The Record
5:50 pm
Sun July 28, 2013

Paying The Piper: Music Streaming Services In Perspective

Originally published on Mon July 29, 2013 3:31 pm

As sales of recorded music continue to plummet, the concept of fans "owning" music may soon be considered old-fashioned. Today, it's all about access to music, rather than ownership of an album or a song, and newer streaming services like Spotify are at the center of the storm.

Two weeks ago, musicians Thom Yorke and Nigel Godrich, of the bands Radiohead and Atoms for Peace, announced on Twitter that they were pulling three albums from Spotify in protest of the streaming service's minuscule royalty payments.

Yorke and Godrich are influential guys who can afford to make this stand — what Godrich calls a "small, meaningless rebellion" — and they didn't pull the music they made as Radiohead, just the two Atoms for Peace albums and Yorke's solo album, Eraser.

But other big names are rebelling, too: Pink Floyd wrote a terse op-ed in USA Today about Pandora. Aimee Mann just filed a lawsuit against MediaNet, a company that supplies music to streaming services.

So what's going on here? Are these the opening salvos in an all-out war against streaming? Or should artists just be happy that they're getting paid at all for music that could easily be stolen?

A Service's Perspective

Mark Williamson, director of Artists Services at Spotify, says the company pays close to 70 percent of its revenues to the people who own the rights to the music it offers for streaming (that's usually the recording labels).

Those rates are negotiated with the labels, and critics argue that the bigger labels arrange better rates for their biggest artists, and that the smaller labels, independents and new artists get paid less. Spotify has steadfastly refused to be transparent about their rates, but Williamson says the difference from one deal to the next is overblown.

"We have to do deals with tens of thousands of entities to get these rights, but whereas there are specific differences in those deals, across the board really they're equitable," he says. "And, you know, we're not massively favoring major artists; we're not penalizing smaller artists. We're providing a level playing field for all artists on the service."

By the end of the year, Williamson says, Spotify will have paid out almost $1 billion in royalties.

"One of the great things that we're doing is we're taking people who paid zero for music — we're bringing people out of that darkness in the industry and bringing them into this legal service where, once they're in there, we're actually generating a huge positive net impact on the industry," he says.

Comparing Companies

Last fall, musician Damon Krukowski wrote a story for the music website Pitchfork about how a song by his '80s group Galaxie 500, "Tugboat," was monetized on Spotify and Pandora. On Pandora, it received 7,800 plays in three months.

"We had earned for that 21 cents — the band had earned that. There are three of us who were in that band and wrote that song together, so we had each earned 7 cents for the quarter for those 7,000-plus plays," he says. "Spotify pays marginally more. Spotify had played Tugboat 5,960 times, almost 6,000. And for that, we as a band earned $1.05. So that was a whole 35 cents a piece. So we tripled our earnings from Pandora."

Spotify's Williamson maintains that the service pays out more money as it grows. "Whatever scale you are, whatever size you are, we wanna pay you fairly for your music, every single time that somebody clicks on it," he says.

Krukowski, currently a member of Damon and Naomi, says artists "shouldn't buy" that "sales pitch."

"Because there's really no responsibility that a company like Spotify has to the people making records," he says. "Even the biggest record labels, who may have ripped off artists in extraordinarily Baroque ways ... they still had to make sure that records were made to stay in business.

"That's not true for these companies — Spotify, Pandora and Apple — who are making enormous amounts of money by making use of our music, but they're never really under any pressure to have it flow back to us. I don't see why they would start to do that later."

He says that reports from Spotify and Pandora showing they're losing money don't tell the whole story.

"The problem is how they count revenue. ... They're in the red because they don't really have very much revenue. What they have built is capital," Krukowski says. "Spotify in particular I've read is now valued at $3 billion. They're not funneling any of the $3 billion back to artists. And that's the thing that I think is missing here."

Krukowski says he actually has no problem with music streaming online for free. In fact, he says, "I'm not convinced we should be paid by Spotify and Pandora at all."

"These digital goods that are online, they don't really operate as property in the traditional way that we understand it. Our records are still our records. We own them, we control where they're sold and for how much," he says. "Companies like Apple, Pandora, Spotify, what they've done is they've set up businesses based on the idea that these streams are property. But they've laid claim to these streams as their property rather than anybody else's."

