How much are next-gen music services really paying artists?

Streaming music Even if you love the nostalgia of tapes and vinyl, there’s no denying the convenience of millions of songs in a single app, all ready to play or download with a single click. This is the world that Spotify, Pandora, iTunes, Amazon and even small players like BandCamp have ushered in. But how does it shake out for the artists who actually produce the music? I crunched the available numbers on all these services to find out, and as it turns out, the guy holding the guitar seldom comes out ahead.

Bandcamp

For the sake of full disclosure, you should probably know I run a record label and I personally use Bandcamp. I love their product and consider what Bandcamp does to be a service to humanity.

That may sound like high praise, but Bandcamp deserves it. The site has helped artists sell their work who never would have been able to before. Its transparent terms of service are simple and easily found: There is no setup or signup fee for Bandcamp, just a 15-percent revenue share on digital sales. Bandcamp’s revenue share decreases to 10 percent if your account does more than $5,000 in sales. End of story.

Bandcamp is equally clear about how much money artists have made using its service. As of this writing, Bandcamp reports: “To date, artists have made $27,628,084 using Bandcamp, and $1,891,269 in the past 30 days alone.” It continues, “We’ve driven 4,102,728 paid transactions and served 43,383,108 downloads to happy fans.”

Simple calculations based on these numbers reveal a few other interesting data points. If we assume that half of Bandcamp’s sales pay it 10 percent revenue share (a generous assumption), then Bandcamp has netted more than $270,000 for itself in the last 30 days and just shy of $4 million all time. Bandcamp’s more than 4.1 million transactions have paid artists, on average, $6.73 per transaction.

These numbers are good, but they obscure some problems. Though some big-name artists like Sufjan Stevens and Amanda Palmer call Bandcamp home, the majority its 350,000 artists have much smaller audiences. This sprawling user base reveals how widely-adopted the service has become and how well it has scaled over time, but it also makes sums Bandcamp has paid to artists look a lot smaller. Even accounting for the fact that more well-known artists account for much greater proportions of that sum, this averages a little under $80 paid per user.

Bandcamp is a great service. I would even go so far as to call it irreplaceable, because, for many artists, it is the only way that their work is monetized. But not many are making much money from Bandcamp – Bandcamp included. Luckily, artists have Spotify – called by some a “streaming music savior” (gag) – and Pandora to help them make money from their work. Right?

Spotify and Pandora

Unfortunately, the big streaming services aren’t making much money for artists or for themselves. As of August, more than 33 million people had tried Spotify, and more than 150 million people had tried Pandora. Yet neither is profitable. Pandora posted net income of $2.1 million (on $120 million in revenue) for the fiscal quarter ending in October 2012, but also warned investors to expect a loss of between 6 and 9 cents per share in the following quarter. Losses have been common for Pandora, however – the service has never been profitable.

Spotify has struggled as well. Its accounting statements for 2011 show a loss of $57 million on total income of $236 million. How do you make more than $200 million, but still lose $50 million? It’s simple: content is expensive. Royalties and other fees cost Spotify for more than $229 million in 2011, and the company spent a further $30 million on personnel and another $30 million on other expenses. Similarly, Pandora paid $149 million in royalties in 2011.

Spotify and Pandora have paid artists total sums far exceeding Bandcamp, but unfortunately, few seem to benefit. Spotify, in particular, is paying artists a pittance for the use of their work. Take, for example, cellist and composer Zoë Keating. Between October 2011 and March 2012, Keating’s songs saw more than 72,000 plays on Spotify. Keating’s compensation? Just $281.87 — less than three-tenths of a cent for each play. During this same period, Keating made more than $46,000 from sales on iTunes.

Other sources have painted a slightly sunnier picture. Digital Music News reported Spotify royalties to be half a cent per play. Whatever Spotify’s exact royalty rate (it varies from artist to artist), it is certain to be low. Though a great user experience and huge library may make Spotify a savior for listeners, it doesn’t show the same promise for artists.

Spotify streaming music paymentsSurveys by the Future of Music Coalition echo these reports. Earlier this year, that organization reported that 54 percent of artists surveyed hadn’t earned revenue from on-demand streaming players like Spotify. The results for non-interactive streams like Pandora were even more dire, with 76 percent surveyed reporting no revenue from these services.

To combat this perception, Pandora’s CEO used the company’s blog to report that Pandora would pay more than $10,000 each for the rights to stream content from more than 2,000 artists featured on its system. Though $10,000 is a lot of money, 2,000 is not a lot of musicians. Acclaimedmusic.net has created a list of the top 1,000 artists of all time based on aggregated ratings from critics. Garth Brooks comes in at 947. Chicago is at 986. The Go! Team (a personal favorite) is ranked 989. The point is clear even if their methodology is hazy: these are artists of some reknown, yet ranked pretty low on Acclaimedmusic’s scale. Two thousand artists doesn’t go very far when you get to counting them, and Pandora is probably paying a lot fewer musicians a lot less money than you think they are.

iTunes and Amazon

The paltry sums paid by streaming sites make Bandcamp all the more attractive. They also paint iTunes and Amazon MP3 – both of which take around a 30 percent cut from indie artists – in a more positive light. iTunes is the clear leader in digital sales, having sold in excess of 15 billion songs and selling them at a rate of around 4 billion per year (according to reporting from last year). Profits from the sale of iOS apps are included in Apple’s iTunes profits, but the huge amount of music sold by the service is a big reason why Apple made $6.3 billion on iTunes in fiscal 2011.

Amazon MP3 has been less successful, but now commands 16 percent of the digital music market (to iTunes’ 64 percent). Amazon’s profits from its MP3 store are difficult to determine, but they’re likely proportionally smaller than Apple’s profits, due to Amazon’s habit of offering deep discounts on popular albums to draw market share away from Apple. Despite the fact that artists must pay a listing fee to have their work published in the iTunes or Amazon MP3 store, both of these services remain valid options for artists of any level.

Conclusion

As I mentioned up top, I use Bandcamp personally. I know first-hand how difficult it can be to sell music. My label has had twenty times as many songs streamed as we have had songs downloaded. For every album that my record label sells, five are given away for free. The public is pretty disinclined to pay for music.

This is the reason that services like Spotify are so dangerous. Yes, they make good art available, but artists are barely rewarded at all. Good art should be incentivized so that more of it is created. Spotify removes that incentive. Despite its excellent listening experience and the benefits of its catalog being available to everyone for free, Spotify may be a net negative for these reasons.

Ultimately, though, this isn’t about what these services do with their dollars. It’s about what we do with ours. Knowing how little Spotify pays artists makes me like their service less, and encourages me to buy more music using services like Bandcamp, iTunes, and Amazon MP3. I’m starting tonight by buying Onuinu’s Mirror Gazer, which I’d previously been playing via Spotify.

If you’re a big Spotify or Pandora user, please consider buying some music from your favorite artist, especially if they are independent. For there to be good art, art must be supported. And, as you’ve read, music could really stand to be better supported.

The views expressed here are solely those of the author and do not reflect the beliefs of Digital Trends.

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