Kafka’s Hypothetical Market Strikes Again: The DSPs’ Latest Move to Silence Songwriters by Throwing GMR Out of Phonorecords V

If you want to understand how the streaming services really view songwriters, look no further than their joint motion to exclude Global Music Rights (GMR) from Phonorecords V. It is not subtle. It is not principled. It is an attempt to narrow the field to those voices the services already know how to manage. (All of these services are being investigated by the Texas Attorney General “over alleged payola schemes in which they accept bribes to artificially promote certain songs, artists, or content.”)

The Services—Spotify, Apple, Amazon, Pandora, and Google—argue that GMR lacks a “significant interest” because it licenses performance rights rather than mechanical rights. That argument is technically obvious and substantively hollow, a mile wide and an inch deep, if that. GMR represents songwriters whose mechanical royalties are directly at issue in this proceeding. The idea that those songwriters somehow lose their “significant interest” because their representative also licenses performance rights is not just formalism. It is exclusion by design.

Let’s be clear about what is at stake. GMR affiliates include some of the most commercially significant songwriters in the world—writers like Drake, Bruno Mars, The Weeknd, Pharrell Williams, Nicki Minaj, Post Malone, Pearl Jam, Prince, and Tyler, the Creator. Nobody else in this proceeding speaks for them. Not the NMPA, which represents publishers. Not the services, who are adverse. And certainly not a system that already tilts toward the parties who can afford to litigate at scale.

When songwriters affiliated with Global Music Rights made a choice about how to license their work, they chose a free market model. They chose to be represented by GMR and to negotiate performance royalties directly with users, in arm’s-length, private negotiations reflecting real-world value. That decision matters. It reflects a preference for market pricing over regulatory pricing, and for merit over compulsion.

But the moment you shift from performance rights to mechanical rights, that choice disappears. Why?

Well, that’s a good question, but the answer for now is that under section 115 of the Copyright Act, those same songwriters are forced into a compulsory license regime administered in large part through the CRB which sets the rates. They cannot opt out. They cannot negotiate freely. Instead, their work is swept into a statutory system where rates are set through a complex, expensive, and heavily lawyered process that bears little resemblance to a functioning market. It is a hypothetical market.

So we end up in a strange place, a Kafkaesque place. The same songwriter who can negotiate directly for the public performance of their work is denied that freedom when it comes to the reproduction and distribution of that same work. One side of the market is competitive and arms length. The other is managed and hypothetical.

That is not a neutral design choice. It is a structural constraint—one that continues to shape outcomes in favor of the services.

The Services claim that GMR lacks a “direct financial interest” in the outcome. That is a remarkable position. The entire proceeding is about setting the value of musical works in streaming. If the rate goes down, songwriters get paid less. If the rate goes up, they get paid more. That is the definition of a direct financial interest. The Services’ attempt to redefine “direct” to exclude the very creators whose works are being priced is not statutory interpretation. It is outcome engineering.

The Services also argue that GMR’s interest is merely “indirect” or “attenuated.” This requires ignoring the bargaining power of the songwriters who effectively are GMR. But this is the same playbook the services have used for years: isolate each rights silo, then argue that no one outside the narrowest licensing box is entitled to speak. The result is a fragmented system where the only voices that remain are those structurally aligned with the services’ preferred outcome.

Then there is the efficiency argument—the Services’ claim that allowing GMR to participate would make the proceeding “lengthy, complex, and expensive.” As opposed to what? Nasty, brutish and short?

That would be more persuasive if it were not coming from the very companies that have turned CRB proceedings into multi-year, multi-million-dollar wars of attrition. These are the largest corporations in commercial history (at least one of which is an adjudicated monopoly) arguing that the problem is too many songwriters having a voice.

Let’s call this what it is: a coordinated effort by a handful of dominant platforms to use their collective market power—and their litigation budgets—to shape the CRB process in their favor. The same companies that work relentlessly to drive down the royalties paid to songwriters are now trying to limit who is allowed to advocate for those songwriters to get fair treatment in the first place.

And here is the practical reality the Services are ignoring: even if the Judges exclude GMR, they are not solving the problem. They are postponing it. When the decision is released for public comment, the absence of these voices will not go unnoticed. It will be exposed—and it will undermine the legitimacy of the outcome. Because they’ll be back for comments which will attack the entire proceeding as arbitrary.