Krukowski suggests giving up the idea that sharing music online is piracy. Then, he says, "we'd actually open ourselves up to entirely new models of how music can function in the present day."

The Songwriters' Rights

Paul Williams is the president and chairman of the board with the American Society of Composers, Authors and Publishers, or ASCAP, which is currently in a legal battle with Pandora.

Williams has written hits for The Carpenters, Barbra Streisand and Kermit the Frog. He's been paid for one of his songs, "The Rainbow Connection," in many ways. First, by the film studio (he was hired as a songwriter for The Muppet Movie). Then there's licensing for television and commercials. And of course, record sales, radio airplay and concerts.

But, Williams says, "the bulk of a songwriter's income comes from a continuing performance of the song." So when Willie Nelson or Weezer cover "The Rainbow Connection," Williams gets paid.

"And that's where a performing rights organization comes in, like ASCAP," he says. The organization's clients rely it to strike deals with these new streaming services.

At present, one of those services, Pandora, is suing ASCAP. Pandora is arguing against having to pay both the songwriters and the folks who own the recordings. Terrestrial radio doesn't pay both rights holders; terrestrial radio only pays the songwriters, not the performers.

Williams says it's kind of like the Wild West in the music business right now, but he's encouraging his clients to remain hopeful.

"I have to tell you that at the introduction of any new device to bring music — any new form of delivering music — there's always been the process of, first we establish a right, we have the right to collect this," he says. "Songwriters are small businessmen. They've created this, they own it. They have a right to receive income from this."

After a right is established, then a rate is established.

"When cable began, it was a very small rate. As the years go by and as we create meaningful relationships with not only the audiences loving the music, but cable and the people presenting the music, the rate begins to come up to something that is appropriate," he says. "And what started out with cable very small, is now probably our largest ... source of income for our writers."

Don't be mistaken, they're not against technology, he says.

"Why would we ever be against any world that is providing an opportunity for our music to be heard around the world?" Williams says. "But we have one major issue."

The fundamental dilemma, he says, is this:

"We're songwriters who are writing for the center of our chest providing songs for the world to dance to and fall in love to, but we're doing it for a living. And when I'm properly paid for my songs, it becomes gas in the car to take my little girl to school. The fact is that for us to have a life, where we can continue to make music, we have to be properly paid."

Copyright 2013 NPR. To see more, visit http://www.npr.org/.

Transcript

(SOUNDBITE OF SONG, "DEFAULT")

JACKI LYDEN, HOST:

This is WEEKENDS on ALL THINGS CONSIDERED from NPR News. I'm Jacki Lyden.

This song is called "Default." It's by the band Atoms for Peace. And if you go looking for it on the massive online database known as Spotify, you won't find it. That's because band members Thom Yorke and Nigel Godrich pulled it recently, along with three entire albums, a protest against Spotify's minuscule royalty payments. They chose not to speak to NPR about it, but, hey, we've got their tweets and a guy with a British accent.

(SOUNDBITE OF TWITTER MONTAGE)

OLIVER DEARDEN, BYLINE: (Reading) Make no mistake, new artists you discover on Spotify will not get paid. Someone got to say something. It's bad for new music. Small labels and new artists can't even keep their lights on. It's just not right. Meanwhile, shareholders will shortly be rolling in it. Simples.

LYDEN: Yeah, that's what British Twitter sounds like. Thanks to NPR's Oliver Dearden for his dramatic reading there.

Now, Thom Yorke and Nigel Godrich are influential guys, thanks to their other band, Radiohead. They can afford to make the stand - what Godrich calls a small, meaningless rebellion. But other big names are rebelling too: Pink Floyd wrote a terse op-ed in USA Today about Pandora. Aimee Mann just filed a lawsuit against MediaNet.

So what's going on here? Are these the opening salvos in an all-out war against streaming? Or should artists just be happy that they're getting paid at all for music that could easily be stolen? That's our cover story today: How will the music industry of tomorrow pay the piper?

(SOUNDBITE OF SONG, "DEFAULT")

LYDEN: As sales of recorded music continue to plummet, artists are faced with a new reality: Very soon, the concept of fans owning music may be considered, well, kind of old-fashioned. Today, it's all about access to music rather than ownership of an album, or even buying an MP3. That's where a service like Spotify comes in.

