Wondering Sound: “David Lowery Has Become Most Important Spokesperson for Artists Rights In Digital Era”

‘In the last three years, David Lowery has become perhaps most the important and ardent spokesperson for artist rights in the digital era. Who is he?’

Balanced, funny and in depth profile of fellow Trichordist writer David Lowery.  Must read.


Label Direct Deals With Digital Broadcasters Are Dire Threat To Artists’ Sound Exchange Royalties

Unlike terrestrial radio,  since 1998 the satellite radio (now mostly SiriusXM), webcasters and other digital broadcasters pay performance royalties to performers and record labels.  “Performers” in this case are both featured artists, and session players (“non featured artists”).  Normally these royalties are paid directly to performers and labels–separately–through the non-profit entity SoundExchange.   SoundExchange pays  45% of these revenues DIRECTLY to featured artists and 5% to union trust funds for non featured artists.

For featured artists this means no recoupment.  No waiting.  No middlemen, no funky accounting and no funny business.  (Other than a big aside with pre-72, which I’ve written about regarding the Turtles landmark law suit.)

And these digital royalties to performers have been growing quite quickly.  They now represent more than 8% of all recorded music revenues. For performers there are few costs to generate these revenues so the artist’s net profit on SoundExchange payments is probably higher than most other income streams.  SoundExchange royalties truly have been a positive story in a decade of otherwise grim news for performers.

Unfortunately, the law also allows record labels to cut “direct deals”  with digital services outside of SoundExchange.   And in the last couple months that is what we’ve seen. We found out that The Orchard (now part of Sony) cut a direct deal with Sirius.  In November, the large independent label licensing consortium Merlin cut a deal with Pandora.  We’re still looking for the artist signed to any label distributed by The Orchard or a Merlin label that got a heads up about these direct deals, much less asked if they wanted to opt out.  In the case of Merlin labels, somebody–presumably Merlin–negotiated lower royalties  in exchange for Pandora “steering” listeners to Merlin artists.  Never mind that this smells like payola, here’s the real problem:

Labels doing direct deals with digital services for SoundExchange royalties could require the service to pay 100% of the revenue to the label and not pay the performer’s share through SoundExchange–that is, require the digital service to pay the artist’s share directly to the label to be applied against any unrecouped balances.  It’s unclear to me what would happen to the union trust fund payments at least for labels that are not “signatories” to the AFM and SAG-AFTRA collective bargaining agreements.  Even if the label is a signatory, it’s unclear to me which would dictate the rules, the Copyright Act or the collective bargaining agreements.

If the labels take the money, artists would probably get paid at their label royalty rates and not 45% of gross revenue.

As far as I can tell, the labels are not obligated under the Copyright Act to pay artists their share of the SoundExchange royalties without recouping.  It’s even less clear whether labels could take away their contributions to the AFM/SAG-AFTRA Intellectual Property Rights Distribution Fund, but it appears that labels are under no obligation to make those payments, either.




They may choose to let SoundExchange keep paying artists directly, but when the dust settles they may also choose not to.  And if the labels choose to take the artist’s share directly, the labels can apply it to any unrecouped royalty accounts regardless of whether the accounts pre-date the existence of the sound recording performance royalty.  The Orchard deal with Sirius and the Merlin deal pay the performers’ share through SoundExchange, but as far as I can tell there’s nothing stopping the labels from changing their minds later on.

So far the labels that have publicly disclosed making direct deals say that they will continue to pay the performers their share through SoundExchange.   So that’s good right?   Sort of.   SoundExchange can deduct its costs from royalties it collects (and I have no beef with SoundExchange on their costs–very low.)  The problem with direct deals is that the label’s share of royalties is outside of SoundExchange, but the performer’s share is not.  This forces the performers to bear the administrative cost when labels do not.

Another problem with direct deals is that SoundExchange are unlikely to be able to audit the digital broadcasters on behalf of performers.   And since the performers are not party to the direct deal they wouldn’t have any rights to audit either. Even if performers could audit that’s an enormous burden to transfer to individual performers.

