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David Pakman is Wrong on The Price Of Music (and streaming subscriptions)

Is there anyone left in the record business with common sense and a calculator?

David Pakman wrote an interesting piece asserting the problem with streaming services getting up to scale is a matter of pricing. He puts forth that $10 a month, or $120 per year is too much. He claims that the ability of these services to scale should be more in line with a monthly fee of $3-$4, or $36 – $48 a year to appeal to a broader base of the “average” music consumer. We think there are some serious flaws with this line of thinking not the least of which is that we can’t get the math to scale at $10 a month per user!

The first and most important error is that an “average” music consumer does not exist. Sure, you can average the total spending by the estimated number of consumers to find an average per consumer but no “average” consumer actually exists. Some spend many times the average, some spend far below it.

Pakman makes the assumption that music subscription services are over priced citing that the “average” consumer is only willing to spend $64 a year on music.  This completely ignores that the majority of highly active music consumers that have historically purchased much more than the average.

Those working in music distribution have always know that the most active consumers, contribute the greatest percentage of revenue to the total. In traditional terms this would be an expression of the classic 80/20 model where the top 20% of consumers represent 80% of the revenue. Conversely 80% of consumers only account for 20% of the revenue overall. This is of course an over simplification but it illustrates the point being made.

Here’s some simple math. Apple’s iTunes boasted 200 million users in 2011. Using Pakman’s own estimates at $64 per “average” consumer, the store should have generated a cool $12.8 billion in revenue. As we all know that’s not true, it quickly illustrates the problem with Parkman’s methodology of the “average music consumer.” Of course Itunes is not the only music retail outlet, and surely not all of those Itunes users were strictly music consumers. Again this is the problem with attempting to define an “average” music consumer to broader market economics.

Pakman also doesn’t fully account for the fact that while music prices dropped nearly in half from $19.98 compact discs to $9.99 downloads the volume of sales continued to decline. This is a decline that began with the introduction of Napster and has spread through the expansion of ubiquitous illegal file sharing networks such as the now defunct Kazaa, Grokster and Limewire.

The single greatest factor effecting both the price of music and the volume of sales, was and remains the illegally free supply of the exact same product available to consumers without risk, investment or consequence by those distributing it for profit without paying for the cost of goods.

But Pakman may have stumbled upon some other points of interest in his observation. First, is that the music business needs to learn how to window releases and build a transactional streaming model as the film business employs. We detailed this in our post “Spotify is not Netflix, but maybe it should be.” Second, there should tiered access on streaming services. A basic $4 a month subscription gets you the hits, say the top 200 current singles and the top 200 catalog albums. For $9 a month you get the hits plus all music more than a year old. For $20 a month you get everything available.

The narrow band thinking of music industry business people is stunning when we don’t need to look any farther than the film and tv industry to see a robust variety of different streaming products for different consumers needs and demands. The film and tv industry successfully window releases and have different pricing tiers based on access and there’s really no reason why these models would not, and can not translate to the record industry.

 

by Trichordist Editor

Merlin on YouTube music payouts: “Their figures are by far the worst” | Music Ally

No surprise to us…

“The ironic thing is that the service that pays the least is the service that’s the most well funded and run by the biggest company in the world: their figures are by far the worst, whether you measure them on a per-stream basis or a per-user basis. I tend to get myself in trouble when I talk about that company…”

Hence his desire not to name them directly, but quote instead from an interview with Billy Bragg conducted by Music Ally earlier this year. “If we’re pissed off at Spotify, we should be marching to YouTube central with flaming pitchforks,” said Bragg – Caldas read this quote out before delivering his own pointed follow-up. “I can’t say Billy’s right, but I can say that he’s not wrong,” said Caldas.

READ THE FULL STORY AT MUSIC ALLY:
http://musically.com/2014/04/30/merlin-youtube-music-payouts-charles-caldas/

RELATED:

What YouTube Really Pays… Makes Spotify Look Good!

Artist Revenue Streams : Streaming Marketshare By Volume and Revenue (includes YouTube and Spotify)

Streaming Price Index : Now with YouTube pay rates!

 

by Trichordist Editor

A Response to Steve Albini About The Internet and Musicians by UNSOUND Film Director

By Count Eldridge

My rebuttal to Steve Albini’s bullet point post. Steve Albini’s poorly reasoned piece was posted, so I feel obligated to try to correct some of the glaring misinformation. I’ve spent the past 2 years working on a documentary called Unsound that addresses the issues that Steve brings up in his post.

You can read the original story here:
http://www.stereogum.com/1678835/steve-albini-thinks-the-internet-solved-the-problem-with-music/news/

On free global music sharing: “The single best thing that has happened in my lifetime in music, after punk rock, is being able to share music, globally for free. That’s such an incredible development.”

