Streaming

BAMM.tv and the future of music

by David D. on February 19, 2012

Free HD video production and global distribution for your music

If you’re making music the world needs to hear, and your best concert footage was captured on a flip-phone, you should check out BAMM.tv. Founded by brothers Chris and Nick Hansen, BAMM.tv works with emerging artists to capture performances in HD video and high-quality audio in their San Francisco studio, or at music festivals and venues around the world. For free.

The typical deal results in 5 videos: one goes to the artist for promotion and distribution through whatever channels they choose. In exchange, BAMM.tv has exclusive rights to distribute the remaining videos through a network with an estimated reach of 15 million people in 150 countries. Net profit will be split 50/50 with the artists.

I spoke with co-founder Chris Hansen, and he expects BAMM will break even in early 2013. But they plan to start paying bands some money before then, in part to test out their payments system. Once they are profitable, artist payments will be based on their percentage of plays on the network.

BAMM continues to sign up distribution partners, which currently include Taiwan’s Chunghwa Telecom, a global deal with Samsung to include a BAMM.tv app on all of their tablets and smartphones, and Flingo, which provides video content to over seven million smart TVs. They are also working on an iPad app that will help promote the participating artists, with a $1,000 cash prize for the “Artist of the Month” and other sponsored promotions.

The future of music and artist compensation

Last September, we wrote about the Future of Music Coaltition and their Artist Revenue Streams project, which they describe as “a multi-method, cross-genre examination of how US-based musicians’ revenue streams are changing, and why.” The project has spawned a new website, and the 29 streams have spread into 40 (or 42, but who’s counting?).

We’ll dig deeper into the ARS results for an upcoming report, but why has BAMM.tv has gone out and created a 43rd revenue stream?  According to Chris:

I don’t think any business model that’s solely reliant upon revenues from copyright and publishing rights is going to survive long-term. The only way forward is providing access to experiences that can’t be downloaded on torrents, and the only way to do that is to ease the grip on traditional rights that made a lot of sense in the 20th century but are long outdated. Spotify seems to be the labels’ collective acknowledgement of this fact, but I still think they have a long road ahead.

First of all, the $100 million raised seems to have gone straight to the labels, and the next mega-round of funding is just around the corner. I look at the unfavorable terms toward streaming services and lack of transparency as well as the mounting cost structure as major competitive disadvantages for Spotify and other streaming services that rely on major label licensing.

On scaling and superstars

So far, BAMM.tv has worked with around 150 bands, and they’re preparing to add to that number with a return trip to SXSW. Although Bay area artists are disproportionately represented, BAMM uses Southby and other festivals to catch up with bands they have been tracking from around the world. They are also looking at adding some sound stages in SF, and recently rented a studio in Amsterdam to produce videos for European acts.

There will always be limits on how many acts can participate, so curation is an essential part of their work.  Happily, they appear to be comfortable traveling outside of the mainstream for talent, as evidenced by the diverse selection of artists in the YouTube playlist above. Artists that are interested in working with BAMM.tv can submit their information here.

Chris is upbeat about the future of BAMM.tv, and looking for innovative ways to get artists paid. In our Music 2.0 series, we have seen that the future of music can’t be just one thing, and the new business models are unlikely to emerge from the entrenched players.  BAMM.tv may succeed in part because they can side-step the obstacles that have been built up by the labels and license holders over the years.

What I like about BAMM’s business model is that our competitive disadvantage is upfront and obvious: we don’t get to work with superstars. After that, things start looking pretty good for us. Our variable cost is extremely low. Our license is straightforward, global, perpetual, and allows us to remix, sample, synch, make derivative works, etc. Therefore we can make deals with OEMs, telcos, MSOs and other service providers at will, and we can afford to commoditize the music product to an extent that the major players cannot.

I hope we are able to demonstrate in the coming months that the choice between piracy and Spotify is a false dilemma. There are other models that work, and we’re quietly pursuing a few that I’m very excited about.

~ Chris Hansen, BAMM.tv

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MMT: Top Eleven Things from 2011

by David D. on December 31, 2011

The year of Apple, artists, and unanswered questions

As we reflect on 2011 through the lens of MMT statistics, it’s not surprising to see that Apple dominated the year from multiple angles.  Apple’s iCloud service was the subject of this year’s most popular post, and 6 of the top 11 stories had ties to Apple services, apps, or devices.

With the introduction of Spotify in the US, and the integration of multiple music services into Facebook, 2011 was a breakout year for streaming music.  And even if you get your streams from MOG or Spotify instead of iCloud, chances are good there will be an Apple computer, tablet, phone, iPod, or other device in the mix.

