If Spotify and Pandora Are the Future, Do Artists Have One?

Streaming services' growth stirs debate over slim royalties

Psy
"Wait, 1.2 billion views and you're paying me 0.6 cents a view?" / Photo by Getty Images
Marc Hogan WRITTEN BY
Marc Hogan

The New York Times has seen the future of music, and it doesn't look good for musicians.

The music industry, which 10 years ago finally shifted to online sales via iTunes, is now in the midst of another massive change. But the transition to digital streaming services such as Spotify, Pandora, and YouTube brings with it a dramatically different way of paying artists' royalties. The companies that offer streaming services are now multi-billion-dollar concerns. The artists whose music they stream, not so much.

As the Times reports, the comparatively teensy amount artists earn from streaming services has caused concern throughout the industry.

While the average musician might earn 7 to 10 cents on an iTunes download, artists receive a fraction of a fraction of a cent each time their songs are played on streaming services. That's not terrible if you're Psy, who a Google executive recently said had earned $8 million on the 1.2 billion views for "Gangnam Style," a rate of roughly 0.6 cents per view. It's less good if you're Zoe Keating, a self-described "avant cello" musician who late last year revealed that despite getting more than 1.5 million plays on Pandora in a six-month span, she received less than $1,700. Spotify was a bit kinder: Her 131,000 plays last year yielded almost $550.

Pandora, for one, lobbied last year for permission to lower its royalty rates, which unlike Spotify's are set by law. A wide range of artists, from Brian Wilson to Rihanna, opposed the leigslation, the so-called Internet Radio Fairness Act. So did the American Association of Independent Music, which represents many prominent indie labels. Billboard reports that the legislation isn't completely dead and is "just hibernating."

Artists might dream of penny royalties, but streaming service providers are swimming in big bucks. Pandora is publicly traded, with a share price that values it at nearly $2 billion. Spotify isn't public, but its investors have reportedly pegged its value at $3 billion. To put that into perspective, the entire music industry saw revenues of roughly $7 billion in 2011, according to the Recording Industry Association of America.

Streaming service companies might be worth a lot on paper, but they're not contributing much to the record business just yet. Pandora had $202 million in "content acquisition costs" in its last four reported quarters, and Spotify recently said it had made $500 million in royalty payments, the Times notes. That pales in comparison to music downloads' $2.6 billion in 2011 sales.

The article doesn't come out and say so, but for music fans a major worry is whether the streaming services are, to put it in agricultural terms, eating their seed corn. A top executive at a music rights management company told the Times that only artists with serious live income will be able to carry on as full-time professional musicians. Still, a top music lawyer is quoted as saying royalties for streaming will probably rise sooner or later. (That's despite signs, such as the Internet Radio Fairness Act, that streaming service providers would actually prefer to pay artists less, not more.)

Then there's Sean Parker, the former Facebook president who helped Shawn Fanning launch Napster and is now a Spotify board member. "I believe that Spotify is the company that will make it succeed,” he's quoted as saying. “It’s the right model if you want to build the pot of money back up to where it was in the late '90s, when the industry was at its peak. This is the only model that’s going to get you there.”

Or Justin Timberlake, who famously played Parker in The Social Network, could finally put out an alb — oh wait. Industry's saved, everybody, we can go home.

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