MARK WILLIAMSON: And we have 24 million users in 28 countries, and getting to those people has never been easier than it is with Spotify.

LYDEN: That's Mark Williamson, the director of Artists Services at Spotify. He spoke with NPR Music last week about this ongoing controversy. He says Spotify pays close to 70 percent of its revenues to the people who own the rights to the music. That's usually the recording labels. Those rates are negotiated with the labels, and critics argue that the bigger labels arrange better rates for their bigger artists, and the small labels, independents and new artists get paid less.

Spotify has steadfastly refused to be transparent about their rates, but Spotify's Mark Williamson says the difference from one deal to the next is overblown.

WILLIAMSON: We have to do deals with tens of thousands of entities to get these rights. But whereas there are specific differences in those deals across the board, really, they're equitable. And, you know, we're not massively favoring major artists. We're not penalizing smaller artists. We're providing a level playing field for all artists on the service.

LYDEN: By the end of the year, Williamson says, Spotify will have paid out almost a billion dollars in royalties, a far cry from the out-and-out piracy of just a few years ago.

WILLIAMSON: One of the great things that we're doing is we're taking people who paid zero for music, we're bringing people out of that darkness in the industry and bringing them into this legal service where, once they're in there, we're actually generating, you know, a huge positive net impact on the industry.

LYDEN: Damon Krukowski begs to differ about that huge positive impact part. He was in a band called Galaxie 500 back in the '80s, and their first single was called "Tugboat."

(SOUNDBITE OF SONG, "TUGBOAT")

GALAXIE 500: (Singing) I don't wanna stay at your party. I don't wanna talk to your friends.

LYDEN: Last year, Damon Krukowski wrote a story for the online music magazine Pitchfork about how this song was monetized on Spotify and another streaming service, Pandora. On Pandora, it received 7,800 plays in three months.

DAMON KRUKOWSKI: And we had earned for that 21 cents. The band had earned that. There're three of us in the - who were in the band and wrote that song together so we had each earned seven cents for the quarter for those 7,000-plus plays. Spotify pays marginally more. Spotify had played "Tugboat" 5,960 times, so almost 6,000. And for that, we as a band earned $1.05, so that was a whole 35 cents apiece. So we tripled our earnings from Pandora.

LYDEN: Boy, I bet you wanted to break open the hard stuff. (Laughing)

KRUKOWSKI: If we'd been able to afford it at that point, I guess we would have.

LYDEN: So as we heard earlier in our story, NPR's talked to Mark Williamson, who is the director of Artists Services at Spotify. I'd like to play you, Damon, a little bit of what he had to say when we asked about artists like your old band, the smaller to midrange acts that weren't dominating the sales charts.

WILLIAMSON: We might not be paying huge checks out to an artist that only has a few fans, but the way that the model works with Spotify is as we grow, we continue to pay out more and more money. Whatever scale you are, whatever size you are, we want to pay you fairly for your music every single time that somebody clicks on it.

LYDEN: So what do you think about that argument, and specifically, the argument that it's going to take time for services like Spotify to build a subscription base, and that once that happens, the pie gets larger and you artists get a larger slice of the pie?

KRUKOWSKI: I think it's a sales pitch that we shouldn't buy as artists because there's really no responsibility that a company like Spotify has to the people making records. Even the biggest record labels, who may have ripped off artists in extraordinarily baroque ways - and I know that that happens all the time - they still had to make sure that records were made to stay in business.

That's not true for these companies, Spotify, Pandora and Apple, who are making enormous amounts of money by making use of our music, but they're never really under any pressure to have it flow back to us. I don't see why they would start to do that later.

LYDEN: Spotify does say that it pays 70 percent of its revenue to the record labels.

KRUKOWSKI: The problem is how they count revenue. In the reports I've seen directly from Spotify and Pandora, they also claim that they're losing money. They're in the red. They're in the red because they really don't have very much revenue. What they have built is capital. Spotify in particular, I've read, is now valued at $3 billion. They're not funneling any of the $3 billion back to artists. And that's the thing that I think is missing here.

