New Study Shows Its Media Companies, Not Spotify, That Keep Artist Payments Low

New Study Shows Its Media Companies, Not Spotify, That Keep Artist Payments Low

You would think that the artist gets the biggest cut from streaming music, however a new study finds that’s not actually the case. Berklee College of Music, a prominent Boston-based music school, has recently taken a stab at untangling the giant web of fees and monies associated with streaming music and just who gets paid, yielding some debate-changing results.

Individuals in the music industry all agree that the payments received from streaming services are too low. However, just who do they blame? It is not very easy to follow the money flow from the fans to those who write and sing the music thanks to a complex web of secret deals, service fees and royalty payments.

Berklee College of Music’s Institute of Creative Entrepreneurship’s Rethink Music initiative examined the music industry’s business practices and while both industry leaders Spotify and Pandora have been portrayed as villains in the media it is in fact, according to Berklee, the middlemen who prevent things from getting easier.

“This is an industry whose fundamental business model has been completely upended, but its cost structure and its intermediary structure haven’t changed from a very different era,” according to the institute’s managing director, Panos Panay. “Let’s just face it: You don’t need all these people in the supply chain.”

When a song is streamed, two types of royalties have to be paid out. The largest goes to the artist who performed the song, or the company-usually the record label- who owns those royalties. The other amount will go to the songwriter or again, the company that controls those rights. There are times when the streaming services do not even directly pay those companies, relying on companies that manage royalties for big groups of owners of copyrights. At each point along the way, another entity gets a cut.

Berklee gives a breakdown as to the typical way royalties for a streamed song would be divided up.

“It’s a typical collective-action problem, where everybody is benefiting in a small way from the inefficiencies in the way things are done,” said D.A. Wallach, Spotify’s artist in residence.
Money can get caught up in the system a lot of different ways. Labels or record companies make deals where they take royalty rates that are less than generous in exchange for rights to the streaming services themselves, all with the possibility to earn the big money if these services happen to go public or are picked up by a bigger company. Who is not included in those paydays? The individual musicians.

Streaming deals have the possibility of including service fees paid to labels and are typically not split with the musicians.

A lot of musicians do not get royalty checks until their record labels have recovered their expenses for marketing and other costs. Labels who take on big advance payments for royalties from streaming services expected to be paid out often find themselves with money left over. Berklee’s report estimates artists are potentially losing hundreds of millions of dollars by not getting their cut of the money.

An even more basic problem exists. All the math is only applicable after the appropriate rights-holders have been determined. An estimated 20-50 percent of money generated by streaming services never makes its way back to the artists whose songs played.

“Unfortunately, the adage ‘follow the money’ leads only to a dense thicket of micropayments and ‘black boxes’ where relationships among rights, royalties, processes, and participants, in the eyes of many, are deliberately obscured or, at best, have become hopelessly complex and outdated,” according to the Berklee report.

In order to determine when a song is played and who needs to be paid is an area that has a significant amount of room for improvement. Performing-rights organizations traditionally have been responsible for determining when someone played a song and then ensuring the songwriter was paid.

A system that tracks when a song is played and who owns the different rights to said song is something the music industry has attempted and failed to develop in the past. A method to link this to payment methods would be required and this is how Bitcoin could help.

A blockchain like Bitcoin keeps a public tally of all transactions that occur. This system automatically divvies out payments to the proper person and immediately disburses it. In theory, it is clever. It is still unclear how an industry that has typically not been technologically savvy could transition to Bitcoin.

Wallach of Spotify initially made the suggestion.

“There’s’ no reason this shouldn’t happen. You have a really archaic infrastructure that these media businesses are sitting on, and the people who really suffer are the people who create stuff,” Wallach said.

“The reason I’m not doing it,” Wallach states, “is because I don’t want to spend a decade on it.”

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