Critical Section


streaming royalties: a modest proposal

Sunday,  08/23/15  11:27 PM

Here's a modest proposal for paying out royalties to artists for streaming music.  This is THE problem confronting music today.  Streaming services like Spotify, Pandora, Slacker, and now even Apple Music have become the easiest and best way for consumers to discover and play music, but they don't pay out much money to artists.  And they don't pay out the right amounts to artists.

streaming money flowYesterday I blogged:

Jimmy Iovine is still worried about the future of music. As he should be. Apple Music does nothing at all to make the future of music any brighter. The key problem is how to get royalties from consumers of streaming services into the hands of artists.

The chart at right illustrates the problem.  Well, yeah.  So what would Jobs have done?

We don't know, but here's my proposal.

First consider the revenue side.  Streaming services earn money from two sources, monthly fees and ads.  The ads are mostly pay per impression.  So every streaming service can easily compute the revenue they've earned from each subscriber.

Next, costs.  The streaming services have operational cost, and they have to make money.  Say they have a net margin of 50%.

And finally, the payout of royalties.  Each streaming service already keeps track of how much time each user is listening to music (not ads, and not paused), and how much time they spend listening to music from each different artist.  So here's the formula:

the proposed streaming payout

The Payout for each artist is the Sum of the Revenue from each subscriber times the Total time that the subscriber listened to this artist, divided by the Total time the subscriber spent listening to music.  The M is the percent margin.

As an example, say I pay Slacker $10/month and 5% of the time I listen to Depeche Mode.  Also suppose Slacker's margin is 50%.  Then D.M. get $10 * 5% * 50% = 2½¢/month from me.

Some good things about this:

  • It's easy to compute and understand.
  • It's transparent.  Everyone gets to know which artists are popular.
  • There is no incentive for music services to reduce listening.  This is the worst part of the pay-per-track model.
  • There is no incentive for music services to focus subscribers on any artist.  They can showcase new artists, no problem, and feature established artists too, no problem.  And the payouts simply follow what people listen to.
  • The concept of "album" is not considered.  It's outdated and irrelevant.

So it's easy, and it's fair.  What do you say, Apple?

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