Another topic high on the list is artist compensation.  Apple shows up here, too — whether they are being praised, thanked, blessed, or cursed.  Steve Jobs keeps popping up in our Music 2.0 series, where Pete Townshend expressed a desire to cut off his balls and Jon Bon Jovi personally blamed him for “killing the music business“.

In a few hours, 2011 will slip away — just like Steve Jobs, Napster and a disheartening number of artists.  Thanks Steve, thanks sleepy cat, and thanks to all of the musicians who left us their songs, compositions, and performances.

  1. I want my iCloud!: a step-by-step guide to iTunes in the Cloud
  2. Circle of Fifths Part II: The Inner Circle
  3. Mega Music Meta-Battle: MOG vs. Spotify Reviews
  4. Zoe Keating on Spotify, Apple and Independents (and lettuce)
  5. Best of NAMM, Part II: 2BOX DrumIt Five
  6. Handpan Roundup & Reviews: HAPI, HALO, Hank, and Hang
  7. 15 Must-Have iPad Music Apps for the Professional Musician
  8. How to Hang A Didgeridoo on The Wall
  9. 11 tips for getting the most from MOG and Spotify
  10. Practice > Scales and the Circle of Fifths
  11. Animoog: Editor’s Choice – Best Synthesizer App for the iPad

Thanks and Happy New Year to all our MMT readers, and special thanks to guest authors Zoe Keating and Chris Taylor for writing the #4 and #7 things on our list for 2011.

Zoe KeatingPhoto: Jeffrey Rusch

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Survey still says: musicians have little love for Spotify

by David D. on December 4, 2011

Spotify may be aiming to win the hearts and minds of app developers, but they still have some work to do when it comes to musicians.  We reported the early results of our Spotify survey here, and can now announce that the final results are…well, pretty much the same.  Once again:

  • When asked how they feel about Spotify as a listener, fans were twice as likely as musicians to profess their love.
  • When asked what they thought about Spotify from the musician’s perspective, musicians were three times as likely to feel the hate.

The survey is closed, but you can let us know how you feel in the comments below.

The first two responses to each question can be viewed as favorable, and the last two as unfavorable.  This time, 57% of musicians view Spotify favorably as a consumer, while the favorable rating from fans rose to 70%.

Looking at things from a musician’s perspective, 52% of fans rated Spotify as good or OK, vs. 43% of musicians.  The biggest split between fans and musicians is the 30% gap between those fans who hold an unfavorable view of Spotify from the musician’s perspective — just 18%, and the 48% of musicians who gave an unfavorable rating.

Also worth noting: 29% of fans don’t seem to care much about how Spotify works out for musicians. We did get a comment complaining that not sure, don’t know, and who cares are three different answers.  That’s (kind of) true, but since the survey page asks you to read this story first, it’s fair to say the not sure and don’t know answers betray a certain amount of indifference.

Why the hate?

Is it because streaming services like Spotify are “ghastly, malicious succubi suckling at the teat of artistic talent”? With 18% of their shares owned by major labels, and artists receiving fractions of a penny per stream, Spotify has managed to become the poster boy for everything that is wrong with both the old and new music industry when it comes to artist compensation.

Many of the issues with Spotify concern the ways independent labels are treated.  Zoe Keating did a nice job of summing up the controversy in a guest post she wrote for MMT.    According to Zoe, “the word on the street is that majors receive profits from Spotify’s advertising revenue and indies do not.”

The Guardian has reported conflicting statements on this, which may just reflect deals changing over time and differing in various countries.  In 2009, they wrote:

On Spotify, it seems, artists are not equal. There are indie labels that, as opposed to the majors and Merlin members, receive no advance, receive no minimum per stream and only get a 50% share of ad revenue on a pro-rata basis (which so far has amounted to next to nothing).

~ The Guardian – Behind the music: The real reason why the major labels love Spotify

Then in February 2011:

Though all deals with Spotify are covered by non-disclosure agreements (NDAs), it is well known in music industry circles that Universal was able to secure a minimum streaming rate for the ad-funded version of the site – something, it is understood, not even the other majors have been able to accomplish.

~ The Guardian – Spotify should give indies a fair deal on royalties

Assuming that there is difference in compensation, there are two basic questions to deal with:

  1. Fairness: why should indie labels and artists be paid less than major labels?
  2. Evasiveness: if Spotify has compelling reasons (or better, an algorithm) for different pay structures, why do they keep avoiding the question?

