“You might as well walk into a record store, put the CD’s in your pocket and walk out without paying for them.” -Mark Knopfler
I searched twitter for the key words “illegal” and “downloads,” and the results were just about what I expected. Some people were raving about the convenience of downloading media illegally, others were complaining about copyright laws, and some users, both fans and artists, condemned the act of internet piracy. One interaction particularly stuck out to me, concerning both sides of the predicament.
“I just wonder how many of y’all will really support when I finally drop something for sale!” Tweeted one artist. Another user (presumably a fan) responded: “I’m sure you’ll go platinum in illegal downloads!” Whether or not the artist found this funny remains unclear, but the question lingers, how many people will pay for her music when it can be easily accessed for free on the Internet, and not just illegally?
In the early days of Napster and illegal downloading, many record labels did not hesitate to sue people who illegally downloaded music, and court cases like this continue today. Century Media, a Metal and Rock label based out of Germany, announced its plans in September of 2012 to take 7,500 fans to court for illegally downloading music from artists Lacuna Coil and Iced Earth. According to an article published on NME.com, “If found guilty, all 7,500 file sharers could face a large fine or a payment of $2900 (£1,790) to avoid going to court.” All of the accused downloaders are referred to as John Doe in the court papers, but their IP addresses are listed.
It is clear that times have changed for artists, fans, and especially record labels. And it’s not just illegal downloading that has everyone rethinking old business models. Online services like Pandora, Last.fm, Grooveshark, Spotify, and YouTube have people spending way less money on music than they used to. At least Spotify, iTunes Match and Pandora pay the artists whose music gets played though, right? Well, sort of. Although Spotify pays artists per stream, the number of plays it takes to earn much of anything from putting your music on Spotify is very daunting. A classic example of this is Lady Gaga’s royalty check of $167 from Spotify after “Poker Face” was played on the service over one million times. If you’re surprised, you’re not the only one. Swedish musician Magnus Uggla, upon learning of Gaga’s minuscule compensation, said that he would rather his music be pirated, and removed his music from the service.
Since then, Spotify has played around with the amount of money paid to artists per stream, and should the current rate have been in place upon “Poker Face’s” Spotify debut, Lady Gaga would have instead earned somewhere between $1,315 and $1,855 for her million plus plays. Although Spotify keeps the algorithm they use for compensating artists from the public, many artists have revealed their pay rates online to draw attention to the issue. Josh Davidson of Parks and Gardens tweeted on September 3rd of 2012 about royalties that his band receives from iTunes Match and Spotify: “iTunes Match pays $0.00330526797710 per stream. Spotify actually pays us more, at $0.00966947678815 per stream.” Those numbers are very low, and for them to break even (Parks and Gardens uses a service called TuneCore to distribute their music) they would need 5171 plays, a slightly discouraging number.
Very few artists are excited about the opportunity to make money on Spotify and other streaming mediums, but for newer artists, sometimes it seems like a necessary evil. In his band’s blog, James Lynch from Bomb The Music Industry! writes: “And what is any artist supposed to do? NOT have your music on Spotify (or Mog, or Rdio, or whatever) and not have anyone listen to your music at all?” Interestingly enough, some big players have chosen to do just that. According to Spotify’s own help page: “Some frequently requested artists that are not in Spotify include The Beatles, Pink Floyd, AC/DC and Led Zeppelin. We hope that they change their minds regarding streaming soon!” And I’m sure many other people agree. Pink Floyd’s manager Paul Loasby feels that Spotify just doesn’t compensate artists well enough for them to put their music up. “The music is so undervalued. The rights-holders, in my opinion, have sold it too cheaply. I would like to see the money paid to artists dramatically increase.” The incentive is just not there for Pink Floyd and many others to put their music on Spotify, but this has hardly slowed Spotify’s growth.
According to Alex Luke, executive vice president of A&R for the Capitol Label Group, the holes in Spotify’s catalogue aren’t a problem. “For years iTunes didn’t have Madonna or Dave Matthews or the Beatles and did fine. I would argue that the [streaming] space is still finding itself and the jury’s still out on how big these services are going to get and whether or not a missing artist or a missing catalog will make a huge amount of difference. It didn’t in the case of iTunes.” Perhaps Spotify will renegotiate terms, or maybe some of these bands will change their minds after a meeting with Spotify representatives. The Red Hot Chili Peppers did. “It wasn’t a negotiation, it was more of a ‘guys, here’s what’s happening,’ and really showing them Spotify is beneficial,” Sachin Doshi, Spotify’s head of development and analysis says. “They start to get it once they see the numbers.” But until AC/DC, The Beatles, Led Zeppelin and Pink Floyd “get it,” you might have to (gasp!) listen to them on YouTube.