So performers would have to rely on the record labels to do the auditing, and frankly this scares me.  The very fact that labels are cutting payola-like direct deals with digital broadcasters is a sign that they are cozying up.

SoundExchange also has reciprocal agreements with their counterparts in other countries. It’s not clear how performers will then collect their foreign royalties if their labels cut direct deals.  Would they have to collect directly?  Would SoundExchange still be able to collect. There is a good chance that performers might lose some foreign royalties as a result.

Clearly this is not gonna end well for performers.  But frankly I don’t think it’s gonna end well for labels either. Why?  these direct deals are already being used in attempts to lower ALL digital royalties at royalty board hearings.  That hurts the labels as well.

After the streaming math fiasco I’m not optimistic labels are gonna figure out that these deals are  bad for them until it’s too late.  To put it mildly labels do not appear to be engaging in much long-term thinking these days.  And the digital broadcasters have been  playing the labels like a cheap violin.

As usual it looks like it is up to the performers to do the critical thinking and to try set this straight.  We need to fight this. Now.

Perhaps we need to amend the law to prevent labels from direct licensing the performers share of digital broadcast royalties. If labels want to direct license and take a lower rate for their share let them.  But don’t let them get their hands on our royalties.

 Respect Act II? anyone?

 To summarize:

Benefits to performers from SoundExchange:

  • Performers paid directly
  • Not Recoupable
  • Independent performers get same deal as major label performers
  • SoundExchange audits on behalf of all performers
  • Payola-like deals not allowed
  • SoundExchange collects foreign royalties for performers
  • Collective bargaining increases leverage with broadcasters

Dangers to Performers under direct deal.

  • Labels under no obligation to pass through the performers digital royalties.
  • Labels could apply royalties to un-recouped balances
  • Independent performers could get lower rates than major label performers
  • Performers lose ability to audit digital broadcasters
  • Payola type deals shut out independent performers
  • Potential loss of foreign revenue
  • Performers are burdened with entire administrative overhead of compulsory license system.
  • Fragmented bargaining decreases leverage with broadcasters


Google’s Guide to RICO


well… just because… the more you know…

Originally posted on MUSIC • TECHNOLOGY • POLICY:

PRS For Music recently released a report entitled the “Six Business Models of Copyright Infringement.”  This report was co-sponsored by Google.  The company’s European Policy Blog had a suitably Googlely statement (if you know what I mean) announcing the release of the report.  (http://googlepolicyeurope.blogspot.com/2012/07/follow-money-to-fight-online-piracy.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+EuropeanPublicPolicyBlog+%28European+Public+Policy+Blog%29) Well, it wasn’t entirely Googley because it didn’t contain any of the usual “Joe Camel” semiotics.

No references to children’s foods, candy, or toys, and it didn’t say “goo goo ga ga”.  Maybe they take the report seriously.

The blog said in part:

How best to combat this danger [of massive copyright infringement]? Instead of imposing blocks or filters that might damage fundamental freedoms, governments should construct coalitions with reputable advertising networks, payment processors and rightsholders. Together, these coalitions can crack down and squeeze the financing behind online infringement.

Good point.  Yes, indeed, Google has made an excellent point.  And you know, here in the United States…

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@Billboard is Demonstrably Short on Pandora Payola: Just Read FCC Website

On last Thursday, Billboard wrote again about the  Pandora/Merlin direct deal.  For those of you who don’t know about the deal it basically says:   Merlin accepts lower royalty payments if Pandora plays Merlin songs more often.   We covered this a couple weeks ago after NPR’s Laura Sydell interviewed me about the deal.

Billboard says last week:

[T]he charge that the Merlin deal amounts to payola might be convoluted logic. Payola occurs when labels pay radio to play their music, not the other way around, as what happens in the digital realm. Even if the Merlin deal results in a slight economic benefit to Pandora, payola laws would need to be turned upside down and inside out to apply to this particular situation. Of course, stranger things have happened in the U.S. legal system. 