Since Spotify uses peer-to-peer technology to deliver their streams, I can see where it would be more expensive for them to manage tracks that are rarely requested. But that’s a quantitative problem that could be easily solved, and applied equally to both independent and major label artists.

What’s better for musicians: Spotify or Piracy?

It’s obvious from the survey results that not all musicians speak with one voice on Spotify.  Some say “hey — it’s better than piracy ” (well, actually it’s mostly Daniel Ek who says that).  Others argue that piracy is better than Spotify:

As an example, my own Spotify statements via CDBaby have thus far reported 4583 plays and paid me a grand total of $11.38, including precisely zero downloads via their own store – so in terms of raw financial return, 2 people torrenting my stuff and deciding to buy a CD or download, and/or go to a show would beat Spotify hands down.

~ Steve Lawson – Spotify, File-Sharing and Incomplete Statistics

Derek Webb makes a similar case when he says that giving music away is better than Spotify:

On Twitter, I recently said, “I make more money giving records away on @NoiseTrade (in exchange for info) than selling those same records on iTunes (let alone Spotify),” which resulted in some pretty interesting discussions.  I said that in response to questions I received after criticizing streaming services like Spotify, which claim to offer a viable alternative to “piracy,” when in reality they offer artists almost no meaningful revenue or fan connection.  And while iTunes is certainly a better financial model and more equitable for artists, it does almost nothing to connect the fans to the artists in a way that yields any long-term benefit.

~ Derek Webb – Giving it Away: How Free Music Makes More Than Sense

Spotify and Streams vs. Sales

In a response to Derek Webb’s post, Sam Fisher Jr. claims that both free and streaming music are undermining the ability for musicians to make a living:

Hard numbers:  sales have dropped for my releases by 25-35% since those releases became available on Spotify.  Streams have shot through the roof.  For instance, we received a $123 check for 34,000 streams.  Consumers are starving artists by streaming their music.

~ Sam Fisher Jr. – Don’t Believe the Hype

A recent study showed that Spotify and similar services increase access for artists, but reduce spending on higher-return formats like digital downloads and CDs.  After checking with the 238 independent labels distributed by STHoldngs, only four decided to stay on Spotify.

As a distributor we have to do what is best for our labels. The majority of which do not want their music on such services because of the poor revenues and the detrimental affect on sales. Add to that the feeling that their music loses its specialness by its exploitation as a low value/free commodity. Quoting one of our labels, ‘Let’s keep the music special, fuck Spotify’.

~ Wired – 200+ Labels Withdraw Their Music From Spotify: Are Its Fortunes Unravelling?

And it’s not just independent artists that are balking.  Coldplay decided to withhold their latest release, Mylo Xyloto from Spotify and other streaming services, presumably to maximize sales.  If more labels and artists decide to pull out, or to use streaming services for marketing samplers instead of streaming full catalogs, then the current instantiation of the celestial jukebox may be doomed.  We’ll look more closely at this as we continue our series Music 2.0: Battle of the Business Models.

Spotify, MOG and me

Spotify seems to garner the most (good and bad) press attention, but are they any worse than the other services when it comes to artist payments?  Maybe.  First, the disclosure: after comparing streaming services, I cancelled my Spotify Premium subscription and became a MOG affiliate, then a member of the MOG Music Network.

I think that both MOG and Spotify are fantastic resources from a music listener’s perspective.  I am conflicted when it comes to how they affect musicians.

For my own account, I don’t think either service changed the amount of money I pay for recorded music, mostly because I am very interested in audio quality and willing to pay for formats with higher fidelity.  This might change however, as technology improves and high definition streams become available.  The services have probably contributed to increasing the amount I spend on live performances and other artist revenue streams.

I doubt that the rates MOG pays are much different from those paid by Spotify.  The major labels are all shareholders in Spotifty, and both Universal Music Group and Sony Music have invested in MOG. But while Spotify seem to be tone-deaf to the complaints from musicians and independent labels, MOG at least sounds sympathetic and has answered some of the questions that Spotify continues to evade.

At the Digital Music Forum West earlier this year, MOG executive Anu Kirk said:

It sucks that right now artists are getting paid so little money by subscription services, but it sucks that artists are getting paid so little money by everyone.  Subscription services are paying out what they can, but there’s just a lot of music.

A lot of music, and not a lot of paying customers.  This, much more than streaming rates, is the real problem.  Spotify is losing money now, and this analysis suggests that rates will never rise above a fraction of a penny.

