launched, the industry had lost a lot of ground and never caught up.
“I was of the opinion that the record industry should’ve embraced down-
loads in 1998 or 1996 when it was technically possible. I think things could’ve
been different in the history of music, but nobody will ever know… but it’s
obvious to me that the record business is full of very smart people and they
looked at what happened [with Napster]. Basically, when they reacted neg-
atively the first time, they were trying to preserve a distribution model that
the public was not sure it liked, and they also tried to disintermediate a little
bit. They realized from experience that it didn’t work,” recalls SOCAN CEO Eric
Baptiste. “It’s sometimes liberating to realize that the best thing you can do
is embrace the market and nurture it, feed it, and then let your product con-
vince consumers. I think the record labels realized that. Also, the iTunes Store
was really the first, at scale, digital proposition that anyone could understand.
So, a lot of factors were at play and when streaming started to emerge, they
knew it was probably pointless to fight the future. Provided you can arrive at
good commercial and licensing terms, there is no reason to pick one technol-
ogy or one approach over the others.”
It’s those commercial and licensing terms that are now at the core of the
streaming debate. Those agreements determine where the money goes and,
as you may have heard, not everyone is thrilled with the arrangement.
The numbers differ slightly from service to service, but let’s use Spotify as
the yardstick since it’s the biggest and best-known company. Spotify’s licens-
ing deals with the three major labels – Universal, Sony, and Warner – as well
as many indie labels, dictate that it pays about 52 per cent of revenues back
to the labels. In Canada, publishers and songwriters, via Spotify’s deals with
SOCAN and the CMRRA, receive 12.78 per cent. That means the streaming
service keeps roughly 35 per cent of its subscription and ad revenue, with the
rest going to music rightsholders.
So, who’s making the money? We really only have Spotify to go on, since
it’s the only major service whose quarterly financial results are made public.
In total, the Swedish company’s 2018 revenues were around €5.25 billion.
Worldwide, it has 207 million users, 96 million of them paying subscribers.
Impressive, right? The fact is, Spotify’s fourth quarter 2018 was the first time
in its 10-year history that it posted an operating profit. It has lost hundreds of
millions of dollars over the last decade and its biggest cost, by far, is royalties
to music rightsholders, which are primarily labels and publishers.
Meanwhile, after that decade-and-a-half of declining sales, the three
major labels are seeing their fortunes rise exponentially. According to Music
Business Worldwide, the major labels together earned $13.14 billion in total in
2018 and $6.93 billion of that came from streaming. That is about $19 million
per day from streaming alone.
eONE MUSIC’S CHRIS TAYLOR
In Canada, according to the IFPI, subscription audio streaming was val-
ued at USD $160.9 million in 2017 (Canada-specific totals aren’t released yet
for 2018).
On the performing rights side of the equation, SOCAN’s Canadian mem-
bers earned CAD $62 million from all internet-based licensed music in 2018, a
27 per cent increase over 2017. Over the last couple of years, she has advocated for fairer remuneration for
musicians in the digital age, making her argument to the Economic Club of
Canada, the federal government’s Heritage Committee, MIDEM, and even the
World Trade Organization.
The reason large labels are making eye-popping totals while most in-
dividual artists and smaller labels struggle comes down to catalog size. The
streaming services pay out according to market share of total streams. The
bigger and more popular the catalog, the greater the market share. Univer-
sal Music Group, for instance, owned nearly 40 per cent (!) of all the music
streamed in the U.S. last year.
“When I look through my distribution deals and when I do the math, it’s
about 0.0045 cents for a stream [on Spotify’s ad-based free tier]. This is an
indie artist, so not mainstream but someone who has had some success on
playlists and radio and is a known entity in the Canadian marketplace,” reveals
Mulholland. “Then it’s 0.006 cents for the subscription-based. YouTube is dras-
tically lower. I mean, it is about 10 per cent of that. You know, with complete
honesty and transparency, my label has been around since 2014 and I put
work into it, I have paid for publicists and obviously have deals with artists,
but we just broke even five years later. And this is with low overhead, because
it’s just so difficult.”
(Note that the per-stream rate fluctuates based on total revenues divided
by total streams per pay period, so the rate will differ slightly across services
and pay periods.)
An upside to streaming is the notably low distribution costs in compar-
ison to moving physical products. In fact, Mulholland says, “I am making the
choice now to not keep putting CDs in warehouses and doing distribution
that way. It is just too costly and I don’t see the return. And then with the
different deals, you sort of have to buy your albums out of the warehouse. It’s
just a money-losing scenario.”
So, that is one way that streaming saves costs, at least. But, again, Mulhol-
land lays out the math. “The return on making an album these days is so ridic-
ulous. Even if you did a cheap one, so let’s say $10,000 is what you make your
album for, which is pretty cheap, and you want to get expertise and have a
producer and good mics and a nice studio, etc. Or, you do it yourself but it’s
still your time and energy and how long did it take you to write the songs?
Maybe a year to get 14 songs that you whittle down to your nine best? And
then you make your album and need to hire a publicist so that it doesn’t just
get lost and that can be $3,000 to $5,000 for a campaign. So, already you’re
at $15,000, and if you do that math on streaming coming back at you, that is
going to take a long time to recoup.”
On a macro level, few people dispute that things are better now for the music
industry than they were a decade ago. Just look at those revenue totals! But
are things better for the average professional musician? Or even smaller labels
and publishers? Among many, there is a definite sense that they aren’t. And if
we accept the belief that average artists aren’t better off despite the influx of
money into the industry, then who or what is to blame?
“It’s a numbers game,” asserts Miranda Mulholland, who wears many hats
these days as a professional musician, indie label owner, and artist advocate. “The funny thing is that people used to get mad at us for painting Spotify
in too positive of a light, like on our blog and podcast,” recalls Kevin Breuner,
the VP of Marketing at CD Baby and a member of the indie band Smalltown
Poets. “There were so many positive stories we were telling about it really
empowering artists’ careers in new and different ways and that they were
really seeing success. At the same time, a lot of the industry was just nega-
tive headline, negative headline, negative headline. A lot of artists, and the
industry as well, it’s just that they were trying to make sense of it as if it was
“Inevitably, every act that is attracting record label
attention these days has something going on, whether
it’s streams or followers or some sort of data that backs
up the fact that the world cares. So, it is not as speculative
as it used to be.”
Chris Taylor, Global Head of Music at eOne
CANADIAN MUSICIAN 43