Chris Ruen is the author of the book, “Freeloading”.
Chris Ruen is the author of the book, “Freeloading”.
The RIAA has just released recorded music revenues for 2014. Many commentators are taking the raw figures and declaring recorded revenue almost flat. Not true. Revenues are down another 2.75% in 2014.
When you adjust for inflation and population growth we see a continuing decline in revenue per head from $22.12 in 2013 to $21.51 in 2014.
As we have recently noted, we are all pro-digital, it’s just some of us do the math, while others seem to believe in magic unicorns.
The digital news site Gigaom has spent the last several years scolding songwriters, musicians and the rest of the entertainment industry for its “antiquated” business models. These complaints seemed to largely center around around what they regarded as a quaint notion: payment for content.
Not to spike the ball in the end zone, but I’m still in business and Gigaom is not. Maybe they should have sold T-shirts?
Well actually that is spiking the ball in the end zone. But hey, they deserve it. Just google “piracy” and “Gigaom” if you don’t believe me.
My bands have been web-enabled businesses since 1993 (Mosaic). They’ve been web-based since 1999 (Napster). Artists like myself know as much (if not more) about the digital economy than your average tech journalist. We’ve lived it for over 20 years. Yet we are often portrayed as technophobes or luddites. Or portrayed as too stupid to understand the “new economy” which doesn’t rely on revenues but is instead somehow powered by Magic Unicorn Dust™ and TED Talks™. I can’t tell you how tired I am of hearing this bullshit from people who have never made a profit.
The New York Times has an uncharacteristically sloppy article which tries (and fails) to make the case that somehow Gigaom went out of business because they had 4 extra employees in the research division, and that it’s downfall isn’t a bad omen for other tech oriented news blogs.
The New York Times may be right, however as a profitable tech entrepreneur, I really don’t see many tech blogs like Gigaom surviving without ongoing underwriting provided by silicon valley venture funds. I could be wrong. But just to be safe I suggest that these blogs begin to transition to other revenue streams like merchandise and T-shirts.
( a reader noted this was relevant: Here is a recent article from Gigaom chiding the NYTimes for taking so long to “get” digital. They were out of business three weeks later.)
Stop us if you’ve heard this one before… Spotify doesn’t cannibalize Itunes sales it actually increases them… Uh huh. That was the rap they wanted us to believe. Smart and cautious artists and labels seem to have been right by avoiding Spotify.
In 2014 Itunes sales are reported to have declined by 12-14% and that is pretty much directly attributed to the cannibalization done by Spotify.
So here’s what they said in 2012…
… there’s no evidence of Spotify or other streaming services negatively impacting music sales. More data like this could encourage artists and labels to promote their streaming music presences, and push acts like The Black Keys and Paul McCartney who’ve pulled their catalogues from Spotify to come back.
Paul Smernicki did some more defending at a Guardian conference. According to Music Ally, Smernick told the conference: “We’ve looked really really hard for evidence of cannibalisation, almost unobjectively. Across the business, we’ve been unable to find that evidence. And in [European] markets where Spotify has launched, the growth in the digital business has been about 40%, in territories where it doesn’t it’s around 10%. There’s a healthy ecosystem and it can be served by many of those services”.
Speaking to digital music site Evolver.fm in a pre-Grammys interview, Ek strenuously denied that his streaming service cannibalises sales of music through services such as Apple’s iTunes.
“There’s not a shred of data to suggest that. In fact, all the information available points to streaming services helping to drive sales,” he said.
Wilson points out that the number of digital downloads has increased-up 15% for albums and 6% for tracks in the first 46 weeks of 2012, according to SoundScan-suggesting that the widespread availability of free on-demand streaming hasn’t led to a sales apocalypse.
Rhapsody chief executive Jon Irwin says, “The only thing streaming music cannibalizes is piracy.”
So there you have it. Three years later and meanwhile back on earth the actual effects of Spotify on the transactional sales of recorded music have been a disaster. Which is why there are major changes happening at the major labels as Spotify licenses come up for renewal.
SXSW Rewind… Back in 2010 during Daniel Ek’s Keynote Speech an audience member who identified themselves as an independent musician asked how much activity it would take on Spotify to earn just one US Dollar. The 27 year old wunderkind and CEO of the company was stumped for an answer… Five years later we have a pretty good idea why.
2010… #SXSW Rewind…
Q: How many plays equals one dollar?
A: Depends on the type on contract with the publisher/record labels. We share the rev we bring in. You can’t really equate to ‘per play’ we look at all our ad rev. Creates a bucket. For instance how do you account for a purchase of a song. There is no easy answer to your question. Over time our ad revs are growing, number of downloads growing. Amount of rev we bring in is growing.
I couldn’t help noticing, however, Ek’s artful dodge to the question of how artists are paid by his service. The subject was broached by an audience member, who identified himself as an independent musician and thanked Ek profusely for the great application. He wanted to know how much he would be paid.
“It’s complicated,” was, in essence, Ek’s reply. But he did reveal that it’s a revenue sharing model; artists get paid a proportion of whatever Spotify gets paid, presumably based on the number of plays on the site they receive.