MOG CEO David Hyman thinks that with enough paying customers, streaming services can deliver more money than digital downloads.  Licensing costs are the biggest expense for these services, and without giving away precise figures, he offered the following comparison to Fast Company:

And even on iTunes, he says, the average consumer pays roughly $40 per year. “That’s like $3 and something-cents a month,” Hyman explains. “This is the average iTunes consumer: $3 and change. Out over every $10–again, this is just a ballpark, I’m not giving the exact number–but let’s say we pay $6 [per month] to the labels.”

“So, which one is going to make them more money?”

~ Fast Company – Spotify, Rdio, And MOG On Artist Payments: Don’t Blame Us

When asked about the criticism from indie labels and artists, Hyman responded “The indie labels get the same deals as major labels…How they negotiate their deals with their artists, I have no idea.”  Unfortunately, he went on to say: “I don’t know why indies would be different than a major. Maybe because nobody is listening to their music?”

Comments & respondents: back to our regularly scheduled survey

Respondents had the option of leaving comments for each question, a sampling appears below.  The majority of responses are still from the US (59%), with the UK again in second (14%) and the rest scattered around Europe. Two Canadians participated.  We do not know why.

Q. How do you feel about Spotify as a music listener?

Too many holes in it’s available music.

I like the product, but the forced integration with Facebook is making me reconsider. It is impossible to understate how stupid this move was. Hope you made a lot of money.

So far, it’s seems MOG’s library is a bit deeper, but it could just be the artists I’ve searched. Also, MOG offers 320kbps in it’s $5/mo package, whereas Spotify only gives it to $10/mo Premium subrscribers. I’m still deciding on which service to use.

Spotify seems to have more commercial music. Not great for finding underground and independent artists.

Q. How do you feel about Spotify from the musician’s perspective?

Gives the opportunity to listen to music before purchasing. If you have a great CD chances are you will score a purchase but if the CD is crap then you won’t, but I think it will motivate artist to make sure their albums are not one hit wonders.

I am writing this as an end user, I might have a different opinion from the other side of the fence!

It’s great to get the music out there, but the ‘revolution’ hasn’t finished yet….. so who knows what’s to come.

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Google Music stays free – adds music store and artist pages

by David D. on November 17, 2011

 

 

Google just launched their music store in the US, and sent a message to Google Music beta users (excerpted below):

Dear Music Beta user,

We’re excited to announce that Music Beta by Google is officially graduating from beta today! Google Music will remain a free service, and you can continue to store up to 20,000 songs in your personal music library.

All of your purchases are automatically stored on Google Music for free (and don’t count toward your 20,000 song limit). You can even share a free full play of any purchase with your friends on Google+.

For Google Music users with Android phones and tablets running version 2.2+, you will automatically receive an updated version of Android Market with the music store over the next few days. You should also receive a system notification with the Music app update sometime today, but you can always download it immediately.

— The Google Music Team

The big news here is that Google’s digital music locker stays free for up to 20,000 songs.  Apple includes a locker for 25,000 songs with their iTunes Match service for $25 a year.  Amazon gives you 5 GB of storage free, and is now offering unlimited music storage with any Cloud Storage plan, starting at $20 per year for 20 GB.  None of the services count music purchased from their stores against your limits.

If you haven’t tried Google Music, you should.  They have lots of free music to check out, and you can easily upload your iTunes library and keep it in sync (for free!). Since all your music (well, 20,000 songs at least) is really in the cloud, you don’t have to worry about keeping things in sync. Or about music taking up space on your devices and computers.  Or about backups.  Yay Google!

The new store fills a big hole for Android users, and iOS users can purchase the gMusic for easy access to the Google locker on their iPhone, iPod, or iPad.  Overall, there’s a lot to like, especially for a product that just launched.

What’s to like:

  • It’s free!
  • Music downloads are 320 kbps (highest quality MP3 files)
  • Lots of free music to sample
  • Easy upload of iTunes library
  • Automatically syncs with iTunes
  • Available on all devices and computers, even your friend’s
  • Great for Android users

What’s not to like:

  • Catalog missing Warner Bros. and some independent labels
  • Needs good internet connection for smooth playback
  • Requires paid app for best operation on iOS devices
  • Available only in the United States

Google Music for Artists

Google also introduced Artist Pages (or Artist Hub, or Google Music for Artists — choose one.)  For a one-time $25 setup fee, independent artists get a page in the Android Market to tell their story and sell their music with the following features:

  • Set your own price, including limited-time specials and album-only purchases
  • Artist gets 70% paid monthly, Google keeps 30%
  • Unlimited track/album uploads
  • No annual fee
  • Sell on YouTube with a buy link in your music videos

Note: Links to iTunes and Amazon are affiliate links.  