The CRB process already leans heavily toward those who can afford to participate. That is a structural fact. But actively excluding a representative of major songwriters—on the theory that those songwriters do not have a “significant interest” in how their own royalties are set—crosses a different line.

The Judges should reject this motion out of hand.

Because if the people who write the songs do not have a seat at the table, then whatever this process is—it is not a willing buyer, willing seller marketplace. Excluding GMR would raise the question of whether it was ever intended to be one.

Inside Royalty Audits with Keith Bernstein: Lessons from Chris Castle’s Music Contracts & AI Class at UT Law

Let’s face it: Audit rights are only as good as your auditor.

In this ARI Artist Financial Education session—recorded for Chris Castle’s music business and AI class at the University of Texas School of Law—we got a gem. Keith Bernstein, one of the top royalty auditors in the music business, joins Chris for a practical discussion of DSP and royalty audits. As the force behind Royalty Review Council and Crunch Digital, and its proprietary clearance tool Tempo, Keith has spent decades uncovering how royalties are reported, misreported, and contested.

Keith walks us through how audits actually work, contract limitations on audit rights, where discrepancies tend to surface, and why leverage often matters more than contract language. After decades in the field, Keith has seen where the money goes and where it doesn’t. This conversation cuts through the theory and gets into how audits really work, where the gaps are, and why audit rights only matter if you can enforce them.

Watch the video https://www.youtube.com/watch?v=cirxW12BS2k

Background reading: Donald S. Passman, All You Need to Know About the Music Business 11th Edition, 54–55, 70, 313, 408.

Not You, ARPU: Another Way to Value Streams on Spotify

[This post first appeared on MusicTechPolicy.]

By Chris Castle

I recently co-wrote with the noted international economist Professor Claudio Feijoo a paper for the World Intellectual Property Organization on a new “streaming remuneration” royalty to be paid to all musicians and vocalists by streaming services. Part of our justification for the new royalty is that these creators, especially “non-featured” musicians and vocalists are not paid at all for streaming which is rapidly replacing radio (for which they are paid through SoundExchange). The value that the streaming remuneration would try to capture is not just revenue based (which is how all streaming royalties are derived currently) but also derived from the market valuation conferred on companies like Spotify. Spotify remember is more like YouTube would be than say Google because it is essentially a “pure play” music stock, kind of like Pandora was.

Claudio has done considerable work on trying to capture and express this value, so for today let’s do some rough justice using one of the approaches from the paper. There are more bells and whistles to the calculation than I’m going to give you here, but you’ll get the idea that a stream is assigned a much, much lower value when calculated on the revenue side of loss-making organizations than when calculated on the extraordinary wealth-making side of the public markets valuation of Spotify. And if you want to make a causal connection between low royalties and high market value, who am I to stop you?

The formula is simple: Divide Spotify’s market capitalization by the number of royalty bearing streams in a month and you have a rough idea of how much value each stream confers on the monopoly streamer.

Spotify’s recent market capitalization is $41,056,000,000 give or take an Arsenal in the rounding. A recent number of monthly plays as reported by the MLC is 24,815,407,149.

Divide market capitalization by number of streams. The result is $1.65 per stream in market valuation. According to the last Trichordist streaming price bible, Spotify’s per-stream rate was $0.00348 and for songwriters, even less.

$1.65 versus $0.00348. Where oh where might that delta go? It goes somewhere and it’s not to the people who made them rich. Not a perfect metric, but you get the idea.

You might say how do they sleep at night? The answer? Sleeping very well on much nicer sheets than you, thank you, and for one reason–they do not give a flying hoot about your problems because Daniel Ek doesn’t think you’re working hard enough to make him and all his employees richer.

Updated! Streaming Price Bible w/ 2016 Rates : Spotify, Apple Music, YouTube, Tidal, Amazon, Pandora, Etc.

The last time we did this was back in 2014, so we thought it was time for an update. Not a lot of surprises but as we predicted when streaming numbers grow, the per stream rate will drop. This data set is isolated to the calendar year 2016 and represents an indie label with an approximately 150 album catalog generating over 115m streams. That’s a pretty good sample size. All rates are gross before distribution fees.

Spotify was paying .00521 back in 2014, two years later the aggregate net average per play has dropped to .00437 a reduction of 16%.

YouTube now has their licensed, subscription service (formerly YouTube Red?) represented in these numbers as opposed to the Artist Channel and Content ID numbers we used last time. Just looking at the new YouTube subscription service numbers isolated here, they generate over 21% of all licensed audio streams, but less than 4% of revenue! By comparison Apple Music generates 7% of all streams and 13% of revenue.

Speaking of Apple, they sit in the sweet spot generating the second largest amount of streaming revenue with a per stream rate .00735, nearly double what Spotify is paying. But, Spotify has a near monopoly on streaming market share dominating 63% of all streams and 69% of all streaming revenue. The top 10 streamers account for 99% of all streaming revenue.

streamrevenuemkrtshr2016

To put this list in the context of our 2014 numbers we’re adding the chart below with the data sorted by the quantity of streaming plays required to match the revenue of a single song or album download. This is important as we work towards defining and setting a fair per stream rate and also setting an accurate economic equivalent of streams to songs and albums for the purposes of charting.

Billboard currently calculates 1,500 streams to one album for the purposes of charting, which at current streaming rates actually matches an economic equivalent. However, that is most likely a highly excessive numbers of plays to achieve that economic equivalent. But, more on that later…

Keep in mind every streaming service has a key piece of data that would allow artists and labels to set a fair per stream rate. Every on demand streaming service, Apple, Spotify, Tidal, Google Play all know how many times a song is played (per person) on average over time. This is the data that is key to setting fair streaming rates. Who will share this information? Apple, Jimmy Iovine, we’re looking at you.

streamspersong2016

  • HOW WE CALCULATED THE STREAMS PER SONG / ALBUM RATE:
  • As streaming services only pay master royalties (to labels) and not publishing, the publishing has to be deducted from the master share to arrive at the comparable cost per song/album.
  • $.99 Song is $.70 wholesale after 30% fee. Deduct 1 full stat mechanical at $.091 = $.609 per song.
  • Multiply the above by 10x’s and you get the album equivalent of $6.09 per album
[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.]

[royalties][streaming royalties][music royalties][royalty rates]

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Consumer Spending On Digital Music Actually Fell In 2014 (Yes You Read That Right) | Music Industry Blog

The Problem With Streaming, Is The Problem With Streaming… Mark Mulligan Reports.

down

“Though the drop was small – 1% – it was still nonetheless a drop at a period when digital spending should be booming.  In some key markets the consumer spending decline was significantly larger, such as a 3% fall in the UK.”

It’s just math. Better late than never… and here’s another newsflash from the way back machine that folks might want to start looking at again, Music Streaming Math, Can It All Add Up? That was 2013…

“The end goal has changed: Just under a third of free streamers go onto buy the music of artists they discover on these service while 37% simply stream newly discovered artists more. Both use cases will coexist for some time, but with with music purchasing fading phenomenon, the latter will dominate.”

The problem is at the top of the waterfall. This means the downstream economics are not going to get better than what’s going on at the top. This is the truth, no matter what nonsense they come up with over at CALinnovates, it’s the musicians are are right to demand better economics and transparency from the streaming companies.

READ THE FULL BLOG AT MUSIC INDUSTRY BLOG:
https://musicindustryblog.wordpress.com/2015/12/04/consumer-spending-on-digital-music-actually-fell-in-2014-yes-you-read-that-right/

The problem is the music-streaming companies | The Hill – Paul Williams

Songwriters have a number of allies in the ongoing fight to update our nation’s horribly outdated music licensing laws. But after reading the recent post by CALInnovate’s Mike Montgomery (“Songwriters are fighting the wrong fight,” 10/5/15), it’s clear that he is not one of them. On what grounds can Montgomery, who represents technology industry interests, claim that he speaks on behalf of songwriters?

As a songwriter elected to represent the interests of ASCAP’s more than 550,000 music creator members, I find Montgomery’s arguments absurd and grossly misleading.

READ THE FULL STORY AT THE HILL:
http://thehill.com/blogs/congress-blog/technology/256247-the-problem-is-the-music-streaming-companies

Transparency Starts Upstream for Streaming Royalties | HuffPo – Chris Castle

We’ve often noted that if the economics at the top of the waterfall are near zero dollars (in microcents) then what trickles down will not get any better…

We’ve seen stories recently about various successes for artists in negotiations with major labels about “transparency” in the payment of the artist’s share of streaming royalties received by record companies. This is great news of course, but the new buzz word “transparency” should be understood in context. There is nothing the digital services would like more than to deflect the ire of artists and songwriters who are enraged about minuscule royalties away from the services and onto record companies or music publishers.

