Saturday 15 November 2014

The CopyKat may not be able to look at the Queen - but the Kat can look at royalties

So - streaming is the future of the music industry is it? Well, hot on the heels of Apple's itune's announcing a 14% drop in revenues from global download sales in the first half of 2014 and the continuing and decade long year on year decline in CD sales - it may well be. A recent survey [1] said that Dutch music fans spend just half of what they spent in 2003 on recorded music - but they spend more than twice as much on live music as on recorded music. That sai, the study by streaming service Spotify this year said that in 2013 and for the first time in 13 years there was a slight increase in revenues from recorded music, and figures from the record label's trade body the IFPI supported this position with 39% of global recorded music revenues now from digital channels and 7% from performance rijghts. So - things are on the up - yes? Well  maybe - but, and its a big but - who gets what from the share of the streaming pie is big news indeed at the moment with artists, composers, record labels, music publishers, collection societies and the operators and investors for both subscription and so called freemium (ad funded) platforms all looking for their share of that pie. So, with that in mind, this weekend the CopyKat is all about royalties and who gets what -with a selection of recent posts from around the globe.

Irving Azoff
First off - the big stars flex their muscles. Some 20,000 works composed by popular musicians including The Eagles, Pharrell Williams, Boston, Foreigner, John Lennon, Smokey Robinson, Chris Cornell, and George and Ira Gershwin could soon be removed from YouTube - just as the Google streaming giant launches it's YouTube Music Key, it's much-anticipated music subscription service that will compete with Spotify and Pandora. Why? Well band manager, ex Live Nation chief and now boss of  Global Music Rights (GMR) Irving Azoff (right) has told The Hollywood Reporter that he is prepared to take 42 of his clients away from YouTube. Azoff had already fired a shot accross the bows of the two big US music collection societies BMI and ASCAP saying "The way fans listen to music is evolving daily" adding "GMR is going to give songwriters and publishers an opportunity to engage in meaningful licensing for their intellectual property. The trampling of writers' rights in the digital marketplace without any regard to their contribution to the creative process will no longer be tolerated."

Azoff's announcement followed hot on the heels of the news that Taylor Swift and her record label Big Machine had  pulled her entire catalogue from 'freemium' streaming services - most noticably Spotify and Deezer. Swift's view seems to be this: why let eager fans have something for nothing - when they would happily buy her album in physical form or as a download? And indeed in the first week of Swift's Spotify free album release her album 1989 sold 1.287 million copies in the US, debuting at No 1 in the Billboard 200 albums chart.  "If this fan went and purchased the record, CD, iTunes, wherever, and then their friends go, 'Why did you pay for it? It's free on Spotify', we're being completely disrespectful to that superfan who wants to invest", said Big Machine's Scott Borchetta.

Indeed the the recorded music industry may be gearing up to cut down on free music. The Wall Street Journal reported that many of Universal Music’s current licensing deals with streaming partners are expiring at the end of this year, and UMG boss Lucian Grainge recently said “ad-funded is not a sustainable business model”. The WSJ says Universal "planned to experiment with price and membership terms, possibly offering subscribers everything from interaction with artists to access to live events" with Grainge saying "But the third phase" is “going to be accelerating paid subscription and experimentation ....  with an enormous, high-margin, regular, recurring prize at the end of it.” Is that right? Ek thinks freemiu drives subscription and - no freemium - do the piracy rates start to soar again?

Next the British Academy of Songwriters, Composers and Authors has extended the debate by pointing to the relative inequality in payments from streaming made to songwriters when comparied to recording artists and labels. Gary Osborne, who chairs BASCA's Ivor Novello Awards, said this of streaming royalties: "No matter how bad it is for the [recording] artists it's a whole lot worse for the writers! People don't understand the difference between the writer and the act, but artists receive a far higher income from streaming than the people who write the songs. This is because deals were done first with the record labels that represent the artists, after which a few scraps seem to have been tossed to the songwriters and their publishers as an afterthought". BASCA Chairman Simon Darlow added: "The Fair Trade Music study just published by North American and Canadian composer organisations reveals that the label/ publisher split is, on average, around 95/5 in the label's favour - this cannot be justified". And BASCA's CEO Vick Bain added "BASCA totally supports the principle that authors should have control over the distribution of their music. The rates received by composers from the streaming services - especially YouTube - are so dismal that very few of the people who create the incredible songs that drive and support the music industry can make a decent living in the digital environment".