Other artists simply choose to delay releasing new albums on Spotify with the hope of increasing digital and physical sales in the first few weeks of releasing them. Taylor Swift’s newest album “Red” was withheld from online streaming services such as Spotify during the early stages of its release. In an interview with Rolling Stone, Scott Borchetta – the man who “discovered” Taylor Swift and started the label Big Machine Records – explains the logic behind such a decision: “We’re not putting the brand-new releases on Spotify,” he said. “Why shouldn’t we learn from the movie business? They have theatrical releases, cable releases. There are certain tiers. If we just throw out everything we have, we’re done.” And he isn’t the only one who has been releasing albums to online streaming services at later dates. This has become a trend among labels, and albums such as Adele’s ’21’, Coldplay’s ‘Mylo Xyloto’ and the Black Keys’ ‘El Camino’ have all been released later on Spotify than when the physical copies were first released. It cannot be certain that this strategy works, however.
According to Spotify’s head of development, Sachin Doshi, Mumford & Sons’ Babel was streamed eight million times in its first week and then sold 600,000 copies. “That goes to prove streaming services do not take away from unit sales and, in fact, can be additive for major artist releases…That’s our point and we’re sticking to it.” It will take time to determine which business model is best, but there is no denying the fact that online streaming revenues have grown incredibly fast and are continuing to do so.
Data collected by a research firm called Strategy Analytics suggests that streaming music revenues will grow to about $1.1 billion (compared to $3.9 billion from downloads) by the end of 2012, at a rate about five times faster than downloads. Interestingly, the research firm also predicts that total digital revenues will overtake those of physical copies by 2015. Of course, physical copies will never become obsolete, and it is extremely unlikely that downloadable music will completely go away either, but if CD’s overtook vinyl and tape, and if downloads are going to overtake CD’s, will these streaming services overtake downloadable music? One can only speculate. Either way, artists are still getting the short end of the stick.
With over 24,400,000 monthly users, it is puzzling to comprehend why Spotify doesn’t have the money to compensate artists with higher rates. Spotify has experienced amazing revenue growth – 151% from 2010 to 2011 – reaching $244.5 million in total sales. In that same timespan, however, Spotify’s “cost of sales” (including royalty fees, distribution costs and other expenses) grew 98 percent in 2011, and salary costs for Spotify’s 311 employees rose 173%, pulling in a net loss for Spotify of a little more than $59 million. How can a company stay afloat despite it’s continuous reporting of losses?
The short answer is its massive potential. Spotify is hot, with over 24 million monthly users, but a huge portion of it’s revenue – most of it actually, 97% just last year – goes to record labels. According to researcher Alice Enders: “Spotify is now finding that legitimate free services can lure fans away from piracy, but at the expense of investor capital.” The free music is, well, expensive. The tricky part is finding ways to get more paying subscribers, specifically in the United States. In most of Spotify’s markets, the free account has a listening cap of 10 hours per month, but not in the U.S. Spotify had planned to enforce that listening cap 6 months after its U.S. release in 2011, but alas, there is still none. The British research firm Ender’s Analysis claims that this listening cap will be enforced in July of 2013, but according to the New York Times, a Spotify spokesman claimed “there were no such plans for the United States. Plans or not, Spotify’s potential is undeniable. According to Steve Sovaca, Spotify’s content head, “more people are paying for Spotify in Sweden than are using the free service.” What would it look like if this were true in Spotify’s other markets like the United States? Plans to make Spotify profitable are obviously still in the works, and until there are profits to be made, negotiations for royalties will most likely continue to stagnate, leaving artists in the dirt.
Internet radio isn’t the only radio in the United States that has been underpaying artists and labels. In fact, terrestrial radio broadcasters aren’t required to pay labels royalties per play at all – just songwriters and music publishers. The debate over radio royalties goes back to the days of Frank Sinatra, who was outspoken about fair compensation for artists and labels himself. Not much has happened for decades in the courts – both labels and broadcasters have lobbied incessantly. But recently, a deal was made between two big players in the music industry, Clear Channel Communications (the United State’s largest radio broadcaster) and Big Machine records (Taylor Swift’s label, among other country acts). Because of the agreement – for the first time in the history of radio – a label will be able to collect a royalty when it’s song is played on the radio, treating all forms of radio “holistically,” to use the worlds of Clear Channel’s own CEO Bob Pittman. In the short run this will hurt Clear Channel, but in the long run – as more listening takes place online (right now only 2% of Clear Channel’s does) – the corporation expects to benefit.
Perhaps this deal will set a precedent for future relations between labels and terrestrial broadcasters, but to the founder of Pandora, Tim Westergen, deals like this need to be required. “It is time for Congress to level the playing field and to approach radio royalties in a technology-neutral manner,” he said. “The current rate-setting law is unfair to performing artists, unfair to record labels, and unfair to Pandora and Internet radio as we compete every day with broadcast radio and satellite radio for listener loyalty and advertising and subscription revenue.” An interesting thought, but perhaps unrealistic, and certainly easier said than done.
Meanwhile, Serious XM radio, the only Satellite radio in America, has been sneakily getting away with only paying 8% of their revenue for the use of sound recordings, but that is set to rise to 11% by 2017.