Creators need to be alert that they are not being duped into a false deflection because even in the best case, record companies can only pay on the royalties they receive from services.

READ THE FULL STORY AT THE HUFFINGTON POST:
http://www.huffingtonpost.com/chris-castle/transparency-starts-upstr_b_8238934.html

DMN Says It’s Unlikely Spotify Pays More to Rights Holders Than Apple Does

In the dust up surrounding the Apple Music Launch and the leaked agreement that lead to speculation that Apple was paying indies less than the often heard 70% to rights holders an interesting thing happened.

Industry executives and commenters at Digital Music News reported that Spotify was also paying indies less than 70% and closer to the 58%, or less than Apple.

Update to June 15th, and Apple is not only stating that they are paying 70%, but a more aggressive 71.5% to 73% of revenues depending on territory.

But what makes this that much more interesting is that Spotify has now been outed as NOT paying the commonly accepted 70% of revenues and also has NOT responded to the claims being made at Digital Music News…

So how much is Spotify actually paying? So much for openness and transparency…

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Spotify Desperately Doubles Down on Dumb Bad Math… Free Doesn’t Pay, It’s Just Math.

Bring out your shills… It’s no surprise that Spotify has once again enlisted it’s shills and PR machinery to defend it’s exploitation of artists, bad business model, and horrible royalties. The latest offensive comes as the major labels have announced that the unlimited free tier is not working for them (go figure, free doesn’t pay?).

Last year we wondered out loud, Who will be the First Fired Label Execs over Spotify Fiasco & Cannibalization? In February of this year we found out when Rob Wells exited his post at UMG. Around the same time public comments were made by Lucian Grainge for the need to get more paid subscription revenue. He also noted that the free tiers are not creating the type of performance required for a sustainable ecosystem of recorded music sales. Sony music chief Doug Morris has also come to the party stating, “In general, free is death.

Generally speaking we’re not often fans of major labels (remember they have 18% equity in Spotify) but we’re glad they’ve gotten out the calculators. Right now, the three major labels are currently reviewing their licenses with Spotify which are up for renewal this year. This is the time for the major labels to renegotiate those licenses to be more fair for artists.

We’ve detailed the math here, Music Streaming Math Can It All Add Up? In that post we look at the numbers based only upon paying subscribers. The bottom line is that even at the current rate of $9.99 (per month, per subscriber) it’s going to take a lot more paying subscribers to even get close to the type of revenue earned from transactional sales. Free, ad supported revenue, not even close.

Here’s a couple more things to keep in mind that we’ve detailed:

* Spotify Per Stream Rates Drop as Service Adds More Users…

– and –

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

But perhaps the worst part of Spotify was outlined by Sharky Laguna’s editorial, “The Real Reason Why The Spotify Model Is Broken.” The well written piece details how the artist you play, may not be the artist who get’s paid due to the fixed revenue pool and market share distribution of revenues.

Now keep in mind we’re not anti-streaming. We completely believe that streaming is the future of music distribution and delivery. None of our arguments here are anti-streaming or anti-technology.

Our arguments are anti-exploitation and anti-bad business models. Technology and economics are different issues. We detailed our thoughts for moving forward with potential solutions in our post Streaming Is The Future, Spotify Is Not, Let’s Talk Solutions. We look at five practices that can make streaming music economics viable for all stakeholders and generate the revenue required for a sustainable ecosystem.

When a Spotify rep says, “We think the model works” keep this in mind as we review the Spotify Time Machine…

* 2010 A Brief History Of Spotify, “How Much Do Artists Make?” @SXSW #SXSW

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.

– and –

* 2012 A Brief History Of Spotify, “It Increases Itunes Sales”… @SXSW #SXSW

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.

Of course, that was until this past year when Itunes sales are reported to have declined by 13-14% and that is pretty much directly attributed to the cannibalization done by Spotify. Hello…

It is said that one of the definitions of insanity is to keep doing the same thing while expecting different results. Our suggestion to the those in positions of power is simply this, if  you want something different, you have to be willing to do something different.

Sure, Spotify was a grand experiment but after half a decade we now have the data to know if that experiment is working out (or not). In the end, it’s just math and free doesn’t pay…

 


 

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

 

Spotify Per Stream Rates Drop as Service Adds More Users…

 

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