Unfortunately, that’s not what the FCC website says and I think Ed Christman knows better which is why he left that back door open.  Ed’s one of the best writers Billboard’s had for a long time and has a highly credible track record of getting it right.  But–part of that quote (“Payola occurs when labels pay radio to play their music, not the other way around, as what happens in the digital realm”) is almost word for word what Pandora’s CEO told NPR’s Laura Sydell:

“Payola is where record labels pay radio stations to get airplay,” McAndrews says, “and the opposite is what happens today. As Pandora, we pay the record labels and the artist to allow airplay. So it’s completely different.”

I have to believe that this angle to Billboard’s story came under tremendous pressure from Brian McAndrews and Pandora’s extensive and expensive PR and lobbying team.  But because Ed’s a great reporter, he left the door open with that last statement: “Of course, stranger things have happened in the U.S. legal system.”  I’m sure McAndrews did not like that part one little bit.  Good for Ed.

Here is what the FCC says:

Federal law and FCC rules require that employees of broadcast stations, program producers, program suppliers and others who, in exchange for airing material, have accepted or agreed to receive payments, services or other valuable consideration must disclose this fact.

Here’s what the actual FCC regulations say:

§ 73.1212 Sponsorship identification; list retention; related requirements.

(a) When a broadcast station transmits any matter for which money, service, or other valuable consideration is either directly or indirectly paid or promised to, or charged or accepted by such station, the station, at the time of the broadcast, shall announce:
(1) That such matter is sponsored, paid for, or furnished, either in whole or in part, and
(2) By whom or on whose behalf such consideration was supplied: Provided, however, That “service or other valuable consideration” shall not include any service or property furnished either without or at a nominal charge for use on, or in connection with, a broadcast unless it is so furnished in consideration for an identification of any person, product, service, trademark, or brand name beyond an identification reasonably related to the use of such service or property on the broadcast.
(i) For the purposes of this section, the term “sponsored” shall be deemed to have the same meaning as “paid for.”
(ii) In the case of any television political advertisement concerning candidates for public office, the sponsor shall be identified with letters equal to or greater than four percent of the vertical picture height that air for not less than four seconds.

Assuming the FCC decides that the payola rules apply to Pandora, I think that a big royalty discount is “other valuable consideration” that is “accepted by” Pandora by contract with Merlin and must be “announced” by Pandora “at the time of the broadcast”.  It is Pandora‘s responsibility to disclose that consideration under the payola laws, not Merlin’s.  (Merlin has probably done about all it can to disclose the consideration by discussing it in the press.)

As we previously posted, Pandora’s own high powered Washington DC lawyer, David Oxenford, wrote an article in 2008 about Internet radio and payola that everyone should read:

As Pandora lawyer Mr. Oxenford tells us:

“The payola statute, 47 USC Section 508, applies to radio stations and their employees, so by its terms it does not apply to Internet radio (at least to the extent that Internet Radio is not transmitted by radio waves – we’ll ignore questions of whether Internet radio transmitted by wi-fi, WiMax or cellular technology might be considered a “radio” service for purposes of this statute).  But that does not end the inquiry.  Note that neither the prosecutions brought by Eliot Spitzer in New York state a few years ago nor the prosecution of legendary disc jockey Alan Fried in the 1950s were brought under the payola statute.  Instead, both were based on state law commercial bribery statutes on the theory that improper payments were being received for a commercial advantage.  Such statutes are in no way limited to radio, but can apply to any business.  Thus, Internet radio stations would need to be concerned.”

So as Pandora’s lawyer tells us, if the FCC can’t get  jurisdiction over pureplay webcasters, state attorneys general may be able to under applicable state law commercial bribery statutes.  That’s potentially what’s called a 51 jurisdiction issue (50 states plus federal law).

I don’t think that it will require that “payola laws would need to be turned upside down and inside out to apply to this particular situation”  and I don’t think Pandora’s lawyer does either.  Also Pandora is the only pureplay webcaster with a broadcast radio station so that puts them in a special class and invites an FCC investigation.

