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Todo Mundo - Open the Music Industry’s Black Box

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The New York Times, op-ed

Open the Music Industry’s Black Box

THIS should be the greatest time for music in history — more of it is being found, made, distributed and listened to than ever before. That people are willing to pay for digital streaming is good news. In Sweden, where it was founded, Spotify saved a record industry that piracy had gutted.

Everyone should be celebrating — but many of us who create, perform and record music are not. Tales of popular artists (as popular as Pharrell Williams) who received paltry royalty checks for songs that streamed thousands or even millions of times (like “Happy”) on Pandora or Spotify are common. Obviously, the situation for less-well-known artists is much more dire. For them, making a living in this new musical landscape seems impossible. I myself am doing O.K., but my concern is for the artists coming up: How will they make a life in music?

It’s easy to blame new technologies like streaming services for the drastic reduction in musicians’ income. But on closer inspection we see that it is a bit more complicated. Even as the musical audience has grown, ways have been found to siphon off a greater percentage than ever of the money that customers and music fans pay for recorded music. Many streaming services are at the mercy of the record labels (especially the big three: Sony, Universal and Warner), and nondisclosure agreements keep all parties from being more transparent.

Continue reading the main storyIt’s easy to blame new technologies like streaming services for the drastic reduction in musicians’ income. But on closer inspection we see that it is a bit more complicated. Even as the musical audience has grown, ways have been found to siphon off a greater percentage than ever of the money that customers and music fans pay for recorded music. Many streaming services are at the mercy of the record labels (especially the big three: Sony, Universal and Warner), and nondisclosure agreements keep all parties from being more transparent.

Perhaps the biggest problem artists face today is that lack of transparency. I’ve asked basic questions of both the digital services and the music labels and been stonewalled. For example, I asked YouTube how ad revenue from videos that contain music is shared (which should be an incredibly basic question). They responded that they didn’t share exact numbers, but said that YouTube’s cut was “less than half.” An industry source (who asked not to be named because of the sensitivity of the information) told me that the breakdown is roughly 50 percent to YouTube, 35 percent to the owner of the master recording and 15 percent to the publisher.

Before musicians and their advocates can move to enact a fairer system of pay, we need to know exactly what’s going on. We need information from both labels and streaming services on how they share the wealth generated by music. Taylor Swift, when she forced Apple to back off a plan not to pay royalties during the three-month free trial period for its new streaming service, Apple Music, made some small progress on this count — but we still don’t know how much Apple agreed to pay, or how they will determine the rate.

Putting together a picture of where listeners’ money goes when we pay for a streaming service subscription is notoriously complicated. Here is some of what we do know: About 70 percent of the money a listener pays to Spotify (which, to its credit, has tried to illuminate the opaque payment system) goes to the rights holders, usually the labels, which play the largest role in determining how much artists are paid. (A recently leaked 2011 contract between Sony and Spotify showed that the service had agreed to pay the label more than $40 million in advances over three years. But it doesn’t say what Sony was to do with the money.)

The labels then pay artists a percentage (often 15 percent or so) of their share. This might make sense if streaming music included manufacturing, breakage and other physical costs for the label to recoup, but it does not. When compared with vinyl and CD production, streaming gives the labels incredibly high margins, but the labels act as though nothing has changed.

Consider the unanswered questions in the Swift-Apple dispute. Why didn’t the major labels take issue with Apple’s trial period? Is it because they were offered a better deal than the smaller, independent labels? Is it because they own the rights to a vast music library with no production or distribution costs, without which no streaming service could operate?

The answer, it seems, is mainly the latter — the major labels have their hefty catalogs and they can ride out the three-month dry spell. (The major labels are focused on the long game: some 40 percent to 60 percent of “freemium” customers join the pay version after a trial period.)

I asked Apple Music to explain the calculation of royalties for the trial period. They said they disclosed that only to copyright owners (that is, the labels). I have my own label and own the copyright on some of my albums, but when I turned to my distributor, the response was, “You can’t see the deal, but you could have your lawyer call our lawyer and we might answer some questions.”

It gets worse. One industry source told me that the major labels assigned the income they got from streaming services on a seemingly arbitrary basis to the artists in their catalog. Here’s a hypothetical example: Let’s say in January Sam Smith’s “Stay With Me” accounted for 5 percent of the total revenue that Spotify paid to Universal Music for its catalog. Universal is not obligated to take the gross revenue it received and assign that same 5 percent to Sam Smith’s account. They might give him 3 percent — or 10 percent. What’s to stop them?

The labels also get money from three other sources, all of which are hidden from artists: They get advances from the streaming services, catalog service payments for old songs and equity in the streaming services themselves.

Musicians are entrepreneurs. We are essentially partners with the labels, and should be treated that way. Artists and labels have many common interests — both are appalled, for instance, by the oddly meager payments from YouTube (more people globally listen to music free on YouTube than anywhere else). With shared data on how, where, why and when our audience listens, we can all expand our reach. This would benefit YouTube, the labels and us as well. With cooperation and transparency the industry can grow to three times its current size, Willard Ahdritz, the head of Kobalt, an independent music and publishing collection service, told me.

There is cause for hope. I recently spent two days on Capitol Hill, with the help of Sound Exchange, a nonprofit digital royalty collection and distribution organization, to discuss fairer compensation for artists via the Fair Play Fair Pay Act, which would force AM and FM stations to pay musicians when their recordings are broadcast, as most of the world does.

Rethink Music, an initiative of the Berklee Institute for Creative Entrepreneurship, released a report last month that recommends making music deals and transactions more transparent; simplifying the flow of money and improving the shared use of technology to connect with fans.

Some of these ideas regarding openness are radical — “disruptive” is the word Silicon Valley might use — but that’s what’s needed. It’s not just about the labels either. By opening the Black Box, the whole music industry, all of it, can flourish. There is a rising tide of dissatisfaction, but we can work together to make fundamental changes that will be good for all.

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