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Are Subscription Music Services a Sustainable Business Model?

by David D. on October 10, 2011

Or, how will musicians pay the rent in the 21st century?

There was some spirited discussion around new business models and artist payments from online services at the Future of Music Policy Summit last week.  We will take a closer look at these issues in an upcoming article.  First, this analysis from Frank Woodworth of Glacial Concepts proposes that the only workable pricing for digital streams will be always be fractions of a penny.  So how do you pay the rent? Volume.

Subscription music services have been dominating the news recently with the U.S. launch of Spotify and the new iHeartRadio, plus free offerings from MOG and RDIO, and the recent purchase of Napster by Rhapsody. There is a sea change occurring in all content industries moving towards streaming and subscription rather than ownership, and this transition has been causing a lot of debate and disagreement about the potential and the fairness of this new model of consumption.

Spotify has been both the most visible and the most vilified of the new companies.  First there was the public removal of certain labels’ catalogs from the service. Since then, there has been a rash of artists making their royalty statements public in an effort to show that Spotify is not a viable business partner for a small label or an indie musician. Because these numbers exist in a vacuum there is no way to gauge if these are isolated instances or a pervasive injustice. Spotify’s response has been equally vague, referencing aggregate payouts instead of the individual ones that are being questioned.

There have been a lot of individual experiences and accounting being bandied about, but I have yet to see any hard macro numbers. Looking at all of this I decided to do some analysis into what the potential of subscription music is in the United States.  Because of the nature of subscription services it is not necessary to focus on just Spotify. In aggregate all subscription music can be looked at in the same way as long we assume the services charge the same per month per user.

This essay is neither for nor against subscription music services, and will focus on answering four questions.

1)   What is the revenue potential for subscription music services?

2)   What are the most likely rates per stream?

3)   How much money can an artist expect to make from subscription music?

4)   Is a compulsory rate a sustainable business model?

What is the revenue potential for subscription music services?

This is a fairly straightforward calculation. The formula for the total possible revenue in a month is the number of accounts using a subscription service multiplied by the monthly cost of the service.

Total Monthly Revenue  = Accounts x Cost

The resulting number multiplied by 12 months will give the yearly revenue potential. Using the last accounting of roughly 115 million U.S. Households and an assumption of a 9.99 monthly cost, the total possible revenue for a subscription music service is roughly $13.75 billion dollars.

In 1999 at the height of the CD boom sales of recorded music totaled 14 billion dollars. In theory, subscription music’s 13.75 billion dollar potential returns the music industry to its glory years. It is unlikely though, that paid subscription music will reach 100% household penetration in the near future. Currently Spotify has somewhere between 1 and 2 million paying customers. The combined Rhapsody and Napster, which I’ll tentatively refer to as Rhaspterdy, has about the same. Add in MOG, RDIO and other miscellaneous competitors and the current subscription music base is most likely between 4 and 5 million paid users or approximately 600 million in yearly revenue.

Netflix, which has been the most successful paid subscription model, has roughly 25 million subscribers. If subscription music can reach that same level of cultural adoption then it will generate about 2.75 billion dollars in revenue at critical mass.  If all 66% of U.S. households with broadband have a subscription music account then the total revenue will be about 9 billion dollars.  These large numbers may seem impressive, but they actually have very little influence In terms of the rate per stream.

What are the most likely rates per stream?

There have been numerous instances where artists have released their royalty statement to show what appears to be paltry payment for streaming.  Spotify’s recent assertion is that once the revenue goes up, increased payments will follow.  This is obviously true in the aggregate as there is more money, but many people seem to think that this will also result in higher royalties per stream. I believe this is highly unlikely.

The total revenue will be divided in two ways. The first division is the percentage split between the subscription service and the artist revenue pool. The calculations in this essay are modeled on an assumed 50/50 split for this pool, because I’m a fair guy.  The second division is how the artist revenue pool will be split between the individual artists and labels. This is the payment per stream.

In order to know the potential payment per stream, or from the services viewpoint, the cost for each stream handled, the first step is to calculate the total number of streams that a service will stream.

If it is assumed that songs last 3 minutes on average, then a user will stream 20 songs an hour. Extrapolating this formula, a user can stream a maximum of 480 songs a day, and 14,400 songs a month.  It is not likely that every user will listen to music twenty-four hours a day. According to a Kaiser Family Foundation study entitled Generation M; the average American teenager listens to 2.5 hours of music a day. This seems like a reasonable number to use as the listening baseline for a subscription music user.