Now remember–the law applies to FCC licensed broadcasters who don’t pay the same royalties for terrestrial that webcasters do for digital and never have (that’s what the #irespectmusic campaign is all about).  If broadcasters had paid a terrestrial royalty, do you think that the broadcasters on the receiving end of the “$50 handshake” form of payola would have taken the money and still paid a full performance royalty?  Or any performance royalty?

And if payola only applied to cash money as Pandora’s CEO would like you to believe, would the FCC have looked the other way when broadcasters received the legendary “hookers and blow”?  Vacation trips and clothes?  You know, “other valuable consideration”?  Do we really have to start quoting “Hit Men” or “Stiffed” here?  Morris Levy is laughing his ass off!

I’m just not hearing a credible argument for why getting a below market discount on something–in this case, royalties in exchange for airplay–is not “other valuable consideration.”   Therefore since Pandora is doing everything it can to buy a radio station (and is in front of the FCC right now trying to get their acquisition approved) you’d think they’d want to disclose receiving valuable consideration for playing Merlin artists. And they aren’t.

Billboard and I agree on this:  stranger things have happened in the U.S. legal system.  Far, far stranger things.  The only one who can sort this out is the FCC–and good news!  The FCC has a way to do that as part of its review of Pandora’s license for South Dakota radio station KXMZ that the FCC is reviewing right now.  And until the FCC rules on the payola issue with Pandora, it’s hard to see why Pandora’s lawyer Chris Harrison should be able to use Pandora’s end run around the law to lower everyone else’s rates in the rate hearing in Washington.  Ed Christman did his homework on this part of the story, too and called Pandora lawyer Chris Harrison on the bullshit he pulled while he was at DMX that shafted songwriters and that Harrison is trying to duplicate for Pandora to shaft artists, musicians and vocalists.  Ed got that exactly right.  And won’t it be interesting if it turns out that Chris Harrison filed an illegal contract with the royalty hearing on everyone else’s already putridly low Pandora royalties to try to drive Pandora’s payments even lower.

I encourage everyone to file a complaint with the FCC. Tell the FCC to get off their asses and do their job.  Stop coddling telecommunications firms and protect the consumer for a change.

Here’s the FCC’s “Online Complaint Form”.


Remember “Pandora Is Radio” so select the box for “radio broadcaster” for station KXMZ(FM) in Box Elder, South Dakota.


Courtesy of the Pirate Party: Lessig tells "Hollywood" to "get over it" and accept unauthorized downloading–will Kagan distance herself?

Trichordist Editor:

This is Larry Lessig and what he thinks of hard working creative professionals trying to make a living in the arts, “Get Over It”…

Originally posted on MUSIC • TECHNOLOGY • POLICY:

News from the Goolag:

I’m sure that President Obama’s Supreme Court nominee Elena Kagan is very smart, very well qualified and is going to get confirmed. However, I distinctly remember being told that the Obama campaign gave assurances to many in the copyright community that as President, then-Senator Obama would not choose a radical approach to copyright. It is my understanding that Lessig’s self-professed influence with Barack Obama was a topic that was specifically discussed and was rejected by the campaign.

Now it is a free country and no one can stop anyone else from saying something nice about them. But when the person who is saying something nice is in the radical fringe it might be a good idea to make clear exactly what your association with them is and whether you support their views. Particularly when your endorser describes himself as a “copyfighter”.

Lawrence Lessig is one of…

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Trichordist Bookshelf – Essential Reading for Artists Rights

Trichordist Editor:

Holiday Reading List? Enjoy!

Originally posted on The Trichordist:


The Dazzling New Masterwork from the Prophet of Silicon Valley

Jaron Lanier is the bestselling author of You Are Not a Gadget, the father of virtual reality, and one of the most influential thinkers of our time. For decades, Lanier has drawn on his expertise and experience as a computer scientist, musician, and digital media pioneer to predict the revolutionary ways in which technology is transforming our culture.

Who Owns the Future? is a visionary reckoning with the effects network technologies have had on our economy. Lanier asserts that the rise of digital networks led our economy into recession and decimated the middle class. Now, as technology flattens more and more industries—from media to medicine to manufacturing—we are facing even greater challenges to employment and personal wealth.

But there is an alternative to allowing technology to own our…

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Horrible: Caitlin Dewey, Washington Post Praises Site That Refused Request By Parents to Remove Pictures of Murdered Children.

I’m sorry to do this to you.  But with all the fawning press by technology journalists on the Pirate Bay, someone has to remind the world how horrible the Pirate Bay really was.  The technology press has given them a free pass for years.  The misery they created for thousands of creators is nothing compared to the misery they created for the father of two murdered children after their autopsy photos were distributed on The Pirate Bay.  When the father asked TPB moderators to remove  the photos be removed this was the response: he was  to stop whining and fuck off.

This is the “courage of conviction” you are praising Caitlin Dewey.  How the fuck do you sleep at night?


Oh and why didn’t you mention that the Pirate Bay was originally funded by Neo-Nazi?

That apparently was their  “courage of conviction” as well.   Is this also a conviction you admire?

Do you and  the Washington post normally go around praising organizations funded by Neo-Nazis?

Here is Caitlin Dewey’s twitter handle








LA Times Editor Jon Healey’s Ode to Bittorrent: Did he Coordinate Earlier Editorial with Bittorrent?

We’re just asking questions here.  Questions that should be answered. Were these two pieces coordinated with Bittorrent?

Today Jon Healey published this ode to P2P filesharing company Bittorrent.


Healy a serial piracy apologist,  makes the following highly misleading statement about BitTorrent use in Hollywood’s hometown paper:

“It’s true that BitTorrent is favored by the illegal-downloading crowd; what’s less well known is how widely the protocol is used for legitimate purposes.”

Sure if by “widely used for legitimate purposes” he means “less than 1%” of bittorrent traffic. Well then yes Bittorrent is then “widely used” for legitimate purposes.  Never mind that Bittorrent has a history of monetizing all this illegal traffic with advertising in it’s client software.  That is, directly profiting from from the misery of artists. Healey seems to think this ethically and morally challenged Belorussian/San Francisco company  deserves an advertorial in one of the nation’s largest papers.

But it goes beyond that.  Healey is not a serious and responsible journalist and probably should not be in a position that relies on objectivity and facts. Further there appears to be some sort of coziness between the editor and Bittorrent.   Why do I say this?  Two reasons:  Cox Media (the cable company) and North Korea.

1) Healey as the LA Times editorial board pushed out a very misleading piece about the BMG vs Cox suit, alleging in a mind-bending logical contortion that the suit was trying to create “new law.”  Whereas any impartial reading of the facts would conclude that  BMG is pursuing it’s remedies as proscribed by US law, and Cox has possibly failed to follow the law.  How on earth an attempt to get a large cable company to follow US law could be characterized as creating new law is positively Orwellian. Further the fact that  Healy as the LA Times Editorial board immediately pushed out an editorial on a relatively obscure lawsuit in Maryland brought by a German company is eyebrow-raising to say the least.  I won’t speculate on the appearance of coordination with p2p file-sharing interests, but the follow up puff piece on Bittorrent (the company)  should prompt an internal review by the LA Times.  At least to assure no co-ordination took place.  BTW the Op Ed board at the LA Times rejected my proposal to write an piece corrected their previous misstatements.  So much for objective journalism right?

2) Healey has been quick to spread the laughable and unsubstantiated rumor that North Korea is behind the Sony Hack.  Is this the type of thing the an editor of the LA Times should be doing?  It seems completely irresponsible to me to publicly state that North Korea is behind the hack when there is no evidence (see my twitter conversation with Healey) My suspicion is that his clear sympathies for those who profit from piracy at the expense of creators (Bittorrent and Google) makes him hope that this act of economic sabotage has not been committed by one of his fellow travelers.

Below are my conversations with Healey as well as my letter to the LA times.



davidclowery ‏@davidclowery  Dec 8
@jcahealey how but a different viewpoint on the BMG vs Cox from me?