Personally, I'm not convinced we should be paid by Spotify and Pandora at all. I actually think that it's fine for music to be streaming for free because these digital goods that are online, they don't really operate as property in the traditional way that we understand it. Our records are still our records. We own them, we control where they're sold and for how much.

Companies like Apple, Pandora, Spotify, what they've done is they've set up businesses based on the idea that these streams are property. But they've laid claim to these streams as their property rather than anybody else's. I think that if we gave up on the idea that online sharing is piracy, we'd actually open ourselves up to entirely new models of how music can function in the present day.

LYDEN: Musician Damon Krukowski. He's currently part of the duo Damon and Naomi. And as he suggested, royalties from streaming are just one part of what makes up an artist's income. To illustrate a few others, we turn to a legendary songwriter. He wrote hits for people like the Carpenters, Barbara Streisand and even...

(SOUNDBITE OF SONG, "THE RAINBOW CONNECTION")

JIM HENSON: (Singing) Why are there are so many songs about rainbows?

LYDEN: ...Kermit the Frog. Paul Williams got paid for this song in many ways.

PAUL WILLIAMS: I was hired as a songwriter with Kenny Ascher to write the songs for "The Muppet Movie."

LYDEN: So the film studio gave him his first paycheck directly. And then there's further licensing.

WILLIAMS: For television, for commercials and the like.

LYDEN: There's record sales, radio airplay, concerts.

WILLIAMS: The bulk of a songwriter's income comes from a continuing performance of the song.

LYDEN: So when it's covered by anyone from Willie Nelson...

(SOUNDBITE OF SONG, "RAINBOW CONNECTION")

WILLIE NELSON: (Singing) Someday we'll find it, the rainbow connection.

LYDEN: ...to Weezer...

(SOUNDBITE OF SONG, "RAINBOW CONNECTION")

WEEZER: (Singing) The lovers, the dreamers and me.

LYDEN: ...Paul Williams gets paid.

WILLIAMS: And that's where a performing rights organization comes in, like ASCAP.

LYDEN: Ah, ASCAP. That's the reason we got Paul Williams for this story. He's now the president and chairman of the board with ASCAP, the American Society of Composers, Authors and Publishers. And his clients rely on them to strike deals with all these new streaming services.

At present, one of those services, Pandora, is suing ASCAP. Pandora feels that they're paying songwriters too much. They're chafing at having to pay both the songwriters and the folks that own the recordings. Terrestrial radio does not. Terrestrial radio only pays the songwriters, not the performers. Paul Williams feels that it's kind of like the wild, wild west in the music business right now. But he's encouraging his clients to remain hopeful.

WILLIAMS: I have to tell you that at the introduction of any new device to bring music, any new form of delivering music, there's always been the process of, first, we establish a right - we have the right to collect this. You know, songwriters are small businessmen. They've created this, they own it. They have a right to receive income from this. And then we establish a rate.

When cable began, it was a very small rate. As the years go by and as we create meaningful relationships with not only the audience that's loving the music but cable and the people that are presenting the music, the rate begins to come up to something that is appropriate. And what started out with cable very small is now probably our largest form of source of income for our writers.

And we're not anti-technology. Why would we ever be against any world that is providing an opportunity for our music to be heard around the world? We want technology to thrive and whatever bizarre form, you know, if they find that there's some sort of a weird little implant you could put behind the ear so that you just think about a song and it plays, we will be totally in favor of the patent being established, but we have one major issue.

We're songwriters who are writing from the center of our chest providing songs for the world to dance to and fall in love to, but we're doing it for a living. And when I'm properly paid for my songs, it becomes gas in the car to take my little girl to school. The fact is that for us to have a life where we can continue to make music, we have to be properly paid.

(SOUNDBITE OF SONG, "DEFAULT")

LYDEN: So what's a music fan to do? Hey, however you connect, musicians we talked to say a great way to pay the piper may be to go the show and buy the CD directly from the band. That might not matter for the big players. For newer or smaller groups, though, it's better than just a T-shirt, because streaming is here to stay.

(SOUNDBITE OF SONG, "DEFAULT")

LYDEN: Special thanks to Jacob Ganz of NPR Music for his help reporting this story.

(SOUNDBITE OF SONG, "DEFAULT") Transcript provided by NPR, Copyright NPR.

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