The following table shows the amount of streams a subscription service will handle per month at both constant usage and the average 2.5 hours of listening.

The two variables necessary for the division of the revenue pool based are now calculated. These are total revenue and total streams. My formula is based on a perfectly even division of revenue based on percentage of total plays a song comprises, because again, I’m a fair guy. The actual formulas the services use are probably slightly more complicated, but the basic concept should be the same.

Stream Payment Formula:

Revenue Pool / Total Plays = Payment per stream

1% of U.S. Households using subscription music at 2.5 hours of listening a day:

$5,735,530 / 1,722,381,420 = $.0033

20% of U.S. Households using subscription music at 2.5 hours listening a day.

$114,710,603  / 34,447,628,400 =  $.0033

The interesting thing about this equation is that because plays increase by the same factor as revenue, the ratio remains the same.  The per-stream royalty is still the same 1/3 of a penny.  There are two ways to increase the per stream royalty. The first is the per-stream royalty will increase if as more people adopt the service the number of plays decreases as they do. This would require the service to be used less as it gets more popular. This is the gym membership model. The per-stream royalty can also increase if the distributed revenue increases. This is possible if the overhead required to run a subscription company does not increase at the same rate as subscriber acquisition, and the extra money is added to the revenue pool.

After doing this calculation for numerous plausible scenarios, I’ve found the per-stream payment is almost always a fraction of penny. This will always be the case when dividing millions in revenue by billions of streams or billions in revenue by trillions of streams.

What can an artist or label expect to make from subscription music?

If the per-stream payment is a fraction of a penny, what does that mean for a song’s total revenue potential? To illustrate this the following table looks at potential aggregate payouts at 3 tenths of a penny.

It takes 200 streams to equal the wholesale payout for one download. It takes ten million plays of a song to equal the revenue that 51,000 single downloads currently generate.

A fun game to play is to take the current singles numbers of hit songs and see how many subscription plays it would take to equal that same number. The Black Eyed Peas best selling song is “I Gotta Feeling,” which was downloaded 7.5 million times. This would generate $4,875,000 in revenue. To generate the same revenue through subscription play the song would need to be played 1.6 billion times.

This seems like a lot, but lets look at it another way. Using subscription music, what is the possibility of a song getting played 1.6 billion times in a year? At 20% adoption, every month there are roughly 35 billion plays across the services. This equates to roughly 420 billion plays a year. This means that one out of every 262 plays would have to be that song. Judging from how many time I’ve heard the Black Eyed Peas this year that may be possible.

Another way to look at it is to ask the question, “What if every person who used subscription music listened to a song once a day?” These are your hits songs, the ones you cannot escape. This is “Stairway to Heaven” in 1971. This is “Candle in the Wind” in 1997.  This is “Hey Ya” in 2003.

The following table shows what the potential is for massive hit song with very moderate listening by everyone in the country.

When there is a song that pervades pop culture, the potential numbers start lining up with the current revenue, and as subscription music attains larger percentages of the U.S. population, the numbers for a potential hit become significantly more than a hit song currently. Of course, the flip side of this is that there are no album sales on top of these numbers like there is currently. As subscription music becomes dominant this becomes the only recorded revenue stream.

Is a compulsory rate a sustainable business model?

The call from musicians is for more than 3 tenths of a cent, and the music industry has a history of embracing compulsory rates. One penny is the rate I have most commonly heard as fair for a stream. The next table examines what the maximum per stream royalty a subscription service can handle at different listening frequencies assuming a 100% payout. This is the maximum that a service can handle. After this point the service would be paying out more revenue than it would take in, and would shortly become unsustainable.

If a compulsory rate of 1 penny is mandated, then the averaging listening time for a consumer needs to be around 50 minutes a day to sustain a 50% revenue pool share. After about 1hour and 40 minutes a day the mandated royalties are more than the revenue brought in by the 10 dollars a month in fees.  Another way to look at this is to think how much revenue can be paid if there was only one subscriber, and a mandated one penny per stream royalty.

9.99 subscription fee = 999 songs per month = 33 songs a day = 99 minutes of listening time. This is 1 hour and 39 minutes or 1.67 hours as the chart above indicates.

Looking at no other overhead or costs, this is the point where a subscription service can no longer physically pay out fees, although it would have went bankrupt well before then. Looking at this chart and the others, and knowing that the average listening time for music is 2.5 hours a day,  .003 cents still seems to be the most likely candidate for the payment per stream.

