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.

 

 

 

 

 

 

 

 

 

Spotify Top 10 Territories : Global Revenue Marketshare & Streaming Percentages

The Top 10 territories account for 87.10% of all streams and 91.48% of all revenue. So all revenue outside of the Top 10 is less than 9% of global revenues. So if you’re streaming your music outside of the Top 10 territories, you are more or less giving your music away.

SpotifyGLOBALMarketshareRevStreams

Here’s the summed, net averaged per play rate for the top ten territories.

SpotifyT10CountriesStreamingRates

Below the top ten territories are isolated (and the market share recalculated).

The data would seem to suggest that savvy artists and labels avoid the territories where the number of streams far exceeds the percentage of revenue (the red boxes).

SpotifyNOFLYTerritories

Data set provided by US based indie label with 800 songs. Data is summed from sales and reports dated Sept 2011 – Aug 2014. This is what Spotify really looks like to most artists and indie labels.

Kim Dotcom declares he is ‘broke’ because of legal fight | BBC

Kim Dotcom, the founder of the seized file-sharing site Megaupload, has declared himself “broke”.

The entrepreneur said he had spent $10m (£6.4m) on legal costs since being arrested in New Zealand in 2012 and accused of internet piracy.

Mr Dotcom had employed a local law firm to fight the US’s attempt to extradite him, but his defence team stepped down a fortnight ago without explaining why.

READ THE FULL STORY AT THE BBC:
http://www.bbc.com/news/technology-30209067

RELATED:

A Tale of Two Pirates? Daniel Ek (uTorrent) and Kim Dotcom (Megaupload)

Anil Prasad VS Spotify : Public Debate Challenge ( @innerviews vs. @eldsjal / @spotify )

via Facebook:

Anil Prasad
Yesterday at 11:22am
I just challenged Daniel Ek and Team Spotify on Twitter to debate me in a public forum on their policies. Let’s see what comes of it. The truth is, probably nothing, because I am incapable of being bought and sold by any industry association. However, I’m making the attempt. Someone should bluntly ask the hard questions without handlers, message massaging or publicists. If you want a chance of this happening send him a tweet yourself at: @eldsjal (Daniel Ek)

AnilVsEkTweets

Anil Prasad @ Facebook:
https://www.facebook.com/innerviews/posts/10152912535628594

Anil Prasad @ Twitter:
https://twitter.com/Innerviews
@Innerviews

USA Spotify Streaming Rates Reveal 58% of Streams Are Free, Pays Only 16% Of Revenue

Since we published the Streaming Price Bible we’ve been getting data submissions to crunch the numbers. According to one set of data it appears Spotify is reporting seven different streaming rates (in a single month). But the most interesting discovery in the data is the percentage of free streaming volume and revenue versus paid streaming volume and revenue.

We knew there were two price tiers (Free & Paid) but we didn’t anticipate discovering the other five tiers, even as limited as they are.

StreamingRatesandPercentagesUSA

 

As we had suspected, the majority of consumption is generating the least amount of revenue.

Oh, and for those of you keeping score at home the net summed per stream rate, for all streams divided by all revenue is .00352 in the aggregate. That’s .00169 per stream LESS than reported earlier this year in the Streaming Price Bible of .00521. Just another indication that as streaming models mature the price per stream will continue to drop. Add to this that even Spotify executives have admitted as much.

 

FreePaidChart

If you have data that looks different than ours, send it our way and let us crunch it. This is the problem when there is such a profound lack of openess and transparency. There also appears to be an overall lack of consistency. Let’s have some real “disruptive innovation” by “sharing” our Spotify statements and comparing the numbers.

[The per play rates noted above are aggregated. In all cases the total amount of revenue is divided by the total number of the streams per service  (ex: $5,210 / 1,000,000 = .00521 per stream). Multiple tiers and pricing structures are all summed together and divided to create an averaged, single rate per play.]

RELATED:

Apple Announces Itunes One Dollar Albums and Ten Cent Song Downloads In Time For The Holidays! | Sillycon Daily News

 

Who will be the First Fired Label Execs over Spotify Fiasco & Cannibalization?

 

Streaming Is the Future, Spotify Is Not. Let’s talk Solutions.

 

 

Apple Announces Itunes One Dollar Albums and Ten Cent Song Downloads | Sillycon Daily News

Satire – but not by much.