Foo Fighters
Ex Nirvana drummer and Foo Fighter's front man Dave Grohl added to the debate - sort of: when asked about streaming royaties and Swift's decision to pull her music - saying ""Me personally? I don't fucking care" adding "That's just me, because I'm playing two nights at Wembley next summer" and "I want people to hear our music, I don't care if you pay $1 or fucking $20 for it, just listen to the fucking song" and underpinned his economic model by saying "You want people to f**king listen to your music? Give them your music. And then go play a show. They like hearing your music? They'll go see a show. To me it's that simple, and I think it used to work that way" although he did temper his critique of Swift's stance by adding "But I can 
understand how other people would object to that".

And High Flying Birds and ex Oasis man Noel Gallagher managed to somehow get coffee into the royalties debate telling Noisey "It infuriates me that people are more willing to sit in a coffee shop and spend a tenner on two coffees, talking about the weather with their friends, and that coffee will last 45 minutes, yet they will physically get angry at you for asking them to buy an album for a tenner that will last a lifetime and might tell you about yourself and might even change your life. It's a strange moment we're in where people are willing to spend money on shit".

Back to the big debate: Spotify's Daniel Ek responded to Taylor Swift and other critics in a lengthy blog post reigniting the debate prompted by Swift pulling her recorded music catalogue from free (freemium) streaming services. Ek begins by saying "Taylor Swift is absolutely right" (referring to remarks the singer made in a Wall Street Journal  and Yahoo interview) adding "Music is art, art has real value, and artists deserve to be paid for it. We started Spotify because we love music and piracy was killing it. So all the talk swirling around lately about how Spotify is making money on the backs of artists upsets me big time". Ek then detailed how the Spotify payment model works and revealed that Spotify has now paid out $2 billion to the music industry since launching in 2008, $1 billion of that in the last year and that Spotify now has 50 million active users, 12.5 million of whom are paying subscribers - an increase of ten million and 2.5 million respectively since the last lot of official figures released back in May of this year. However Ek somewhat failed to address why a relatively small share of these streaming royalties are shared out to recording artists once the money has left Spotify's bank account, not least as the labels who seem to be keeping the lions share of streaming revenues are key partners in his business, both as content providers and shareholders. Ek added "The music industry is changing - and we're proud of our part in that change - but lots of problems that have plagued the industry since its inception continue to exist" ading "As I said, we've already paid more than $2 billion in royalties to the music industry and if that money is not flowing to the creative community in a timely and transparent way, that's a big problem. We will do anything we can to work with the industry to increase transparency, improve speed of payments, and give artists the opportunity to promote themselves and connect with fans - that's our responsibility as a leader in this industry; and it's the right thing to do". In December 2013, the company launched a new website, "Spotify for Artists", that revealed its business model and revenue data. Spotify pays “rights holders” royalties for all the music streamed on the application. The company pays 70% of their total revenue and retains 30%

Ek also points out that, while consumers can access music at this level for free, the artist does still earn a royalty from each play their music receives a stream and compared that  to terrestrial US radio station where labels and recording artists earn nothing for a play (although songwriter earns a royalty from American radio.). In other countries such as the UK both PPL (for labels and recording artists) and PRS (music publishers and songwriters) collect from radio stations. Undeterred Ek continues  "Here's the overwhelming, undeniable, inescapable bottom line: the vast majority of music listening is unpaid", noting that Spotify's main competitors are radio, YouTube and piracy. "If we want to drive people to pay for music, we have to compete with free to get their attention in the first place". Spotify's free tier is vital to driving people to pay, he continues, saying: "More than 80% of our subscribers started as free users. If you take away only one thing, it should be this: No free, no paid, no $2 billion" - not least with a 14% global decline in download sales so far in 2014." Spotify as has many paying subscribers as the other main streaming services pu together - Deezer has 5 million, Rhapsody/Napster 2 million and no figures published for Rdio or Beats in the US.

Thom Yorke 
According to a recent study by UK communications regulator Ofcom, the number of illegally downloaded tracks fell by around a third last year, dropping from 301 million in March 2012 to just 199 million in March 2013. This was attributed in part to the growth of legal music streaming services. But these streaming services have come under fire in recent months for paying relatively low royalty rates, compared to the royalties that musicians receive from traditional CD sales and legal downloads. In July 2013, Over a year before Swift's move, Radiohead and Atoms for Peace frontman Thom Yorke withdrew his independent work from Spotify, later describing the music streaming service as “the last desperate fart of a dying corpse”. In September 2011, US independent label Projekt Records entered a public disagreement with Spotify, stating "In the world I want to live in, I envision artists fairly compensated for their creations, because we (the audience) believe in the value of what artists create. The artist's passion, dedication and expression is respected and rewarded. Spotify is NOT a service that does this. Projekt will not be part of this unprincipled concept. In May 2012, British Theatre vocalist and Biffy Clyro touring guitarist Mike Vennart noted, "I'd sooner people stole my work than stream it from [Spotify]. They pay the artists virtually nothing. Literally pennies per month. Yet they make a killing. They've forced the sales way down in certain territories, which wouldn't be so bad if the bands actually got paid." Yorke's colleague, Radiohead producer Nigel Godrich, noting that both Universal and Sony were shareholders in Spotify, added "The big labels did secret deals with Spotify and the like in return for favourable royalty rates.The massive amount of catalogue being streamed guarantees that they get the big massive slice of the pie (that $500 million) and the smaller producers and labels get pittance for their comparitavely few streams. Back in 2009 Spotify's shareholders included Sony BMG 5,8%, Universal Music 4.8%, Warner Music 3,8%, EMI (now Universal) 1.9% and indie label body Merlin had 1%. With estimates of Spotify's value anything between $1 and $3 billion - that's a nice profit!