The moral of the story is that dead weight loss is still very much alive in the world of digital music, and consumers are getting way more music for their money than they used to, and that has artists and labels scrambling to find ways to penny pinch. A lot of artists make most of their money from touring and playing shows, but for upcoming acts, prospects still look dismal – even if you have a lot of people listening. On October 3oth, 2012, Chan Marshall of Cat Power announced on Instagram: (she uses all-caps regularly) “I MAY HAVE TO CANCEL MY EUROPEAN TOUR DUE TO BANKRUPTCY & MY HEALTH STRUGGLE WITH ANGIOEDEMA. I HAVE NOT THROWN IN ANY TOWEL, I AM TRYING TO FIGURE OUT WHAT BEST I CAN DO…” This is an artist who released a Top 10 Billboard album and played sold out concerts all across the United States. Although it is not new to hear that making a living off of music and performing is not easy, Cat Power’s situation is alarming. How can an artist of such status not be able to carry on because of financial situations?
Cat Power isn’t the only underdog who’s experiencing financial conundrums. Many of the members of the band Grizzly Bear, despite their modest success in recent years, are uninsured medically. According to Nitsuh Abebe’s article in the NY Times, Grizzly Bear Members Are Indie-Rock Royalty, But What Does That Buy Them in 2012?
“The band’s had a song on a Twilight soundtrack, been repeatedly praised by Jay-Z, appeared on The Colbert Report, and opened for Radiohead… [and] Veckatimest has now sold around 220,000 copies in the U.S.” It is difficult to measure the success of a band or musical artist, but it would be foolish to presume that Grizzly Bear hasn’t had a good swing at it so far. It is all the more shocking, considering these things, to know that some of the members have admitted to being uninsured. Would they be insured if they made more from Internet royalties? Probably not. But perhaps, if more people paid for their music.
One of the comments left below the NYT article caught my eye:
“I’m all for musicians making decent money, but I think they need to make decent music. I’ve heard of the rave reviews for Grizzly Bear, but I don’t get it. It’s not bad…but it’s not very interesting, catchy or appealing to me. I couldn’t help but read this and think ‘yeah, you’re not making pop music…and you’re not making rock music…you’re making squiggly, noodling arias that go nowhere and some people like that, but not quite enough to make $100,000 a year.’”
I was not at all surprised by this comment. The bottom line is that people like Top 40, and it sells. As the music industry becomes more centralized and as labels get more cautious in signing new acts, it will only become more difficult for new/indie artists to get any kind of share of the musical money pie.
According to one blogger, it wasn’t always like this: “…A working act could have a middle class lifestyle and maybe some future performing rights income and other royalties. Now, you’re either starving or fighting to hold on to what you’ve got…It’s desperation all the time.” Within this desperation, bands and musicians who decide to stay in the game are becoming more cash-savvy everyday. The Ragbirds, a band from Ann Arbor, Michigan, take pride in their vegetable oil fueled tour van that saves them thousands of dollars annually on travel expenses and has about a ninety percent smaller carbon footprint than that of a diesel fueled van. And they’re not the first; Many other musicians choose to travel in vegetable fuel powered vehicles while on tour.
Another huge way that artists save pennies in the age of the Internet is by crowd-funding their creative projects. Anyone who has dabbled in recording knows that it gets expensive, and fast. Websites such as Kickstarter allow artists to upload videos describing their creative endeavors. In return for some funding, they offer fans incentives such as pre-ordering privileges, exclusive t-shirt designs, personal performances, and anything else, really. The only catch is that if the project doesn’t get 100% funded by a certain deadline (anywhere from 1 to 60 days later), the artist receives none of the funding. Many well known artists have gone this route, such as Amanda Palmer who raised over one million dollars in the most funded musical Kickstarter of all time, an excellent example of the power of the internet.
Many artists have learned that because of the power of the Internet, they need not worry about labels at all, at least while getting started. Bon Iver is the go to example of an independent artist nowadays. Lead singer Justin Vernon is said to have written most of their debut album in a cabin in northwestern Wisconsin, and released it himself in July of 2007. The band has gone on to win the Grammy for “best new artist” and has been an almost-mainstream success since. Other bands choose to abandon their labels after experiencing success. One of Blink 182’s lead singers, Tom Delonge, announced their independence from Interscope Records on the 23rd of October, 2012 via twitter: “Freedom!! Blink as of today, is now an independent Artist!!!!!” The benefits of Blink’s independence aren’t entirely clear, but one can imagine that they now receive more of a cut from Internet royalties and download revenue, and that they have all the say in almost everything regarding the business end of things.
Blink 182 can be found on Spotify, iTunes, Amazon, you name it. Their music has been illegally downloaded millions of times, and they’ve simultaneously sold hundreds of thousands of physical albums, including vinyl. Through many of the changes that the music industry has undergone, Blink 182 has endured, and so has music in general. As the music industry changes even more, labels, artists, and distributors will have to be smarter and smarter about the decisions they make regarding money and music, and they know it. The sheer amount of creative potential on all sides, from business to artistry, is immeasurable, and it is certain that music as an art will thrive within the changes that industry itself is going through