Apple Computer announced today that for it’s Itunes Music Store to remain competitive in the digital distribution marketplace for music they would be changing their retail pricing of album downloads to one dollar and song downloads to 10 cents each. The pricing change will be effective on black Friday for this holiday season. “Since we purchased Beats music and are competing directly with Spotify we recognized the need for more competitive pricing structures based on what consumers may be willing to pay”, an Apple spokesman said. He continued, “Spotify has proven that as long as we’re paying 70% of gross, the retail pricing is irrelevant, irrelevant! We are even contemplating 10 cent albums and one cent songs to further achieve parity with music streaming services!”

Record label executives rejoiced in the move as one source exclaimed,” I don’t know why we didn’t think of reducing the retail price of downloads by 90% years ago. It’s still money, right? It’s so simple that this is really the only way to grow the business to $100b annually while competing with piracy.”

 

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The Streaming Price Bible – Spotify, YouTube and What 1 Million Plays Means to You!

Several of our posts on streaming pay rates aggregated into one single source. Enjoy…

[UN to Airlift Calculators, Behavioral Economics Textbooks to Digital Music Industry]

musicstreamingindex020114[EDITORS NOTE: All of the data above is aggregated. In all cases the total amount of revenue is divided by the total number of the streams per service  (ex: $5,210 / 1,000,000 = .00521 per stream). In cases where there are multiple tiers and pricing structures (like Spotify), these are all summed together and divided to create an averaged, single rate per play.]

If the services at the top of the list like Nokia, Google Play and Xbox Music can pay more per play, why can’t the services at the bottom of the list like Spotify and YouTube?

We’ll give you a hint, the less streams/plays there are the more each play pays. The more plays there are the less each stream/play pays. Tell us again about how these services will scale. Looking at this data it seems pretty clear that the larger the service get’s, the less artists are paid per stream.

So do you think streaming royalty rates are really going to increase as these services “scale”? No, we didn’t either.

[ BREAKING! Apple Announces Itunes One Dollar Albums and Ten Cent Song Downloads In Time For The Holidays! | Sillycon Daily News ]

 

StreamingPriceIndexwYOUTUBE

We’ve been waiting for someone to send us this kind of data. This info was provided anonymously by an indie label (we were provided screenshots but anonymized this info to a spreadsheet). Through the cooperative and collaborative efforts of artists such as Zoe Keating and The Cynical Musician we hope to build more data sets for musicians to compare real world numbers.

In our on going quest for openness and transparency on what artists are actually getting paid we’d love to hear from our readers if their numbers and experience are consistent with these numbers below. At the very least, these numbers should be the starting point of larger conversations for artists to share their information with each other.

Remember, no music = no business.

whatyoutubereallypaysFor whatever reason there appear to be a lot of unmonetized views in the aggregate. So let’s just focus on the plays earning 100% of the revenue pool in the blue set. These are videos where the uploader retains 100% of the rights in the video including the music, the publishing and the video content itself.

Plays  Earnings  Per Play
2,023,295 $3,611.84 $0.00179
1,140,384 $2,155.69 $0.00189
415,341 $624.54 $0.00150
240,499 $371.47 $0.00154
221,078 $313.47 $0.00142
TOTALS TOTALS AVERAGE
4,040,597 $7,077.01 $0.00175

So it appears that YouTube is currently paying $1,750 per million plays gross.

We understand that people reading this may report other numbers, and that’s the point. There is no openness or transparency from either Spotify or YouTube on what type of revenue artists can expect to earn and under what specific conditions. So until these services provide openness and transparency to musicians and creators, “sharing” this type of data is going to be the best we’re going to be able to do as East Bay Ray comments in his interview with NPR.

As we’re now in a world where you need you need a million of anything to be meaningful here’s a benchmark of where YouTube ranks against Spotify.

Service  Plays  Per Play  Total  Notes 
Spotify To Performers/Master Rights 1,000,000 0.00521 $5,210.00 Gross Payable to Master Rights Holder Only
Spotify To Songwrtiers / Publishers This revenue is for the same 1m Plays Above 0.000521 $521.00 Gross Payable to Songwriter/s & Publisher/s (estimated)
YouTube Artist Channel 1,000,000 0.00175 $1,750.00 Gross Payable for All Rights Video, Master & Publishing
YouTube CMS (Adiam / AdRev) ** 1,000,000 0.00032 $321.00 Gross Payable to Master Rights Holder Only

The bottom line here is if we want to see what advertising supported free streaming looks like at scale it’s YouTube. And if these are the numbers artists can hope to earn with a baseline in the millions of plays it speaks volumes to the unsustainability of these models for individual creators and musicians.