Ek’s reply was disappointing because this is the million dollar question for many music sites.
Dodgy from the start. What do you expect from one of the co-founders of U-Torrent… Economics only a pirate could understand?
As we reported over the weekend, big broadcasters are now asking the FCC for a “payola” waiver on terrestrial and digital broadcast. “Payola Lanes” if you will.
But now we realize that this push likely started in a 2012 with a very under the radar meeting between four clear channel executives and FCC chief.
Matthew Lasar at Radio Survivor reported the meeting March 12 2012. He also uncovered a summary of the meeting with a paragraph that made him as he says scratch his head:
“In addition, Mr. Pittman discussed several ways in which the FCC can help radio to improve its competitive position by increasing the flexibility that it has to enter into strategic partnerships that will enhance the listening experience, while ensuring that audiences receive sponsorship information appropriate to today’s digital environment.”
Matthew Lasar went on to state:
“My rough guess is that it could have something to do with iHeart Radio and the FCC’s sponsorship identification (or payola) rules, which require broadcasters to let the public know when some kind of “valuable consideration” has been given to a station in exchange for air time.”
Now we know Lasar guessed right. We now know that the Broadcaster are looking for an exemption to the rules that require immediate disclosure of “payola.” Looks like the push started in 2012. What other documents are out there?
It just keeps getting uglier and uglier. See FCC document below:
The following is an excerpt from a post on MusicTechPolicy (Music Discovery and Purchasing Survey Results). David thought it worked as a stand alone post, so here it is.
The “Zero Effect”: Do Consumption Charts Penalize Artists Windowing Streaming Services and Most Compilation Records?
by Chris Castle
Although we can’t tell how consumption charts are weighted (as far as I know that information hasn’t been released publicly), it’s pretty clear that if you are not on streaming services–meaning you have zero streams–you will be penalized in the chart.
I picked the consumption chart for the first week of Taylor Swift’s October 27 release of the 1989 juggernaut to try to measure how the consumption chart reacted. The choice was admittedly cherry picking, but with a purpose: Taylor’s sales were historically significant and her reported streaming should have been somewhat muted given Spotify’s well-publicized decision to reject the record on the artist’s terms. This would potentially yield good benchmarks for testing the consumption chart at the margins as well as the more bread and butter titles below the top 10.
Based on data for the week ending November 2, 2014, Taylor Swift’s first week sales were so strong it probably doesn’t matter that her streams were somewhat lower for the consumption chart. At #1, she outsold the #2 NOW 52 title by 10:1, and NOW 52 outsold the #3 Sam Hunt album by 10:8–but Sam Hunt had 4 million streams that punched up the chart position. NOW 52 had zero streams because it is a compilation record.
Compilation records and soundtracks do not get credit for streams because they have no streaming rights. This is true even if the music services allow playlists–or possibly create playlists themselves–using the compilation or soundtrack brand in the metadata with the track listing of the underlying tracks. These playlists work because the individual tracks are already available on the service under direct license from the label or artist licensing the tracks to the compilation or soundtrack. (This is the kind of free riding that was the heart of Ministry of Sound’s recent lawsuit against Spotify and probably why Spotify settled.)
The “zero effect” is much greater further down the chart, however. In the same week of November 2, Frozen: The Songs, a compilation record, got credit for zero streams and 10,723 albums sales for a chart position of 49. Blake Shelton sold 8,735 albums but got credit for 930,928 audio streams and a chart position of 44. The same week Iggy Azalea sold 4,947 albums but got credit for 5,060,617 streams for a chart position of 25. In other words, Frozen will never have any streams because compilation records typically do not get streaming rights, and got a much lower chart position in spite of selling over twice as many albums.
If you compared based on album sales alone, the Guardians of the Galaxy zero effect soundtrack would have entered the chart at #25, not #40, Sam Smith would have been #15 instead of #6, Bob Segar would have been #23 instead of #34. Another zero effect soundtrack is Now Disney 3 that would have been #40 instead of #59, and U2’s Songs of Innocence would have been #64 instead of #94.
Seasonal records such as Christmas albums are also penalized. The Nov 2 chart showed that based on album sales alone, Home Free’s Full of Cheer would have entered the chart that week at #66 instead of #104. While the title had 26 streams, that was a sufficient penalty to cost the record 38 chart positions.
Conclusions? Charts are relative beasts to begin with, and the consumption chart won’t keep a phenom like Taylor Swift from dominating the top position. Measuring streams probably isn’t enough to affect the top 10 or the top 5. But for records that are compilations, soundtracks, seasonal or other specialty titles that either aren’t allowed a streaming audience based on contract, are windowed, or haven’t found that audience yet for another reason, the consumption chart penalizes high sellers that are not present or are not credited with streams on streaming services.
If chart position matters to your record, then this should be of concern to you as the zero effect creates an incentive to stimulate streams for chart position–assuming you can get credit for streams. Some would say that the more streaming, the lower the sales. Without getting into cause and effect on that issue, it certainly can be said that the lower the streams, the lower the chart position even if sales of a given title are higher than another given title.
