The Ledger is a weekly newsletter about the economics of the music business sent to Billboard Pro subscribers. An abbreviated version of the newsletter is published online.
What a difference a decade makes. Ten years ago, most music industry conferences played like long, geeky arguments between technology companies that said they represented the future of the business and labels and publishers that wanted that future to involve getting paid. At one memorable SXSW panel, independent artists and small label owners seethed over their inability to get YouTube to permanently remove their music from user-generated videos. At MIDEM in 2010, a year before Spotify launched in the U.S., Americans heard horror stories from European executives about the platform’s minuscule royalty rates for ad-supported streams. All of these conversations were essentially about fairness – getting companies that streamed or distributed music to pay creators and rightsholders in a negotiation that felt at least vaguely equitable.
The word “fair” now has another meaning, to judge by this year’s Music Biz conference, held in Nashville from May 9 to 12. Now that more money is flowing into the music business in general, it often involves making sure creators and rightsholders are paid everything they are due at a pay scale that’s already been determined and isn’t easy to change. It’s less about making sure pennies flow and more about making sure that they flow in the right direction — which is less about passionate big-picture debates and more about analytical discussions about metadata and accounting. In that spirit, Music Biz was heavy on metadata, with plenty of talk from blockchain-based streaming services and new royalty accounting platforms about how they could make the business fairer.
These conversations aren’t really about fairness anymore, though – they’re about accuracy. Fairness is about equity, accuracy is about accounting. Fairness is emotional, accuracy is analytical. How much somebody is paid is different than how somebody is paid. A blockchain-based smart contract is part of a decentralized system for calculating what people are paid, not what they deserve. When a performance rights collective obsesses over matching streaming data with rights data, it is concerned with paying parties correctly, not paying them well (although societies do also lobby on behalf of their members for better pay). A distributor with a system for capturing royalty splits ensures each artist is paid the correct share of royalties without weighing in on what those splits should be.
The music industry does not have the same problems it had a decade ago. YouTube’s ContentID has progressed since its initial launch in 2007. An automated system that identifies a recording or composition, ContentID gives the copyright owner the choice of blocking the content or monetizing the video. A label or publisher has greater control over how their recording or composition is used in videos, and the royalties they receive have improved over time. Royalties from ad-supported streaming services have improved over the last decade. Overall, streaming revenues have skyrocketed and now dominate recorded music revenues and represent a significant share of publishing revenues, too.
Have people stopped concerning themselves with fairness? Not hardly. In April, an independent songwriter, George Johnson, upended a proposed rate settlement that would have kept the mechanical royalty (for downloads, CDs and vinyl LPs) unchanged in order to focus on more lucrative streaming royalties. Instead, major stakeholders (NMPA and the major record labels) agreed to raise the mechanical royalty from 9.1 cents to 12 cents. Members of the U.S. Congress have written letters to Spotify concerned about a program that allows artists to trade an uplift in a track’s streams for a lower royalty rate. The U.K. Parliament held hearings in 2021 out of concerns creators are not being paid fairly for the use of their music on streaming platforms. Although the Copyright (Rights and Remuneration of Musicians) Bill stalled in December, the British government hasn’t ruled out legislative change if the industry can’t arrive at solutions.
Fairness is harder to achieve than accuracy, however. A standard Spotify subscription priced at $9.99 in 2011 when it launched in the U.S. is worth $12.78 in April 2022 dollars. Creators have long complained they are subsidizing the growth of subscription services yet only recently have companies started to pass along small price increases on select products in some countries. There has been a years-long movement to replace the pro-rata royalty scheme, which pays tracks’ royalties from a pool of subscribers’ fees based on all subscribers’ listening, with user-centric royalty payments, which pays the artists a subscriber actually listens to. So far, only one streaming platform, SoundCloud, has adopted user-centric royalties, and only for independent artists not affiliated with record labels and distributors. When licensing deals are negotiated every three years, the wheels of change move slowly.
Improvements in accuracy seem more attainable because they are technical feats, not matters of corporate negotiation (which bring change slowly) or government intervention (even slower yet). That means fairness is about embracing opportunities, not fixing financial inequities. This year’s Music Biz sponsors reflect the current obsession over accuracy: royalty accounting (Music Reports, RyteBox, Royalty Solutions, Exactuals), rights management (OpenPlay, AdRev), payment solutions (Mosaic, Tipalti, Payoneer), royalty collection (SoundExchange, The Mechanical Licensing Collective) and metadata (DDEX, Verifi Media). It’s not just in the U.S.: on Thursday at The Great Escape conference in the U.K., the Music Managers Forum presented what it called the $ong Royalties Manifesto “to address failing music industry systems and practices that are resulting in songwriters and composers losing out on hundreds of millions of pounds in streaming revenues.” In other words, data issues are preventing creators from being paid fairly.
To see where the notion of fairness exists is headed, look to two of the year’s hot topics. Web3 and NFTs are seen by many people as a way to right the wrong of streaming royalty payments. NFTs allow artists to set their own prices and raise money directly from fans without being subject to royalty rates determined by licensing agreements they did not take part in. Exactly how NFTs will shake out is anyone’s guess, but it’s clear many people who believe digital music should deliver more value to creators are already looking beyond streaming for solutions.
STOCKS
Through May 13, the % change over the last week, and the year-to-date change.
Spotify (NYSE: SPOT): $106.09, +1.3%, -54.7% YTD
Universal Music Group (AS: UMG): 20.41 euros, -1.8%, -17.6% YTD
Warner Music Group (Nasdaq: WMG): $29.08, -0.2%, -32.7% YTD
HYBE (KS 352820): 215,000 KRW, -10.8%, -38.4% YTD
Live Nation (NYSE: LYV): $91.25, -1.4%, -23.8% YTD
iHeartMedia (Nasdaq: IHRT): $12.80, -8.6%, -39.2% YTD
Cumulus Media (Nasdaq: CMLS): $12.82, -17.0%, +14.0% YTD
NYSE Composite: 11,805.00, -2.8%, -24.5% YTD
Nasdaq: 15,257.36, -2.0%, -11.1% YTD
