The music industry is in big trouble — and not the fun kind from Little China. It may not look it when pop music darlings like Taylor Swift and Bruno Mars regularly make headlines for how much cash they’re raking in, but beneath a thin veneer of wealthy superstars, musicians are hurting.
And music fans, with our insatiable appetite for free music from services like Pandora and Spotify, are partially to blame. While these convenient services attract millions of listeners, they aren’t paying artists nearly enough to compensate for the digital song and album sales they’re cannibalizing.
In 1999, the recorded music industry generated $15 billion in annual revenue. Today, that number has been cut by more than half. The Recording Industry Association of America (RIAA), blames streaming services for killing digital download sales, with Pandora and Spotify’s “freemium model” leading the pack.
That not only has a detrimental effect on today’s up and comers, but could also put up major financial road blocks for tomorrow’s talented artists to come. Despite the popular notion that music can be free for everyone, if we want a fresh infusion of original music from artists we don’t even know about yet, we’re going to have to pay for it.
The origin of free
Before we figure out how to fix the system, let’s figure out how we got here. And that tale takes us all the way back to the music industry’s heyday in 1999.
Streaming services are killing digital download sales, with Pandora and Spotify leading the pack.
As the sun set on the 20th century, there was virtually no viable way to get free music apart from whatever might be proffered by your local radio station. Then, without warning, Napster came along and free MP3 files were suddenly just a few clicks away. Piracy ran rampant, music was free, and the industry turned into the Wild West. This changed people’s perception of music’s worth, and the music industry began its steep decline. Major labels reacted by suing Napster out of commission, but the genie was out of the bottle, and other sites like LimeWire and BitTorrent swept in to carry Napster’s torch.
As profits slid, record labels screwed things up further by refusing to consider legal digital downloads as a legitimate source of revenue. Steve Jobs and the crew at Apple eventually got them to concede with the iTunes store, but they walked out with lopsided deals that gave Apple a big cut of every song sold.
At this point, musicians were taking a hit from money-hungry digital download services, sue-happy record labels, and a tech-savvy listener base whose hunger for music exceeded both their moral and financial budgets.
It didn’t get any better. With the arrival of music-streaming services like Pandora and Spotify, listeners found they didn’t need to sail the pirating seas to participate in a music free-for-all. Thanks to the advent of “ad-supported” Internet music services, listeners could create virtually any playlist they wanted for the low-low price of just a few easily-ignored ads per hour.
Why aren’t musicians profiting from these new, legal channels? The devil is in the details.
Today, Pandora has grown to attract 81.5 million “active” users, accounting for 31 percent of all music streaming, according to Investopedia. However, only 3 million of those users pay Pandora’s $5 monthly fee. That’s a problem, because Pandora pays out around 56 percent more royalties per play from its paid Pandora One service than from the ad-supported tier.
It is notoriously difficult for artists to make money from the service right now. Take Aloe Blacc, who claimed in a recent op-ed on Wired that he made just $12,359 from more than 168 million streams on Pandora in the U.S.
It’s gotten so bad that BMI, which hasn’t sued anyone over royalty payments in its 18 years, is now fed up enough to sue Pandora. Meanwhile, Pandora’s books reveal a banner year in 2014: mobile revenue grew 43 percent to $209.5 million, ad revenue grew 155 percent to $152.9 million, and total listener hours rose 20 percent to 20.03 billion. The publicly traded company also turned a profit last year of $43 million (before interest, taxes, depreciation, and amortization).
Then you have Spotify, with its catalog of over 30 million songs to comb through – all available for free (with ads). The site is unlike Pandora and other “Internet Radio” sites because it eliminates the need for a personal music collection. Spotify has become so powerful that it helped to drive down iTunes’ overall sales by 14 percent in the last year, Spotify’s power to usurp digital downloads is creating big trouble for the music industry, especially for artists and songwriters who get the smallest slice of the pie, because of what Spotify pays out — or what it doesn’t.
Spotify says it pays out $.006 to $.0084 cents per stream. How much an artist makes will of course depend on their success, but if you’re not a top-tier act with a huge draw, you’re not making much. After all is said and done, the average artist needs around 150 Spotify streams to equal the payout of a single 99-cent download. Why so low? Because 75 percent of Spotify’s 60 million members listen for free, and free doesn’t pay very well. Spotify made just $90 million from its ad-based service last year, compared to a whopping $897 million from its much smaller pool of paid subscribers. Also — and this is key — every stream paid out to artists from a paying subscriber is, by Spotify’s own account, “considerably higher” than an ad-supported pay-out.
The problem isn’t music streaming, it’s ad-supported music streaming. Musicians are receiving fractions of a penny for every ad-supported play, and they simply don’t add up.
Subscription music saves!
