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Canadian Musician Features » Blog Archive » Streaming Money is Flowing… But Where To? 2016-09-28, 1:02 PM Renew Subscription Change Your Address Check Us Out On... NEWS « Music For The Masses Streaming Money is Flowing… But Where To? September 21st, 2016 The article originally appeared in the September/October 2016 issue of Canadian Musician magazine By Michael Raine Record labels, music publishers, songwriters, and musicians; these folks are earning money from on-demand streaming services. Combined, they’re earning a lot of money from the likes of Spotify, Apple Music, Google Play Music, and Tidal. Do music’s rights holders feel they’re due more money? Of course. But the current numbers aren’t to be scoffed at and the real question is: where is the money going and is it fair? Depends who you ask, if you can ask them. What is “a lot” of money? Let’s say $2.9 billion, the amount the music industry made globally from streaming in 2015, according to the IFPI, which represents the recording industry. That $2.9 billion was a 45.2 per cent increase in streaming revenue over 2014 and marked a turning point, making 2015 the first year that digital revenue surpassed physical. Even better, 2015 saw a 3.2 per cent year-over-year increase in global recorded music revenue after many years of decline, thanks almost entirely to streaming. That trend carried over to 2016, with all three major labels – Sony Music Entertainment, Warner Music Group, and Universal Music Group – reporting their first quarters ever of streaming being their biggest money maker. Sony earned around US$300 million globally between April and June 2016 from streaming. Warner earned an estimated US$181 million in the first three months of this year from streaming. During those same three months, Universal, the largest of the three majors, made US$351 million from streaming. The IFPI’s 2016 Global Music Report painted an even rosier picture for the Canadian recorded music industry. The Canadian industry’s growth in 2015 was 8.3 per cent, more than double the global average. In 2015, paid subscription streaming revenues grew 151 per cent over the previous year to US$29.4 million, with ad-supported streaming adding another US$19.49 million. This year-over-year growth in Canadian streaming revenue surpassed the global average by a http://canadianmusician.com/features/archives/85 Page 2 of 8 Canadian Musician Features » Blog Archive » Streaming Money is Flowing… But Where To? 2016-09-28, 1:02 PM significant margin (though that is making up for lost time as Canada was a relative late comer to the on-demand streaming market). So why do musicians, songwriters, and music publishers seem so unhappy? It’s about how the money is divided. (Important to note is the vast majority of indie labels in Canada have a distribution agreement with one of the three majors, which dictates the indies’ streaming revenue. There is also a lot of fretting over how much streaming services pay “artists.” Technically speaking, in most cases, streaming services don’t pay artists anything. The services pay “right holders,” which are publishers, songwriters, and labels. The artists – or “performers” – get paid by their label subject to the terms of their record contract, which we’ll get into later). Let’s start with the publisher/songwriter side, where there is significantly more transparency. Keep in mind we’re talking only about on-demand streaming services (i.e. Spotify, Apple Music, Google Play Music, etc.). CMRRA’s Caroline Rioux “From a licensee’s perspective, when an online service comes to the table, in Canada in any event, there are really four rights that need to be licensed. I would describe it as a quadrant. Half of the pie is for songwriters and music publishers who administer the rights to the musical composition, and the other half is for record companies and performing artists who administer the rights to the sound recording. Sometimes the rights to the composition and to the sound recording for a single track are all controlled by the same person but in most cases they are not, and the composition and sound recording need to be separately licensed. Then within each of those halves, you have the reproduction right and the performing right,” explains CMRRA President Caroline Rioux. “In our environment, SOCAN looks after the performing rights on the songwriter/music publisher side and CSI (SODRAC and CMRRA together) look after the reproduction side for songwriters and music publishers.” While the image of a quadrant may make it seem like royalties and revenue are divided evenly, that is not the case. The most recent tariff certified by the Copyright Board of Canada dictates that on-demand streaming services must pay 12.78 per cent of gross revenue to publishers and songwriters, with 5.18 per cent to CSI and 7.6 per cent to SOCAN. But that tariff does not cover every aspect of a service’s functionality, particularly those launched after the tariff was certified – such as Spotify, Apple Music, and Google Play Music. To allow those services to legally operate in Canada until a new tariff is certified, which is expected to happen in the fall, CSI and SOCAN negotiated licensing agreements with each service individually based on the same tariff rate but with different splits to account for the change in usage. For example, according to SOCAN’s VP of Licensing, Jennifer Brown, when the service offers on-demand streaming with the ability to cache songs, what she terms “hybrid services,” then the total remains 12.78 per cent but the split is 5.43 to SOCAN and 7.35 to CSI. The negotiated percentage rates, any applicable minimum rates, and the ratio split between SOCAN and CSI vary from service to service based on the different functionality and offerings to users. “For streaming services that operate as part of a subscription paid by a consumer, the revenue is a percentage of revenue alongside certain minimum rates so that when there are free trials or heavily discounted rates given for whatever promotion the service says is needed, then there are certain minimum rates that kick in, in order to not erode the value of the works,” says Rioux of the CMRRA and CSI. The royalties SOCAN and CSI receive is then divided between their respective members. The members’ royalties are divided according to the number of streams their compositions have received on the individual on-demand services. Those royalty payments also depend on whether songs were streamed as part of a free ad-support tier or as part of a paid subscription. Streams on the paid tier currently pay out a higher royalty rate than streams on the ad-supported tier because, in part, the revenue pool from paid subscriptions is divided by a much smaller number of streams. “There is always going to be a pool of rights holders who are just very difficult to reach out to,” says Rioux. “Under the tariffs and our agreements, the services have to send us all of their usage data. So we see, in a very consolidated way, all of the streaming activity that is happening from all of these services. We run this through our system and turn around and invoice those online services on a quarterly basis for everything we represent. We have extensive data matching capabilities, but we’re talking about millions and millions of works. Every quarter there are going to be works that we can’t invoice on because these works are http://canadianmusician.com/features/archives/85 Page 3 of 8 Canadian Musician Features » Blog Archive » Streaming Money is Flowing… But Where To? 2016-09-28, 1:02 PM either in the public domain, or are not in our repertoire, or their ownership is simply unknown.” It’s common, especially in pop, R&B, and hip-hop, for there to be multiple writers and publishers with combined ownership of a single song. Rioux adds it’s possible, for example, to invoice and distribute royalties for 75 per cent of a song but not be able to identify the other 25 per cent ownership on that song. It could be because the ownership hasn’t been fully worked out between the various publishers and songwriters, or it could belong to a kid who got lucky, wrote a song that’s getting attention, and they haven’t yet joined the collectives needed to get paid. “We get new usage files every month so our work is ongoing and it’s a completely iterative process. When we cannot invoice the royalties on the first pass – once we’ve done all of the loads and matching and we’ve sent our invoice – the data for the unmatched works, or unknown shares, remain in our system for future processing. When new songs get registered and when new rights holders affiliate with us, then we retroactively invoice all of the royalties that we weren’t able to invoice before. CSI can only invoice the royalties we know we represent and can distribute to the rightful owner.” SOCAN’s Jennifer Brown SOCAN’s administrative process works very similarly. “We work with [services’] data people, and we have data specialists here, and we make sure that we’re getting all performances that occur in Canada. With that performance information comes as much data as they can provide – the song, the artist, if they have the creator information, any identifiers that they have – and we pull all that information in and get that paid out,” says Brown.

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