Jon Healey ‏@jcahealey  Dec 8
@davidclowery You mean a letter to the editor, or do you want more space? We have Blowbacks, but those are online only.
davidcloweryVerified account‏@davidclowery
@jcahealey more space. I think that the LA times Hollywoods hometown paper comes out against Legal action on P2P infringers deserves print.

11:39 AM – 8 Dec 2014

Tweet text
Reply to @jcahealey 

davidclowery ‏@davidclowery  Dec 8
@jcahealey especially after the Sony hack

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Jon Healey ‏@jcahealey  Dec 8
@davidclowery You’ll have to make that case with the op-ed folks, then. But op-ed doesn’t exist to rebut editorials. Separate mission.

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Jon Healey ‏@jcahealey  Dec 8
@davidclowery Because the North Korean regime and Cox have something in common?

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davidclowery ‏@davidclowery  Dec 8
@jcahealey nice snark. How do you think the real economic damage occurs?

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davidclowery ‏@davidclowery  Dec 8
@jcahealey lets not play semantics. you’re smarter than that. You know what I mean. and you know it’s right that you print different view.

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davidclowery ‏@davidclowery  Dec 8
Breaking news LA TIMES editor claims to have established that NORTH KOREA behind Sony Hack. @jcahealey

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davidclowery ‏@davidclowery  Dec 8
@jcahealey I’ve got a bridge to sell you.

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Jon Healey ‏@jcahealey  Dec 8
@davidclowery Send your pitch to oped@latimes.com. The op-ed folks are wholly separate from us, and I’ll keep my nose out of this one.

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Jon Healey ‏@jcahealey  Dec 8
@davidclowery The standard length is 800 words, but they’ve published longer and shorter pieces.

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davidclowery ‏@davidclowery  Dec 8
@jcahealey much appreciated. thanks


to oped
I would like to propose an op-ed.  My view on Cox and it’s obligations under the DMCA act.

I am a musician, academic, researcher, entrepreneur and artists rights advocate.

I noticed that LA Times ran this editorial piece.  Aside from the fact that it’s shocking to see Hollywoods hometown paper  implicitly defend p2p file sharing, the opinion piece really mischaracterizes what rights holders like myself  are trying to do when they send notices to ISPs like Cox communications.
The mischaracterization is that  this a as “attempt to turn ISPs into bare-knuckled enforcers.”
Fact: the notices are part of a process proscribed by US LAW!  Read the DMCA act if you think otherwise.  BMG, Digital Rightscorp and individual artists like myself are following the letter of the law.
It is my experience (objectively demonstrable), Cox does not fulfill it’s obligations under the law.  They do not cut off repeat infringers as the DMCA act requires and thus this BMG  lawsuit is necessary.
Further the Copyright Alert System that the LA Times endorses is not a law passed by our democratically elected representatives.  It is an extra-legal agreement between a few corporations. Aside from it being a failure,   it has no legal standing, it doesn’t cut off repeat infringers as required by law.  Yet ISPs (and now LA Times) wants to force rights holders (like music publishers and myself) to treat this extra-legal agreement as a sort of law.
Isn’t this creating new law?  Something to which the LA times is opposed?
Finally it’s amusing to see your paper trot out the old Google generated slogan “Don’t Break the Internet”
 How bout we don’t break the democratic legislative process by allowing corporations to ignore the law and substitute an extra-legal private agreement in it’s place.

The Real Issue Of Online Piracy and Illegal File-Sharing: Assholes (guest post)

Trichordist Editor:

Just thinking about The Pirate Bay and those who have supported it…

Originally posted on The Trichordist:

By Zach Hemsey
(Copyright in the author, used by permission)

Debates about illegal file-sharing have been going on for quite some time now, and while there are many interesting perspectives on the issue, the one thing that continues to surprise me is that very few people seem to actually understand what the central matter being debated is. Time and again, arguments are made that miss the point, facts or statistics are presented that have no relevance, and ultimately discussions digress into personal opinions about artists, major labels, the industry, etc. I’d like to clear up much of this foolishness, so that moving forward we can all focus on the relevant issue at hand. Note that for the sake of simplicity, the following will focus on music piracy and artists, but obviously the points raised are equally applicable to movies, authors, etc.