Anything above this at the current cost per month, would bankrupt any subscription music service. To sustain a compulsory rate of one penny, subscription music services would have to increase the monthly cost to 60 dollars listeners must not exceed 2.5 hours of listening or 50 songs a day.

Conclusion

At the beginning of this essay I set out to answer 4 questions about the potential revenue and costs as the music industry switches to subscription streaming. After exploring the various scenarios, the conclusion that can be drawn is that there is significant revenue that can be generated by the services as a whole, but the individual stream payments will remain in fractions of a cent and will only decrease as the services become more popular.

Devils Advocate: Possible arguments against my claims and my responses.

Q: This does not take into account advertising revenue.

This is because premium versions of subscription services, the 10-dollar a month kind, are built on the premise of no advertising. The ad supported networks will generate even less revenue. Ads are generally sold on CPM. If an ad was sold on every play (which is not the case) a CPM of 79.82 would be required at 2.5 hours of listening to equal the same revenue as subscription services.  This is extremely high for a passive audience.

Q: This doesn’t use the exact formulas the subscription services currently employ.

The formulas in this essay are based on the mathematically fairest division out there. This is the perfect scenario. The actual case will be slightly different, but as shown in numerous calculations the per-stream payment will almost always be in fractions of a cent at the current monthly cost.

Q: You are not taking into account the promotional aspect. Streaming promotes other revenue streams. 

This argument is true at the lower levels of household adoption, but begins to fall apart as more people use the service. This is because as subscription music becomes the dominant medium for music consumption, there will be less and less physical or file sales to benefit from the supposed promotion. To put it another way, if everyone is getting their music from subscription music services then the only thing you are promoting is other subscription music. In regards to merchandise, tickets or any of the other ancillary revenue streams, it is true that streaming will promote them, but the current and former methods of music consumption also did that.  I’d be interested to see any proof that streaming music is somehow a more efficient promoter of these other revenue streams.

Q: These calculations are based on a 50/50 split. If we increase artist revenue the per-stream payments will go up.

Yes and no. This could be true, but it again depends on the ratio. If the plays go up at a faster pace than the revenue pool is increased then the per-stream payments will not go up and possibly could go down.  The compulsory sustainability section was based upon a 100% revenue pool and this is the absolute maximum that a subscription company could pay out at the current monthly costs. Looking at that you can see that subscription music is practically unsustainable after a penny a play.

~ Frank Woodworth

Follow up

How do you make money from music?  Take the Artist Revenue Streams Survey from the Future of Music Coalition.

How do you feel about spotify as a musician or music fan?  Take the quick, 3-question survey from MMT.

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Why you should buy your music directly from the artist

by David D. on October 4, 2011

A closer look at online earnings (and losses) per platform

(originally published September 27, 2011)

If there’s a lesson to be gleaned from the recent kerfuffle over Spotify and artist payments, it is this: fans of indie music should buy directly from the artist whenever possible.

The dust-up started when Uniform Motion posted earnings from various platforms on their blog.  In a follow-up, they wrote:

First of all, the blogpost was not an attack on Spotify. We don’t have a problem with the concept of streaming music services at all. What we dislike about Spotify, is the lack of transparency in their business model. With Apple, it’s simple. They take 30%. With Spotify, we don’t know if we’re getting a fair deal or not.

~ Uniform Motion: Clarifications

This chart shows what Uniform Motion calculates they earn from each platform when an album is streamed, downloaded or purchased on CD or vinyl.

The data is from their original post: Release Day Economics. It has been standardized by displaying each transaction as a one-album unit, and converting all amounts into US dollars.

Of course, it’s not really fair to compare the earnings from streaming with those from digital sales. Sales are a one-time event, while streaming can result in cumulative earnings over time. As you can imagine (and as we shall see), it takes a LOT of streams to generate meaningful earnings.

So it won’t be easy for most independent artists to make a lot of money on Spotify. But hey, it’s not easy for Spotify to make money on Spotify (see Spotify Bleeding from Licensing Costs).

With the exception of a dip due to the name-your-price deal on Bandcamp, it looks like there is a steady increase in earnings as you move away from Spotify and towards direct sales. But there are two big pieces of data missing: volume and allocated costs.

Volume is where iTunes shines. Or as Fugazi drummer Brendan Canty said at last year’s Future of Music Conference: “God bless Apple.” Although Fugazi earns most of their money from CD sales, Brendan figured that they make 10 times more from iTunes than from all other digital sellers combined.