Meet the New Boss: YouTube’s Monopoly on Video | MTP

It’s also important to remember that the pie only grows with increased revenue which can only come from advertising revenue (free tier) and subscription fees (paid tier). But once the revenue pool has been set, monthly, than all of the streams are divided by that revenue pool for that month – so the more streams there are, the less each stream is worth.

All adrev, streaming and subscription services work on the same basic models as YouTube (adrev) and Spotify (adrev & subs). If these services are growing plays but not revenue, each play is worth less because the services are paying out a fixed percentage of revenue every month divided by the number of total plays. Adding more subscribers, also adds more plays which means that there is less paid per play as the service scales in size.

This is why building to scale, on the backs of musicians who support these services, is a stab in the back to those very same artists. The service retains it’s margin, while the artists margin is reduced.

[** these numbers from a data set of revenue collected on over 8 million streams via CMS for an artist/master rights holder]

Here’s what 1 million streams looks like from different revenue perspectives on the two largest and mainstream streaming services.

Service  Units Per Unit  Total  Notes 
Spotify 1,000,000 $0.00521 $5,210.00 Gross Payable to Master Rights Holder Only
Spotify same million units as above $0.00052 $521.00 Gross Payable to Songwriter/s & Publisher/s (est)
YouTube 1,000,000 $0.00175 $1,750.00 Gross Payable for All Rights Video, Master & Publishing
YouTube CMS Master Recording (Audiam / AdRev) 1,000,000 $0.00032 $321.00 Gross Payable to Master Rights Holder Only
STREAMING TOTALS  3,000,000 $7,802.00 TOTAL REVENUE EARNED FOR 3 MILLION PLAYS ON SPOTIFY AND YOUTUBE 
Itunes Album Downloads 1,125 $7.00000 $7,875.00 Gross payable including Publishing

Here are some compelling stats on the break down of what percentage of videos on YouTube actually achieve breaking the 1 million play threshold, only 0.33%

CHART OF THE DAY: Half Of YouTube Videos Get Fewer Than 500 Views | Business Insider

Some 53% of YouTube’s videos have fewer than 500 views, says TubeMogul. About 30% have less than 100 views. Meanwhile, just 0.33% have more than 1 million views.

That’s not a huge surprise. But it highlights some of the struggles Google could have selling ads around all those unpopular videos, despite the money it has to spend to store them.

An artist needs to generate THREE MILLION PLAYS on the two largest and most popular streaming platforms to equal just 1,125 album downloads from Itunes. This is an important metric to put in context. In 2013 only 4.8% of new album releases sold 2,000 units or more. So if only 4.8% of artists can sell 2,000 units or more, how many artists can realistically generate over four million streams from the same album of material?

in 2013 there were 66,565 new releases, only 3,237 sold more than 2,000 units = 4.8% of new releases sold over 2,000 units

in 2013 there were 915,482 total releases in print, only 14,856 sold more than 2,000 units = 1.6% of ALL RELEASES in print sold more than 2,000 units.

This is even more important when you start to consider that many artists feel that growing a fan base of just 10,000 fans is enough to sustain a professional career. Note we said solo artists because these economics probably need to be multiplied by each band member added for the revenue distribution to remain sustainable. So a band of four people probably need a sales base of 40,000 fans to sustain a professional career for each member of the band.

Each 10,000 albums sold on iTunes (or 100,000 song downloads) generates $70,000 in revenue for the solo artist or band. To achieve the same revenue per 10,000 fans in streams, the band has to generate 30 million streaming plays (as detailed above) if they are distributing their music across the most common streaming services including Spotify and YouTube.

In 2013 the top 1% of new releases (which happen to be those 620 titles selling 20k units or more) totaled over 77% of the new release market share leaving the remaining 99% of new releases to divide up the remaining 23% of sales.

This appears to confirm our suspicion that the internet has not created a new middle class of empowered, independent and DIY artists but sadly has sentenced them to be hobbyists and non-professionals.

Meanwhile the major artists with substantial label backing dominate greater market share as they are the few who can sustain the attrition of a marketplace where illegally free and consequence free access to music remains the primary source of consumption.