From a profitability perspective, artists whose records sell but don’t stream may well be thankful. If that trend continues, then it would also stand to reason to question the benefit of chart position as a selling tool. But then we hear about services like YouTube routinely deleting billions of fake plays in its video playlists during December. If this same phenomenon is repeated in streaming services used to measure chart position….not to imply that anyone in the music business would ever try to rig the charts. Perish the thought.
So what is it all about? Is there a “zero effect” or is there zero affect? Sales or streams?
A big talking point of streaming, particularly of the Spotify variety has been that streaming is a solution to piracy, and that “access over ownership” models are the future.
Well… ok… but that assumes that piracy (of the corporately sanctioned, ad funded variety) remains a download business, while consumers migrate to the easier more accessible (free tiered, ad funded) music streaming models.
We’re told that the ad-supported free tier is the only way to attract consumers from piracy to legality. To be clear we’re not opposed to free trial periods. Free trials of 30 days, maybe even 60 days should give the consumer the ability to fully experience the value a streaming service offers. We just don’t see how the economics of ad-supported free streaming can create a sustainable revenue model for musicians and songwriters.
But here’s the bigger question. What happens when the pirates migrate to streaming over storing? Now we’re back to square one. A decade ago iTunes and later Amazon provided an legal solution to piracy that was superior in every way except one, price.
Why would anyone think that streaming would combat piracy any better than transactional downloads? Well, for the same reason piracy is, was and remains the primary source of music consumption, price. So the conversation and controversy over streaming is not one about the method of distribution, or technology. The conversation is the same as it has been for a over a decade, price.
Essentially Spotify appears to be designed to model ad-funded piracy whereby the company who can capture the largest market share would have ability to legally devalue music by delivering it to consumers for free. This math just doesn’t work. We can’t even see where the math on paid subscriptions will ever get to scale or revenue at a price point of $9.99 a month per subscriber.
So the inevitable question becomes if streaming is the solution to piracy, what happens when piracy is streaming? There are already multiple applications that are available or in development that reportedly enable users to stream music directly from BitTorrent as opposed to the need to download files to a local hard drive.
So explain to us again exactly how streaming is a solution to essentially the same service? Oh, they both need to compete on the same price point, which is free. Well, guess what, ad-supported free distribution of music is not sustainable.
YouTube is the largest free ad-supported free streaming distribution platform and it can not create the type of revenue required for the sustainability of the recorded music business. If we believe what they say, YouTube isn’t even a profitable business for Google!
So here’s the bottom line. Spotify, YouTube, Pandora and other ad-supported free streaming services are a side show to take the conversation away from the core problem, piracy. Internet piracy is big business and these side shows distract the conversation away from the fundamental truth of our economic reality… Free doesn’t pay. It’s just common sense and it’s just math…
Project Music looks to be a joint venture between The Country Music Association, Nashville Entrepreneur Center, Google and others.
I’m not a lawyer but isn’t Project Music’s use of these classic album covers “implied endorsement?” Since this is some sort of music endeavor you might think these artists are lending their name to this commercial music oriented endeavor. I mean I’m sure most of the artists here don’t need the money, but still it’s nice to be asked right?
I’m probably overthinking this. I’m sure this was cleared first with KISS, Led Zeppelin, The Beatles, Tom Petty, Booker T and the MGs, Pink Floyd, Sex Pistols, Daft Punk etc etc.
As David said in his post FCC Payola Lanes: Big Broadcasters ask FCC for Payola Waiver, Clear Channel and other NAB radio gigantamo chains have asked the FCC for a “waiver” on the FCC’s payola rules. What’s interesting about this is the filing date, November 26, 2014.
What else happened on November 26? One thing is that NPR reporter Laura Sydell posted “Pandora’s New Deal: Different Pay, Different Play“. Laura Sydell quoted David alongside Georgetown professor Jim Burger and Pandora CEO Brian McAndrews all on the subject of whether Pandora’s “steering” deal with Merlin labels is payola and whether the FCC’s payola rules apply to Pandora. This would be based on Pandora being the only pureplay webcaster to at least try to become an FCC licensed broadcaster. (We’re not really sure where that application is at, but if you do, please comment with a reference.)
Was Sydell’s post the first time the payola issue has come up in the context of steering or promotion in direct deals between broadcasters and labels? Of course not, it’s come up repeatedly. But it was the first time that we know of that it came up in the context of Pandora and especially in the context of Pandora’s “Chris Harrison special” that they are trying to run in the current rate court as Sydell reports (and as was later confirmed in Billboard’s (admittedly skeptical) reporting about the similarities between the Pandora and DMX licensing strategies. Harrison worked at DMX before Pandora–see DMX’s chest-beating press release trumpeting its defeat of songwriters).
Not to get too tin foil hat about it all, but it is very coincidental that an NPR reporter starts asking about payola and then the NAB quietly asks the FCC to give them a waiver.
If the FCC rules in the broadcaster’s favor, that could also apply to Pandora’s purchase of South Dakota radio station KXMZ-FM.
And maybe to Pandora itself.