On to allocated costs. Without going all general ledger on you, allocated costs are expenses that can’t be attributed to a specific platform or transaction; they need to be spread over multiple platforms. Like recording, mixing, and mastering costs, which Uniform Motion detail here. Another example is the cost for digital distribution:

It costs us 35 EUR/year to keep an album on iTunes, Spotify, and Amazon (105 EUR per year for all 3 of our albums!) so we don’t make any money until 24 people have bought a digital copy of the album on iTunes, or 150 single songs, or if we get tens of thousands of listens on Spotify! In most cases, it’s actually more economically viable not to sell the music at all.

But…if you buy directly from their Bandcamp Page:

We allow people to pay what they want for the digital version. If you choose to pay 5 EUR, Paypal takes 0.37 EUR, Bandcamp takes 0.75 EUR. Uniform Motion keeps 3.88 EUR — it doesn’t cost us anything to have a page on bandcamp….However, the average price people pay is actually 2.82 euro ($3.95) which leaves us with 2.21 euros ($3.09) after Paypal and Bandcamp fees.

The highest price anyone has ever chosen to pay is 20 euros ($28). The lowest is 0.50 euros ($0.70)…If you decide to pay nothing, well, we get nothing, but at least you didn’t give money indirectly to major record labels, which seems to be the case with Spotify!!

Knowing that digital distribution costs put a dent in their iTunes earnings, it would appear from the chart that selling CDs and vinyl LPs is where the money is. It’s not. Due to minimum order requirements and other production costs, Uniform Motion has never earned a profit on these sales.

So the only transactions they can count on to be profitable are digital downloads from their Bandcamp site. As a bonus, you can get higher quality music, including 320 kbps MP3 and lossless FLAC files through Bandcamp.

Remember, this is a chart of Uniform Motion earnings: the results wlll vary for other artists with different volume and cost structures. But in general, an independent artist will end up with the biggest cut from sales made through their web site or services such as Bandcamp or CD Baby. This is easy to see from the below chart, which is based on the popular infographic from Information is Beautiful: How much do music artists earn online?

[Disclaimer: The original chart was based on data published in January 2010 by The Cynical Musician. Things change quickly, so some of the information is out-of-date. In particular, Spotify has changed their payouts, and the amounts listed on the chart seem be lower than the Uniform Motion earnings by an order of magnitude. Still, it captures the general shape of the subject and gives some context to the numbers. For an alternate take, read the commentary by Bob Lefsetz.]

For a solo artist to to earn the monthly minimum wage of $1,160.00, they:

adapted from the presentation of this data by Ryan Flynn: Selling Out

Where do we go from here?

Musicians and composers: take the online survey on artist revenue streams from the Future of Music Coalition.

Everyone: take a quick 3-question survey on how you feel about Spotify as musician or music fan.

You: go buy some music from your favorite artists on Bandcamp.

Update 10/4/2011: I asked Uniform Motion to check my work, here is their response:

Thanks, your conclusion is correct. When someone buys directly from our Bandcamp page, there’s no cost involved. However, since we have already manufactured CD’s and Vinyls, it’s best to sell as much stock as possible. Thanks for spending so much time on your article and digging up the facts.

~ Uniform Motion

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Survey says: Musicians have little love for Spotify

October 1, 2011

After three weeks, the results of our mildly unscientific poll show a distinct split between musicians and music fans. When asked how they feel about Spotify as a listener, fans were twice as likely to profess their love. When asked what they thought about Spotify from the musician’s perspective, musicians were more than three times [...]

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Zoe Keating on Spotify, Apple and Independents (and lettuce)

September 23, 2011

Zoe Keating is an avant cellist whose work has been previously featured on MMT.  At yesterday’s F8 Conference, Spotify Founder & CEO Daniel Ek said that he wanted to “develop a system that fairly compensates artists”.  Given the recent controversy over artist payments from Spotify, I thought “artists” was an interesting choice of words.  I [...]

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11 tips for getting the most from MOG and Spotify

September 19, 2011

If you sign up for MOG or Spotify and leave everything at the default settings, you could be missing 50% or more of your music.  That’s because Spotify defaults to ~96 kbps on mobile devices, and 160 kbps on the desktop. The settings outlined below will bring your Spotify mobile streams up to 160 kbps, [...]

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Mega Music Meta-Battle: MOG vs. Spotify Reviews

September 18, 2011

Spotify’s July launch in the US quickly heated up the market for music on demand.  Existing players Rdio and MOG both announced free service tiers last week, where previously they only offered free trials.  And this week, they’re all going to the ball with Facebook. MOG, in particular, is on fire.  They introduced a slick [...]

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