And finally the UK's Music Managers Forum followed this by issuing a statement saying that the organisation is a "big supporter of streaming services", and suggesting Taylor Swift and her label  are taking a short-sightedness for pulling her content from Spotify, although the MMF also hit out ar Non Disclosure Agreements that hide the deals between streaming services and the major labels. "Few markets are perfect and yes the 'low rate issue' has conflicted many, but above all, streaming services are a fabulous tool that connects artists and creators with fans", the statement reads. "No longer restricted by physical barriers, streaming gives a voice to those that want to be heard and a platform from which to build multi-revenue businesses that cross borders. There are no guarantees of success but the opportunity is there for all that want to give it a shot".  Finally, the statement concludes: "Non Disclosure Agreements hide how the major music corporations license streaming services and we have grave concerns that the deals contain stipulations that both significantly reduce the amount artists ultimately get attributed and damage the growth of the streaming economy. The real fight is more likely between opacity and transparency, and we call on all major music corporations to take note and react in the best interest of their artists and shareholders". Legendary record label boss Morris Levy reportedly more than told a leading recording artist "You say you want royalties. Then you should try Buckingham Palace" [2]. I don't hear many artists laughing. U2 frontman Bono told the Web Summit conference “The real enemy is not between digital downloads or streaming. The real enemy, the real fight, is between opacity and transparency. The music business has historically involved itself in quite considerable deceit,” [3]

There will be more to come as the jousting continues. Spotify is yet to make a profit as a global business: in 2011, when the music service made its US debut after years of popularity in Europe, Spotify brought in about $252 million in revenues, according to the New York Times. In 2012, revenues jumped to $576.5 million but losses  had grown from $60 million in 2011 to $77 million in 2012, largely due to increased licensing fees. And those licensing fees from Spotify drove a large part of the 75% jump Universal Music Group achieved in 2013 in subscription and streaming revenues to $618 million. Globally Spotify now has 50 million plus users, and Spotify’s UK business was profitable for the first time in 2013, Spotify Ltd’s revenues rose 41.8% from £92.6m in 2012 to £131.4m in 2013, helping the company’s UK arm to move from an £11m net loss in 2012 to a £2.6m net profit in 2013. “This growth can be attributed to a 42% year on year growth in UK subscriptions and also to an increase in advertising revenue,” a Spotify spokesperson told the Guardian. In 2013, Spotify Ltd’s cost of sales – which includes royalties paid to music labels and publishers – were £96.2m, accounting for 73.2% of its revenues. And that's just the UK - the service operates in North and South America, mainland Europe and Australasia - so we are looking at A LOT of money from a global streaming market from just this one player - explaining that $1 billion figure Ek had trumpeted. 

But who gets what from this growing pot has yet to be decided: there are numerous ongoing lawsuits between artist's and their record labels about their respective share of the digital pie - some settled, some not; clearly songwriters feel that recording artist and record labels are getting an unhealthy share of revenues; The collection societies face the threat of being pushed out by direct deals between the major labels and music publishers and services such as Pandora and Spotify - and squeezed by new entrants such as GMR; small labels and independent artists feels they are disadvataged because of the shareholdings held by the major labels in Spotify and 'secret deals' between streaming service and the labels; are the likes Spotify keeping too much of the pie anhyway? And what happens to the revenues from shareholdings in Spotify if it lists on a stock market? Questions, questions, questions! As streaming rapdidly moves into the audio-visual media with services such as Netflix and NOWTV rapidly gathering subscribers and new competition from both Google and Amazon - there will be more quesxtions, debate, arguements and no doubt failures and it will be fascinating to see how this all develops - until the next 'big' technology takes over!

[1] IQ Magazine Issue 56 Nov 2014 based on data from BUMA/NVPI/GfK Netherlands/Mojo Concerts 

[2] The Life and Crimes of the Music Biz  by Simon Napier-Bell Observer Music Magazine, January 2008


Pie chart image by Jan Burch

More on Spotify here

No comments: