible audience whatever they will buy the most of. You will think about this as you craft your, uh, craft, and you will budget a ton of money for marketing (again, see Daft Punk)

If you're not targeting either of those edges, you're waffling in the middle, and risk being someone who delivers compromised work to a non-optimal audience.

People should get paid for their work. But is anyone entitled to a living just doing what they want to do? And what's "a living"? How much income is anyone guaranteed, regardless of what they do?

I think of this: If you started a restaurant and no matter how hard you worked, it failed, nobody would say "wow, we should revamp how restaurants work so you can get paid enough to live."

Instead, they'd say things like "maybe you should have served different or better food." Or been in a different location with better traffic and/or less competition. Or had better service. Or decor. Or done something else.

Businesses fail all the time. The reaction is generally a shrug and "that's the market". Why should professional artists be treated differently?

There have been plenty of starving painters, writers, actors, and other "creatives" throughout history as well. Why do (pop/rock) musicians merit special treatment?

Who gets to decide who qualifies as a professional supported artist? (In the United States, we don't even really have much government support for the arts, even for undisputed titans of creativity).

Let's say society did decide to support artists with some kind of stipend/minimum guarantee because as a society, we value whatever artistic contribution these people are making. How much do we pay them? Minimum wage? 2 x poverty level? $100,000?

The economist then asks "well, why should the category of artist be special? What about other jobs?You'll just get the entire world claiming they're artists, and asking for their payment."

Historically, what you see is effectively a kind of means testing or "quality gate" for public or private patronage.

Despite all of the doom and gloom coming from people like Thom Yorke and the record labels, the fact remains that more music is being created, recorded, and released now than any other time in human history. Some of this is because there are more people, but much of it has to do with the tools for creation (computers, cheap instruments) and distribution (the internet and various services).

This does mean we are drowning in music, most of it not very good. Personally, I would rather have music be democratized, in all its messy, not very good, mostly uninteresting glory than have it be limited to a precious few ordained as "real" musicians by a bureaucrat or Pitchfork or Reddit or whoever your proposed authority happens to be.

Music used to be something nearly everyone did, and most people didn't expect to be able to make a living at it. In that respect, it is no different than lots of other things people writing blogs, for example.

I'm all for debate around the business of music. But it needs to be real debate, around facts and proposals and issues. I will keep pushing forward, trying to build businesses that are directly addressing these issues. I hope the rest of the industry, including thought leaders like Thom Yorke and Nigel Godrich, will answer the hard questions with some proposals of their own.

Afterword: Some Notes and Clarifications

  • The fact that the average CD is played fewer than 10 times after purchase comes from NARM.
  • The sales figures for 2009 come from NARM and Soundscan.
  • 2009 was not an unusual year in terms of sales and albums - that distribution is typical and has been for quite some time. Even back in the late 90s, the average album by a band on a major label with a national push sold about 1,000 copies.
  • All of the other numbers are publicly available data and close enough for argument's sake.
  • For SiriusXM, it's worth noting their 12.5% of consumer price royalty is low, compared to the 60-80% that internet services pay. And let's mention they don't have to pay royalties on a whole bunch of content that internet services still do (read the above links). And SiriusXM has no idea how many songs users are listening to.

    The "percentage of revenue" model basically says it doesn't matter
    . If users listen to zero songs, somebody gets paid. Does any of it go to the artists?

    If users listen to 10,000 songs in a month, deriving maximum possible enjoyment from the service, artists aren't going to get very much.

    "Percentage of revenue" is a perverse system that effectively says "the more listeners like music, the less we pay the artists per play."

1 comment:

Henry Bono said...

Fantastic, thoughtful posting, Anu. Even as someone who has spent much of my life focused on music performance, consumption, and education I've come to think that ideally musicians would be the way that politicians used to be a very long time ago. Politicians held day jobs or crafts, and were not paid to represent - it wasn't the profession it is now. If a musician can survive playing alone, awesome, but it is OK that people support themselves however they possibly can, and create on top of that because they are human and want to express. The secret I would pursue would be to get bank elsewhere such that BTO's(?) mantra could happily be one's own - work at nuthin' all day.