Spotify Check: Rethinking Digital Music Services and Compensation for Artists
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CHICAGOLAWBULLETIN.COM THURSDAY, JANUARY 2, 2014 ® Volume 160, No. 1 Spotify check: Rethinking digital music services and compensation for artists ast month, Spotify, the SESAC), statutory license fees song for 99 cents was the music popular on-demand for non-interactive streaming BY JEFFREY S. B ECKER industry’s response to music music streaming (SoundExchange) and mechan - Jeffrey S. Becker is chair of Swanson, piracy services like Napster, service, launched its ical licensing (Harry Fox). Martin & Bell LLP’s entertainment which allowed consumers to new Spotify Artists Spotify cautions that while “it and media law practice group. download their favorite music for Lwebsite, which clarifies how the is possible to reverse engineer an Among his clients are recording free. company pays royalties to effective ‘per stream’ average by artists, screenwriters, record labels, As digital download services publishers, actors, theatrical artists, publishers and record dividing one’s royalties by the producers, independent filmmakers became the norm, physical music labels. number of plays that generated and various entertainment-related sales plummeted. Many According to information them … this is not how we businesses for whom he provides commentators blame Napster for released by Spotify, it has paid measure our payouts internally comprehensive counseling and this, but in reality, credit should more than $1 billion in royalties nor is it a reliable yardstick for litigation services. He can be reached be given to technology, which since its inception in 2009, of Spotify’s value to artists.” at (312) 321-8425 or made it possible to download which more than $500 million Several variables affect an [email protected]. music in the first place (much was paid in 2013. But the most artist’s particular royalty like technology first allowed pertinent information released payment, including the country provided to rights holders and consumers to record music off by Spotify concerns how its in which an artist’s music is put more money into the hands the radio and create mixtapes). compensation structure works. streamed, the premium pricing of artists each month. Spotify The industry eventually caught Spotify likely is releasing this and currency value in these believes this is all but inevitable, up with the pirates and reconfig - information after coming under countries and Spotify’s total given that it currently has only ured how music was purchased. fire this summer from musicians monthly income. Nevertheless, 24 million users worldwide, The most recent technological and commentators who argued Spotify reports that the average which is small compared to shift to influence the way music that Spotify is hurting the record “per stream” payout to rights YouTube (1 billion users) and (and, for that matter, film and industry by paying musicians holders is currently between six iTunes (575 million users). television) is distributed and only a fraction of a cent each one-thousandths and 84 one- While many argue that digital consumed is increased perform - time their music is streamed. It thousandths per stream. streaming services like Spotify ance in wireless Internet is for this reason, Spotify hopes, Based on Spotify’s payment cheat artists of reasonable services such as Wi-Fi and 4G. that the information released model, as the company grows, so compensation, we should be Consumers can more efficiently last month will dispel criticism will each artist’s “per stream” cognizant of the fact that the stream music and television directed at the company. royalty payment, since revenues music industry is continuing to through their cellular phones, According to Spotify, it does generated by Spotify are derived evolve with technology. Thus, Apple TVs and even video game not pay artists on a “per stream” from monthly subscriptions and streaming services like Spotify consoles, which in turn has basis. Rather, Spotify pays advertising revenue and not the are not going away any time resulted in an explosion of approximately 70 percent of its number of streams played by soon. streaming services in the monthly revenue to holders of consumers. We must not forget that before marketplace. the rights to the music it Thus, the more subscribers digital streaming services, there Netflix’s mailing service has streams. To do this, Spotify takes Spotify attracts, the more was iTunes and the 99-cent been eclipsed by its streaming each artist’s monthly streams monthly revenue it generates, digital download. Allowing service and the company now and divides it by the total which will increase the revenues consumers to purchase a single produces its own Emmy- number of streams on Spotify nominated TV shows. Spotify, that month. That number is then Pandora and YouTube have multiplied by Spotify’s monthly We must therefore shift the way become essential apps on all our revenue and artists (or their devices. Even cable television labels/publishers) receive 70 we think about music consum - behemoth Comcast now offers an percent of that figure. Internet Plus package, which This split between Spotify and ption to fully understand how an strips away many traditional rights holders is based on the cable services and packages popularity of each artist’s music artist’s royalty payment through high-speed Internet with basic on the service. Payments made cable and HBO Go so consumers on behalf of each artist include Spotify and other services compares can watch a majority of their TV royalties for use of both sound shows through the Internet. recordings and compositions. to compensation received if the same These examples exemplify Thus, rights holders receiving music was purchased through a how technology has made it royalties include organizations easier for us to stream entertain - collecting public performance platform like iTunes.” ment, thereby making it unnec - royalties (ASCAP, BMI and essary to “own” a song, TV show Copyright © 2014 Law Bulletin Publishing Company. All rights reserved. Reprinted with permission from Law Bulletin Publishing Company. or movie in order to enjoy it. iTunes, Apple charges approxi - thousandths and 84 one-thou - every listen. Is this a good thing This does not mean that digital mately 30 cents to the content sandths. or a bad thing? streaming services exploit owner. Thus, an independent If this consumer listened to Only time will tell. content creators by paying artist will receive the remaining the song just 10 times, the artist Either way, we must under - unfairly low royalty rates. 70 cents. will receive between six and stand that technology has We must therefore shift the In this scenario, the transac - eight cents. Over time, the altered the way entertainment is way we think about music tion is complete and the consumer may listen to this song consumed and that all-you-can- consumption to fully understand consumer may listen to this song more than 100 times, which enjoy subscription services how an artist’s royalty payment as many times as desired without would earn the artist between 60 appeal to millions of consumers. through Spotify and other making any additional payments and 84 cents. We therefore encourage all services compares to compensa - to the artist. If this same Bottom line: Once a consumer artists and rights holders to tion received if the same music consumer instead chose to listen purchases a song, the transac - embrace this fact and use their was purchased through a to the artist’s song on Spotify, tion is over. But if they are understanding of how these platform like iTunes. If a then every listen of the song will streaming the same song, the services are structured to gain consumer purchases a song on earn the artist between six one- transaction begins again with the most financially. Copyright © 2014 Law Bulletin Publishing Company. All rights reserved. Reprinted with permission from Law Bulletin Publishing Company..