The major point that a listen is not a sale does apply. However, a Spotify listen is not the same as a radio broadcast either, an analogy many make in their calculations. Basically, what you are buying with Spotify is the right to listen to a track that you wish, at a moment of time you wish. The difference of having an offline playlist to just having a bunch of DRM'd MP3 files tied to a client machine is something I don't see. Songs do get taken down from Spotify, as apparently it is bad for business to have an artist's entire catalogue there. Why that is the case given the generous compensation rates beats me.
Comparison to radio is irrelevant, because radio plays what it wants, not what the customer wants to hear. The music is force fed to listeners. Furthermore, if one wants to hear that same artist again, or hear what other songs they have, traditionally one needed to go out and buy the album. Spotify is a "radio" where one can accomplish this by next/previous song buttons at no charge. There's a reason that internet radios - which are so plentiful everyone should be able to find one they really like - are rarely discussed, but Spotify is always a hot topic.
On the licensing: The privileges and responsibilities afforded by national and international laws is a jungle of which I have little understanding,. The little I do have informs me that all obligations to copyright holders do not always hold, for instance songwriters of certain countries have not been able to collect from Spotify until recently. Who gets to collect compensation from what is not easy to ascertain. For instance, did you know music videos shot in the USA do not bring profits to the performers when shown in Europe?
Compulsory licensing schemes and ancient contracts and compensation amounts tied to technology features that do not apply to current services will not make sense, ever, however much they are adjusted. As discussed before, Spotify is not buying CDs, but it is not radio either. As such, the scheme should be built from scratch.
The part about artist compensation is related to the news: Record companies raking too much out of the currently paid compensation. The other issue is that the current payout rate is not enough. In the entire scheme, record companies owning parts of Spotify is enough to create a conflict of interest. This is Spotify's problem to solve - how to create enough value for the artist and for the songwriter.
In the vein of the Ford/Hertz analogy, it wouldn't make sense for me to create a service for "all the gasoline you need, 200 euros a month", enter a contract with the oil companies to provide me with such amount of gasoline, who would be in a position to requisition oil from OPEC for a compensation the oil companies see fit. Then of course I would claim the market needs to adapt because gasoline is too expensive otherwise.
My interest is not in keeping the record companies afloat. My interest is in having a scheme where reasonable compensation is provided for the artists and songwriters. Reasonable isn't what one gets from radio airplay per person. It probably isn't the same as from CD sales, either. Yet another angle is what the payout should be based on, and to whom: Songwriter, performer, (financial) producer?
To provide a glimpse of hope for the Spotify fans: The music industry's retail revenue in USA according to Wikipedia was 4.8 billion dollars in 2005. If everything was in Spotify and everyone in USA had a license, it'd only cost about 15 USD per person in a year. This tells me Spotify should work in the grand scale. However it's a chicken-egg problem since that would also define the size of industry revenue.
I have some numbers too. So an artist makes a recording deal and gets a generous 15% royalty rate from the sale of each CD containing 10 songs. The price of a CD before tax is around 15 euros. That, then becomes 1.5 euros per song, and the artist's cut is 0,225 euros per song. Spotify pays out X amount per listen, of which Y percentage is passed on to the artist.
If we want to run with the current business model, the question then becomes the following:
What is Z, the average amount of plays of one song for an album on average, per consumer, while the album is still listed as full price? Assuming Z is constant for both Spotify and physical album, X*Y*Z should yield 0,225 euros for Spotify payout.
One source (http://www.spotidj.com/spotifyroyalties.htm) claims Spotify pays 0.004 euros per stream to an independent artist, so we have X. Assuming Y is 15%, solving for Z gives 375 listens to a song.
Leaving out the record company - we have an independent artist - Z yields 56,25 listens of a song to gain the same amount of money that the artist would have gotten on a major label, for each song. For a 45 minute album that means over 40 hours of listening. I love music but I don't think there is one album I have ever listened to for 40 hours in total so far at age 32.
Considering that the role of the record companies has changed, since with a service such as Spotify one can slash the costs of distribution and physical pressing. The role is focused on financing and marketing instead. This suggests the split should be much closer to 50-50 than 15-85 in digital music.
So the implications are the same royalty split should not apply as the same economy does not apply either. Another implication is one hit wonders will suffer greatly, since buying an album (or even to lesser extent a single) for one song brings in the same money as 3750 listens to a song on a major label deal. Finally, the rate the monies come in is vastly different for more long-term artists: Even considering a 50-50 deal with a record company on digital sales, accumulating 80 hours of streaming time for one album for one user is going to take a long time - at average 4 album listens a year for a 45 minute album, it's going to be 27 years as opposed to getting the money today.
What is forgotten in the above is that the current way money in record business changes hands can be seen as screwing over the artist as well, so in this calculation I am trying to come up with numbers that would make the new boss the same as the old boss. So much for thinking that the new media will empower the artists to do whatever they want and create more viable business models that help celebrate diversity of music.
My calculations are leaving out essential parts such as what fraction of album sales should be calculated as mid-price, on compilations, etc. Typically mid-price albums sell for half money, and royalty rates are smaller too. Additionally, a physical album can be resold, increasing the effective amount of listens, while a Spotify stream can not. This is compensated by physical format changes that enables record companies to sell the same album many times. But you get the ballpark figure.
So do I have any ideas on how to fix the system? I'd have to say that Spotify is working bass ackwards: They are paying out what they are able to. Instead, the numbers for reasonable royalty rates should be fixed first with regards to artist compensation and record company compensation. Pricing then happens based on these figures, not the other way around. If that means ad prices are too high to make free listening nonviable, and monthly subscription costs 100 euros instead of 10, it is what the business needs to conform to. The current way the deals are set up is descriptive of the music industry in general: Squeezing every last drop out of the peons.
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