Lets begin with the myth that piracy was born…

View original 2,503 more words

Spotify Must “Adapt Or Die” : Pricing For Sustainability

The single biggest problem with Spotify (and other services like it) is that they have completely removed the relationship between the artists and the fan. The labels have leveraged their catalogs as an asset in exchange for equity shares in a tech start up that is subsidized by the artists. And to be clear, that is equity that the labels are not “sharing” with the artists who are making the equity possible. We’re not even sure how this could be legal, but we’ll leave that to the lawyers to figure out.

The second problem is that the money the consumer pays, does not pay the artists the consumer is supporting. The model for Spotify and others is to divide the total pool of revenue by the total number of streams and pay out the revenue on a per stream basis. But that is not the same as a directing each consumers payments only to the artists that consumer is streaming.

So in two very important ways the relationship between the fan and the artist has been broken by completely disconnecting compensation from consumption.

There’s a very simple fix, per stream retail pricing. We are NOT supporting the notion that 150 streams should equal one song download. However for the purposes of this writing that’s where we’re going to start. We feel that Billboard has grossly undervalued the cost of a stream, but we’ll get to that later.

We’re starting with this metric specifically in the context of the new Billboard “consumption” chart whereby every 150 streams = 1 song. At retail, that means each stream is worth $.00666 (we still love the irony there).

$.00666 x 150 = $.99

Here’s what the breakdown looks like PER STREAM:

$.00666 Gross Retail (Paid by Consumer to Spotify)

$.00666 x .70 = $.00467 Paid to Artist/Rights Holder (70% of Gross)

$.00666 x .10 = $.000666 Paid to Songwriters / Publishers from 70% Above

So let’s recap… in context of 150 streams to ONE SONG:

$.00666 x 150 = $.99 (One Song)

$.00467  x 150 = $.70 (70% of Gross) To Artist/Label

$.000666 x 150 = $.09 (Full Stat Mechanical, One Song) To Songwriter/Publisher

$.70 – $.09 = $.61 Net to Artist/Label

These are the exact same mechanics paid on a single song download.

Another way to express this would be to say that the consumer spending $10 a month on Spotify can play 1,500 streams. Every stream the consumer plays then pays out 70% of gross, just like iTunes. In other words, every 150 streams equals the same economics as ONE Itunes Song Download in the distribution of revenue.

A consumer pays $10 for every 1,500 streams they consume at $.00666 retail pricing. If they consume more, they pay more. If they consume, less they pay less.  Compensation is now directly reconnected to consumption!

Simple. Easy. Fair.

We can argue about what the price of a stream should be, but reconnecting the artist fan relationship through compensation for consumption is essential.

Steve Jobs was a genius. He reversed engineered the margins and mechanics of physical retail distribution for Itunes. Jobs made it easy for labels to make sense of digital revenues, accounting, operations and royalties reporting. There is no logical reason why streaming services can not operate the same way.

There is also no logical reason why per stream retail pricing can not exist. That is unless of course the goal is to NOT have a simple, easy and fair ecosystem that is sustainable and supports artists.

We tend to think that the retail price per stream should probably more like two to five cents per stream (maybe more), as we’ve heard Beats may be paying. Whatever the retail price per stream to consumers there should be flexibility in the model for variable pricing bu artists and labels.  Variable pricing exists in digital stores such as iTunes as it also does in physical distribution.

Retail per stream pricing restores the relationship between the fan and the artist whereby compensation is directly connected to consumption. This model works and does not change the margins paid by Spotify (and others). The streaming service still retain 30% of the gross revenue, except now we have the opportunity of moving closer to a fair cost of goods.

No Music = No Business.

Add to the above experiments with new release windowing, value propositions based on bundled tiers, etc, and we can start to see a smart and sustainable streaming business emerging for all stakeholders.

Spotify can chose to “adapt or die.” It’s just math.