It doesn’t take Stephen Hawking to figure out that all parties (including Spotify) could make a lot more money if most users ponied up a subscription fee — and ostensibly that’s the goal. According to the The New Yorker, Spotify CEO Daniel Ek told a group of nervous artists and managers in 2014 that when Spotify grows to 40 million paid subscribers (currently 15 million), everything will be unicorns and rainbows. According to the report, Ek claimed “niche indie albums” would go from making $300 a month to $17,000 a month, a breakthrough indie could go from $76,000 to $386,000, and a global hit would push from $425,000 a month to $2.1 million. It sounds like fantastic news for the industry at large.
The average artist needs around 150 Spotify streams to equal the payout of a single $.99 download.
The problem is, right now, Spotify isn’t doing much to usher users to a paid subscription model. Though labels are putting new pressure on the service, both Spotify and Pandora have been loath to rock the boat. Together they’ve secured over 140 million listeners worldwide. And if they decided to go subscription only, suddenly all those users would have something they don’t have much of right now: choice. Spotify is a lone duck offering free streaming at this level, but if they pay some money, users can choose among Google Play Music All Access, Deezer, Rdio, Jay-Z’s new Tidal service, Apple’s forthcoming new Beats incarnation, or several others. None of them have the clout, or the subscribers, to offer free streaming — not even Apple.
Of course, some users might choose to pirate music if the free tide dries up, but many others will likely choose to keep the convenience factor of streaming and apportion a small slice of their monthly budget (we’re talking a couple of lattes here) to do so. That could translate into a veritable lifeline for the ailing industry. If all of Spotify’s unpaid listeners suddenly start splashing out $10 a month, that’s $450 million a month.
But that isn’t likely to happen under the current paradigm. As The Guardian reported, statistics show that if a Spotify user “hasn’t signed up for the (subscription) tier within three months, they never will.”
Portrait of the struggling artist
Numbers aside, you may well be thinking, “So what?” What’s the big deal anyway? We all know that labels have always appropriated the lion’s share of record profits, so who cares if they go down? And artists — from Jay-Z to Metallica, and Taylor Swift to Radiohead — have never been richer. Beyoncé’s custom gold Apple Watch probably wasn’t cheap.
Unfortunately, the 1 percent you see sparkling at the very top of those ivory towers don’t experience what those down below — including musicians, songwriters, and other music journeyman like audio engineers — experience. Sure, some musicians can tour year round and make good money. But tours can also be pretty damned expensive. A lot of artists are turning to Kickstarter to fund their tours, just to break even. And what if you’re a damn fine song writer, but don’t want to tour 360 days a year because you, say, have a kid or a personal life? The ability for an average artist to make ends meet is getting harder and harder, making the profession a lot less possible to sustain.
Take indie musician and cellist Zoe Keating: Zoe’s numbers from streaming through 2013 are extremely troubling – especially at a time when music’s most profitable venture right now, digital downloading, looks to be on the way out. According to The Guardian, after earning more than $75,000 from digital downloads in 2013, Zoe pulled in less than $2,000 from 400,000 Spotify streams and just over $3,000 from an undisclosed number of streams from Pandora. Her 1.9 million views on YouTube didn’t do her much good either, earning about $1,200. That’s a total of less than $7,000 from streaming, compared to $75,000 from downloads — essentially, that’s a gratuity. When downloads go away, where does Zoe Keating go?
A similar story can be seen across the industry, including from a pair of middle-of-the road artists, folk singer (and daughter of Johnny Cash) Rosanne Cash and Emmy-winning jazz guitarist Marc Ribot, who spoke to The New Yorker last year. Looking back 18 months, Ribot reported making a whopping $187 dollars from 68,000 streams of his latest album, available on Spotify in Europe and the U.S. Cash claims she made $104 from 600,000 streams. Needless to say, that’s way below Spotify’s projections, and nowhere near enough to pay the bills. And, unfortunately, their stories aren’t anomalies.
For Cash, addressing streaming music issues isn’t about going backward, it’s about the right way forward. “I don’t think any of us want to make the streaming services go away,” Cash told The New Yorker. “We are not Luddites. We just want to be paid fairly.”
“And, if the artist can’t afford to work, the music is going to suffer.” Or disappear.
Daddy’s gotta get paid!
Whether we’re slowly forced by labels, or come to it on our own terms, paying for music is vital to keeping one of the most important components in many people’s lives viable, healthy, innovative, and evolutionary.
It could be as simple as buying a few new albums on vinyl, throwing down some cash for some downloads of a new artist, or putting in your monthly streaming subscription fee. But music deserves — no, requires — a bit of our hard-earned cash. And if we don’t wise up soon, we may miss out on some of the best artists we’ve never heard.
Face it: A world where only corporate-sponsored pop can survive is not a happy future. Most of us care a lot about music. Now it’s time to act like it.
The views expressed here are solely those of the author and do not reflect the beliefs of Digital Trends.