What’s worse is that it is Silicon Valley corporate interests and Fortune 500 companies that are exploiting artists and musicians worse than labels ever did. New boss, worse than the old boss, indeed.

So whose feeling empowered?

RELATED:

UN to Airlift Calculators, Behavioral Economics Textbooks to Digital Music Industry

Streaming Is the Future, Spotify Is Not. Let’s talk Solutions.

Who will be the First Fired Label Execs over Spotify Fiasco & Cannibalization?

 

 

 

 

How to Fix Music Streaming in One Word, “Windows”… two more “Pay Gates”…

We’ve written about this before in two posts, Why Spotify is not Netflix (But Maybe It Should Be) and Streaming Is the Future, Spotify Is Not. Let’s talk Solutions. In Both posts we talk at length about how the problem is not technology or streaming itself, but rather the very restricted business models and poor economics that currently exist. No amount of selective double speak from Daniel Ek will change the bad math that Spotify can not scale at current rates.

Jason Aldean now joins Taylor Swift in removing his music from Spotify which leads us to wonder how many more artists with the ability to do so will remove their new releases and/or catalogs as well. This may also be a good time to revisit those two previous posts mentioned above.

So here is the question, is the record business really utilizing the new digital platforms correctly to address the current market place? Perhaps by looking at the options available to consumers from movie streaming, rental and download businesses we can find more robust and flexible opportunities for artists.

At the very least windowing releases allows artists, their managers and even labels the ability to manage and maximize current revenue streams more effectively. Windowing opens up strategic decisions about tier based pricing relative to the value proposition for both the artist and the consumer. Windowing may not fix all of the problems artists are facing in music streaming but it will be a great first step towards recognizing that the artists should have some direct participation in deciding how their work is consumed.

It’s not that streaming can’t work. It can. It’s that Spotify is a bad business model that has unsustainable economics and exploits artists because it is a wall street financial instrument and not a music company.

Pay Gates may be another solution (which is essentially a window). For example, Spotify premium paid subscribers could access the new Taylor Swift record, but not those using the free version of the service. This also allows artists to determine which songs can be accessed for free for greater promotional value, and which songs are intended to maximize revenue.

Why does Spotify unilaterally get to dictate to artists, managers and labels how to best maximize their relationships and revenues with their own fans?

As Spotify is a destination platform, and not a discovery platform we could see where the current hit singles are only available to paid subscribers while select album tracks could be accessible for free. The tracks on the free tier are monetized only by advertising revenue which pays very little, but there may be a promotional benefit to build awareness on lesser know songs.

Even the old school record business had tier based pricing. There were front-line, mid-line and budget pricing tiers. Front-line titles were often deeply discounted for premium in-store positioning. Mid-line titles were discounted as an incentive to stimulate more sales from recent catalog titles. Budget titles were mostly oldies and very deep back catalog. Primitive as they were, these were windows.

Yes, we know the choir of “or else they’ll steal it” from piracy apologists will claim that anything less the complete devaluation of music as fodder for advertising revenue is pointless. We’ll take our chances with Jason Aldean, Taylor Swift, Adele, Coldplay, Beyonce’, The Black Keys, Thom Yorke and the growing number of artists that are either removing their catalogs from Spotify, or windowing them.

Bring on the windows and pay gates! Let’s see some “innovation” and “disruption” that actually works for artists and not just the new boss. The outcry (from Spotify) of artists removing their songs also proves another very important point – all music is not equal. If some weekend hobbyist does not put their music on Spotify or pulls it off Spotify it doesn’t make headlines. Taylor Swift, Adele, Beyonce, The Black Keys, Thom Yorke, etc – all make headlines because people  actually do VALUE professional music. Professional music, has a professional price.

If Spotify is such a good business for artists, why not let each artist decide if Spotify works for them? Why does Spotify publicly shame artists to convince them how good they are? The lady doth protests too much, wethinks…

It’s funny how long it’s taken the record industry to realize that if you keep allowing something to be given away for free there is no incentive to pay. Who knew?

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RELATED:

Why Spotify is not Netflix (But Maybe It Should Be)

 

Streaming Is the Future, Spotify Is Not. Let’s talk Solutions.

 

Spotify’s Daniel Ek is Really Bad At Simple Math, “Artists Will Make a Decent Living Off Streaming In Just a Few Years”

BUT SPOTIFY IS PAYING 70% OF GROSS TO ARTISTS, ISN’T THAT FAIR? NO, AND HERE’S WHY…

Spotify is not paying sustainable rates for the cost of goods. Look – it’s like this, if something cost you $100 to make, and someone else sells it for $10… it doesn’t matter that you are getting 70% of the gross, you’re still over 90% unrecouped on a per unit basis. This is the problem with Spotify, is that it undervalues the true cost of goods (including R&D, etc).

Artists agreeing to streaming their music on Spotify are essentially agreeing to sell albums for One Dollar and Songs for Ten Cents… Oh Wait, Spotfiy actually pays way less than that… (calculated on a per stream basis).

This is why arguments about marginal percentages miss the point completely. It’s about simple math and simple economics.

The cost of music is not in the distribution of music (which is cheap). The cost of music is in the human labor of the CREATION of music (which is expensive).

The cost of goods is greater than the marginal cost to distribute those goods. Stop confusing the product with the container.

The CREATION of music is also more than the cost of RECORDING music. The cost of music is in the sustainable needs of the human labor for food, shelter, clothing, etc.

Spotify can not scale and work at current economics… One More Time…

SPOTIFY MATH FOR THOSE OF YOU AT HOME WITH CALCULATORS:

Just show us the math where streaming scales, we’ll wait. Spotify has 3m paid in the US at $10 each.

$10 x 12 mos = $120 per year. Pay out 70% that’s a gross of $84 per year per subscriber. Simple Math.

That $84 per sub is in revenue to all artists in rights holders. Times that by 3m and you get a whopping $252m a year in a $7b business.

Multiple that by 10, to get 30m subs @ $10a month and that’s only $2.5b a year… and that’s a big IF Spotify ever gets to 30m paid in the USA… and IF they do, that’s ONLY 2.5b in revenue against the $7b now…

So you effectively cut the revenue to everyone by 1/2 to 2/3rds… how does this math work without raising the price of subscriptions? It doesn’t.

It’s just math.

 

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RELATED:

Music Streaming Math, Can It All Add Up?

Who will be the First Fired Label Execs over Spotify Fiasco & Cannibalization?

Streaming Is the Future, Spotify Is Not. Let’s talk Solutions.

Why Taylor Swift Is Winning The War On Streaming – It’s About The Math Silly, not Technology…

Streaming is Good, the Economics are bad – Get It?

There’s a media pile on claiming that Taylor Swift is going to lose her war on streaming… really? Is there a war on streaming? No. There is no war on streaming. The battle is over economic injustice, not technology. We’ve written about this before…

Streaming Is the Future, Spotify Is Not. Let’s talk Solutions.

and

Why Spotify is not Netflix (But Maybe It Should Be)

The record business would do well to look at the solutions and marketplace that the film industry has developed with varied and robust consumer options in the streaming landscape. These include different access and payment models, not one business for all.

So let’s get this straight, and go right to the heart of the issue. It’s just math, and it’s simple math at that. We’ll ask again if anyone can show us how streaming scales to sustainability for artists and rights holders. Let’s see it, because this is how it looks to us…

SPOTIFY MATH FOR THOSE OF YOU AT HOME WITH CALCULATORS:

Spotify has ONLY 3m paid in the US at $10 each.

$10 x 12 mos = $120 per year. Pay out 70% that’s a gross of $84 per year per subscriber. Simple Math.

That $84 per sub is in revenue to all artists in rights holders. Times that by 3m and you get a whopping $252m a year in a $7b business.

Multiple that by 10, to get 30m subs @ $10a month and that’s only $2.5b a year… and that’s a big IF Spotify ever gets to 30m paid in the USA… and IF they do, that’s ONLY 2.5b in revenue against the $7b now…

So you effectively cut the revenue to everyone by 1/2 to 2/3rds… how does this math work without raising the price of subscriptions? It doesn’t.

It’s just math.

So please get your arguments right. No one is arguing against streaming as a technology or distribution mechanism. They are arguing over the fact that these piss poor business models can not exist or operate without artists subsidizing VC funded or publicly held companies.

If these business models are so bad that they can not afford to pay for the cost of goods to maintain a sustainable ecosystem it’s time to go back to the drawing board and start over. That has nothing to do with streaming, technology or distribution and everything to do with exploitative economic injustice.

It’s just math silly.