The New Yorker’s Nick Traverse reported “happy news” for the music industry today: global music revenue is up for the first time since 1999. Up a whole 0.3 percent in fact. The catch is that streaming services like Spotify and Pandora figure into the equation more than ever.
The New York Times offered up a few more details in its February 26th article. According to their source at the Federation of the Phonographic Industry, digital music sales were up 44 percent in 2012, which is generating at least some of the excitement. Spotify and Rhapsody’s services, along with forthcoming ones from Apple and Google, are mentioned by name, but there’s zero information about how streaming services pay artists, which is odd since it came under such intense scrutiny a few months back when Pandora asked Congress to reduce the royalties they’re legally obligated to pay out to artists.
In November of 2012, Damon Krukowski of Galaxie 500 and Damon & Naomi wrote an eye-opening article for Pitchfork outlining what kind of money he saw in return for the streams his music generated. Here’s a quick reminder for those with short memories:
Consider Pandora and Spotify, the streaming music services that are becoming ever more integrated into our daily listening habits. My BMI royalty check arrived recently, reporting songwriting earnings from the first quarter of 2012, and I was glad to see that our music is being listened to via these services. Galaxie 500’s “Tugboat”, for example, was played 7,800 times on Pandora that quarter, for which its three songwriters were paid a collective total of 21 cents, or seven cents each. Spotify pays better: For the 5,960 times “Tugboat” was played there, Galaxie 500’s songwriters went collectively into triple digits: $1.05 (35 cents each).
To put this into perspective: Since we own our own recordings, by my calculation it would take songwriting royalties for roughly 312,000 plays on Pandora to earn us the profit of one–one— LP sale. (On Spotify, one LP is equivalent to 47,680 plays.)
After doing the math, he figured he was making $0.005 per play on Spotify. So the numbers suggest sales are up, but who is making the money? As Billboard reported earlier this year, the Internet Radio Fairness Act—you’ve got to love that name—never died exactly, and there’s a chance that it will be reintroduced later, under a new name. Sales might go up for the industry, but artists would make even less. And to make matters worse, it now looks like Spotify is going to ask labels for lower licensing rates so that they can finally turn a profit, and chances are the labels will play along:
Major label sources have confirmed to Billboard the points in a recent report at the Verge: Spotify will seek lower licensing rates and an extension of free streaming to mobile devices when it meets with record labels for U.S. renegotiations in the coming weeks. Spotify did not comment for this article.
Spotify’s inability to turn a profit and the possible pitfalls of its business model have been well documented in the media. The company’s 2011 filing showed a net loss of €45.4 million ($35 million) on revenues of €187.8 million ($144.9 million). U.K. income statements showed an operating loss of £2.1 million ($1.4 million) on revenue of £91.5 million ($58.9 million).
As Damon pointed out in that Pitchfork article, “These aren’t record companies — they don’t make records, or anything else; apparently not even income. They exist to attract speculative capital. And for those who have a claim to ownership of that capital, they are earning millions.” Confirming this summary is Spotify’s CEO Daniel Ek, who doesn’t even care if his company makes a profit. If posting profits doesn’t matter to him, running a business that can pay artists well probably isn’t a priority either.
So when you read that business is up for the ailing music industry, ask yourself who “the music industry” is and what it means for their business to be “up.”