It is only an incredible development if you give CONSENT to share that music. Steve seems to have missed the most important aspect of ‘sharing’. Its not sharing without consent.

On consumer choice: “Record labels, which used to have complete control, are essentially irrelevant. The process of a band exposing itself to the world is extremely democratic and there are no barriers. Music is no longer a commodity, it’s an environment, or atmospheric element. Consumers have much more choice and you see people indulging in the specificity of their tastes dramatically more. They only bother with music they like.”

This is one of the most obvious positive aspects of the internet revolution, so Steve is not totally wrong on this piece- only about 95% wrong. Again, Steve seems to have missed the most important point. Music IS a commodity now. That is exactly what Spotify and Youtube have done. And in the process of enriching themselves, they devalued what we spent out entire lives creating.

“You can literally have a worldwide audience for your music… with no corporate participation, which is tremendous.”

No corporate participation? Is he serious? Google, Apple, Facebook, Comcast, and Spotify are the biggest, most powerful corporations we have ever seen. Apple alone is bigger than Exxon Mobile. That doesn’t necessarily mean they are bad. In fact Apple are really the good guys in all of this. But I can assure you that corporate participation is happening at all levels, and many of these corporations are exploiting artists on a level that makes those big bad labels Albini likes to complain about look like angels.

On the economics of streaming services: “I think they are extremely convenient for people who aren’t genuine music fans, who don’t want to do any legwork in  finding bands, [but] I think there is incorrect calculus being done by the people who are upset about them. I actually think the compensation is not as preposterous as anyone else. It’s like complaining that cars are going faster than horses.”

No Steve, it is your math that is incorrect about streaming services. An independent artist that could eek out a living selling 12,000 copies of their music simply goes bankrupt if those 12,000 people start streaming that music instead of buying it. The math could not be more simple. It seems Steve has fallen for the myth that Spotify has perpetuated. They love to talk about “scale”. If only their company could “scale”, then everyone would win! Wrong! Only Spotify wins. Steve, tell me why it is that you want so badly to support the IPOs of major corporations at your own expense? Why do you want to subsidize their businesses of the backs of creators? Why do you want to enrich these middlemen?

And his point about convenience? What could be more convenient than clicking one button on iTunes? Or even better, streaming my music on MY website instead of Spotify and Youtube, which only enriches those corporations at the expense of artists.  Steve is supposed to be railing against the big corporations. Clearly he hasn’t thought this through.

On the publishing industry: “Publishing was a racket. It was not a legitimate part of the music business. It never operated for the benefit of songwriters. Of all of the things that have collapsed in the music paradigm, the one I am most pleased to see collapse is the publishing racket.”

Dont like publishing deals, then simply don’t sign one. Deal with your own publishing. Nobody forces any artist to sign a deal. But artists don’t have a choice when it comes to Youtube and pirate sites. And realistically, artists don’t have much of a choice but to be on Facebook and Spotify either. But this issue of publishing is irrelevant to the conversation, as it has nothing to do with the internet revolution or anything ‘new’.

On the primacy of live music: “I think that’s a totally much more direct and genuine way for an audience to pay for a band, and a much more efficient means of compensation.”

Efficient?? Is he kidding? Driving across the country, or flying half way around the world to perform your music for fans is NOT efficient. Selling them a file which they can play any time is the ultimate in efficiency. And streaming (if it paid artists properly) would be just as efficient. But live performance is the absolute worst way to compensate an artist, and doesn’t address compensation for songwriters, producers, and engineers.  Live performance is the most expensive, least efficient way to deliver music to someone. If you are lucky enough to even be able to get gigs in this competitive market, they probably won’t be profitable enough for you to continue doing them even if they are well attended.

Don’t get me wrong. There are many positives here that should be pointed out. In fact many, if not most, of the problems that plagued the music business have improved…except for the whole making a living part. Sadly, that part has actually gotten worse.  An artist’s ability to perform live for fans has actually become more difficult. First of all, most bands lose money touring. Everyone in the music business should know this. This is why record labels used to give tour support. Touring has always been a loss leader for record sales. Eventually the lucky few who gain large fan bases over many years do actually make money touring. These are the 1%. All of the rest of us just hope to break even and sell a few recordings.

Secondly, the amount of bands trying to tour to make a living is exponentially increasing, while the number of venues and days in the year stay the same. It is physically impossible for all of the artists who actually have significant fan bases to tour. There are simply not enough dates and venues. Furthermore, even if there were more venues, people simply won’t see live shows every day, but they will listen to recorded music every day. In fact, people are consuming more music than ever. This means we MUST solve the problem of monetizing recorded music. Sean Parker and the Spotify folks love to spread this misinformation about how artists make money from touring. But we all know most artists loose money touring. If touring is so profitable and efficient, perhaps Spotify should change their business model and leave their families and friends for months at a time and go on tour hand delivering music to people one city at a time.

Instead of perpetuating the myth that artists make money touring, those in the music industry who know better should be focussing hard to make the delivery and monetization of recorded music better for artists by making it more efficient. This means less middlemen (or no middlemen) taking a smaller cut, rather than allowing a few giant corporations and rogue pirates to profit enormously from our work.

On cutting out the middleman: “On balance, the things that have happened because of the internet have been tremendously good for bands and audiences, but really bad for businesses that are not part of that network, the people who are siphoning money out. I don’t give a fuck about those people.”

There are now just as many middle men than before, and they are indeed siphoning out most of the money, leaving fractions of a penny for artists. The difference is that today’s middle men are ripping you off far worse than the middle men from before the internet, yet they invest nothing back in to the artists who make their platforms even possible. I know what Steve is probably thinking right now. “What about those big bad labels! They took a big percentage!” Don’t try to introduce labels into this issue. This is a distribution problem. Love them or hate them, labels invest in artists and take a huge risk. What does Youtube or Spotify invest annually in artists?

Sadly, it seems Steve Albini is so far out of touch that he doesn’t even realize that he is not railing against ‘the man’. Instead, he is playing right into their hands.

I really need to finish my film Unsound before more artists and music fans get fed more of this kind of misinformation.

http://unsoundthemovie.com/

-Count

RELATED:

The Problem With Steve Albini | AdLand

by trichordist

Amazon’s Streaming Contract Is “Entirely Unacceptable” | Digital Music News

Amazon is trying to bypass US Copyright law and define its own royalty rates

Section 115 of the US Copyright Act is the rate, set by the government, that defines the mechanical royalty rates. Most people know that the statutory mechanical royalty rate is currently 9.1 cents per download or physical “phonorecord” under 5 minutes (and then 1.75 cents per minute thereafter), but few know what the rate is per stream. That’s because the streaming rate is based upon the streaming service’s number of subscribers and users. More subscribers to the service equals higher mechanical royalty rates.

For the record, Spotify, Beats and the other streaming services all follow Section 115 of the US Copyright Act and follow the defined mechanical royalty rates.

READ THE FULL POST AT DIGITAL MUSIC NEWS:
http://www.digitalmusicnews.com/permalink/2014/04/10/amazons-streaming-contract-entirely-unacceptable

by trichordist

Nobody should be surprised that Spotify is already planning its IPO| Musically

Watch stories about Spotify planning a stock market flotation this Autumn spread across the web in the coming hours, triggered by a report on tech/business site Quartz.

“The popular music-streaming company has participated in informal chats with some of the investment banks likely to fight for a role in a potential IPO, sources familiar with the process said,” claims the article.

“The six-year-old service may start holding formal meetings as early as next month in anticipation of an offering in autumn. (Though the timeline for a possible IPO could change for a number of reasons, including unfavorable market conditions.)”

READ THE FULL POST AT MUSICALLY:
http://musically.com/2014/03/27/spotify-ipo-planning/

RELATED:

Music Streaming Math, Can It All Add Up?

#SXSW REWIND : Venture Capitalist Admits Artists Can Not Make A Living On Streaming Royalties

Why Spotify is NOT the Enemy of Artists, and Who Is…

by Trichordist Editor

#SXSW REWIND : Venture Capitalist Admits Artists Can Not Make A Living Streaming

The grand irony here is that the panel which asked the question “”Will Artists Make Money on Big Music Platforms?” not only reported that artists could not, but also suggested that artists needed to focus on selling concert tickets and merchandise. You know, things artists did BEFORE the internet.

We admire the honesty of Hany Nada, Managing Partner GGV Capital who bluntly and glibly admitted during the SXSW Panel “Will Artists Make Money on Big Music Platforms?” that he believed that they would not be able to do so. He also added that he the point of digital streaming platforms such as Pandora, Spotify, and others was promotion to help the artists tour, sell t-shirts and offer other non-digitally distributable “experiences” to fans (why is this sounding more and more like prostitution?).

At least Mr.Nada is honest, which is refreshing given that the man has more integrity than most of the executives at that streaming services who claim the problem of royalties is one of scale and not sustainability. Mr. Nada (ironically named in this context) may be well intentioned and honest but he is also grossly misguided.

Mr. Nada’s statement and philosophy that streaming sites should be viewed by artists as a promotional platform more so than a financial one are an admission of the failure of these unprofitable start ups to serve musicans. As such, let artists decide if there is a value proposition in these companies that benefits the artist and allow them to opt out. Not every album should be on streaming services. Not every artist should be on streaming services. And if streaming is nothing more than promotion with little value proposition, than artists need to rethink their relationships and strategies regarding those businesses.

To be fair, it’s not just Mr.Nada who has promoted this philosophy. It appears that many of the music streaming company executives on panels at SXSW alternate between two talking points. First is that these services will support musicians when they scale (which we can find no evidence of). And second, when pressed on the first point, that streaming platforms offer promotional value for artists to make money in other ways. Oddly, other than “t-shirts and touring” no one seems to have any idea how to translate an artists participation on streaming services into a sustainable revenue stream.

In almost every way streaming companies represent the worst of both the old boss and the new boss.

So here’s the take away, which was put forth by a series of questions from the floor that largely went unanswered.

1) If artists can’t be expected to make a living from streaming music why should streaming executives make a living from streaming businesses at the artists expense? These are essentially, artists subsidized corporations.

2) As artist’s are bringing the audience to the platform, why should the platform profit, but not the artists? Test this theory, No Music = No Business. Done.

3) Artists have been able to sell t-shirts and tour long before the internet and without streaming platforms, but streaming platforms can’t exists without the artists music. Again, No Music = No Business. Done.

4) Given that the streaming music thought leaders believe that the”new revenue model’s” for musicians are “touring and t-shirts” when are the streaming company executives going on tour to sell t-shirts to support their businesses? We find it odd that the executives running companies that are not profitable are giving business advice to musicians.

by Trichordist Editor

The Internet Empowered Artist? What 1 Million Streams Means To You! #sxsw

Is this the future of music? We continue to explore artist revenue streams.

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:

If the Internet is working for Musicians, Why aren’t more Musicians Working Professionally?

Artists, Know Thy Enemy – Who’s Ripping You Off and How…

Over 50 Major Brands Funding Music Piracy, It’s Big Business!

by Trichordist Editor

Artist Revenue Streams : Streaming Marketshare By Volume and Revenue (includes YouTube and Spotify) #sxsw

Is this the future of music? We continue to look at artist revenue streams.

Now that we’ve been blessed with a few data sets we’re going to be digging deeper into cross referencing them in the hopes of building a much better overall view of the marketplace for independent musicians. This is especially true in the area of music streaming rates and royalties.

We hoping to provide as much open and transparent information as we can get on artists revenue streams. Through the release of these posts offering per play rates, relative market share of these companies, and the distribution tiers at different unit thresholds we hope artists will use these tools to model a better understanding of their revenue potential on digital platforms.

Service Market Share Streams Market Share $$$
Spotify 61% 69%
YouTube* 32% 12%
Deezer 2% 4%
Amazon Cloud 2% 0%
Rhapsody 1% 3%
Muve Music 1% 1%
Rdio 0% 1%
Xbox Music 0% 2%
MediaNet 0% 1%
Google Play 0% 2%
Nokia 0% 0%
simfy 0% 0%
MySpace Music 0% 0%
Amazon MP3 0% 5%
eMusic 0% 1%
VerveLife 0% 0%
TOTAL 100% 100%

* These YouTube numbers are not directly comparable to the rest of the numbers as the information comes from a different data set of considerably less titles than the larger data set.

That being said there are still a few important take-a-ways in looking at this data even on a percentage of market share basis. If we doubled the amount of YouTube Streams to match the amount of Spotify streams (48% YouTube Streams and 47% Spotify Streams) the revenue disparity still places Spotify 3x’s higher at 62% of overall revenue market share versus YouTube’s only 21% of market share revenue. Simply said, you have to stream at least 3x’s more on YouTube to equal the same amount of revenue generated from YouTube.

Service  Market Share Streams Market Share $$$
YouTube (x’s2) 48% 21%
Spotify 47% 62%
Deezer 2% 3%
Amazon Cloud 1% 0%
Rhapsody 1% 2%
Muve Music 0% 1%
Rdio 0% 1%
Xbox Music 0% 2%
MediaNet 0% 1%
Google Play 0% 2%
Nokia 0% 0%
simfy 0% 0%
MySpace Music 0% 0%
Amazon MP3 0% 4%
eMusic 0% 1%
VerveLife 0% 0%
TOTAL  100% 100%

Our conclusion is that this is a very compelling reason to remove as much of your music from YouTube as you possibly can and redirect streaming music consumers to Spotify where you will earn at least 3x’s more for the same amount of streams.

Of course, creators and musicians are not given this type of consent over the use of their music on YouTube and the new CMS Services like Audiam exist only to monetize illegal and unlicensed user generated content (UGC) uploads to YouTube, and at significantly lower per play rates than the ones we’ve been tracking that pay 100% of earned revenue.

This just confirms what we’ve known all along. Google not only profits greatly from the illegal and unlicensed uploads of an artists work to YouTube, but artists are more and more powerless over having their work exploited against their will.

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.

What would be welcomed would be an Audiam like service that also allows artists the ability to use CMS to remove as much of their content from YouTube as they can, and not just have a gun to their head to monetize it or lose the money that is being made from Google monetizing it against their will.

Why does this just feel like just so much more extortion and exploitation?

by Trichordist Editor