Is it Streaming Service's Fault that Artists Are Underpaid?

According to Statista, streaming accounts for 65% of the recording industry’s revenue. Streaming has become the default listening medium for the majority of music consumers. However, there’s been concerns over the pay-out that artists receive. Many people believe that streaming services such as Spotify are underpaying artists. However, I personally believe that this is a nuanced issue that runs much deeper than the DSPs themselves.

 

It is first important to clarify how DSPs such as Spotify calculate and pay revenue to their artists. Many people use the term “pay per stream”. This isn’t accurate to how the streaming services actually work, but rather turns the royalties which an artist receives into an easy-to-understand figure. Typically, a stream share system is used. The amount of money that is paid into Spotify by listeners is put into one big figurative ‘pot’. This ‘pot’ is then split proportionately by the number of streams each artist has. So, if The Weeknd were to get 5% of total streams, then Spotify would pay 5% of the money paid by users to the rightsholders of his songs (after Spotify take their cut). The rightsholders would be third parties to the artist such as the songwriters, record labels and publishers. The royalty split between the record label and the artist is something that would be contractually agreed upon when the artist signs, much like the royalties from digital and physical sales.

While this is the most common system used by DSPs such as Spotify and Apple Music, companies such as Deezer use a ‘User-Centric’ royalty system. The user-centric model splits the revenue individually according to each user. In other words, if you were to listen exclusively to one artist for an entire month, then that artist would receive 100% of the subscription fee that you paid that month (again, after the service provider takes their share). Some people call this a ‘fairer’ way of distributing revenue, and helps out grassroots artists with niche fanbases, while others claim that it is only superior due to the ethical principle, and it doesn’t fix the issue of underpaid artists.

 

Already this makes the streaming pay-out look hazy. The amount that artists receive when their songs are streamed depends on both the amount of paying customers that month, and the number of total streams that month. This is why people will say “$0.003 per stream”; it breaks down the system into something that people can more easily interpret. But to make things hazier, there is another obstacle between an artist and their pay out: the rightsholders.

The royalty split between artist and record label is something that not only has very little transparency, but has been a problem since the dawn of exploiting recorded music for capital. However, when you’re dealing with small amounts of royalties from streaming, it only amplifies the issue. For digital revenue, the Mechanical Copyright Protection Society (MCPS) takes 12.5%. The MCPS is a collection society that collects royalties from mechanical reproductions of a song on behalf of the publishers and the songwriters. A mechanical reproduction would be anything from a CD or vinyl to a digital MP3. The rest of the money is split between the label and the artist. The split is highly situational and can depend on a myriad of factors including (but not limited to) whether the label is major or indie, the type of record contract, and the size of the artist. For example, an artist signing to an indie label would receive a higher proportion of the royalties in comparison to an artist signing to a major label. Not only that but a more promising artist can use their popularity as leverage to get better contracts than the artists that don’t carry as much weight. Generally, artists under a major deal would expect to see 14-18% of the royalties, with indie signed artists typically getting a larger share from their label. And this isn’t even factoring in the manager’s cut or the advance that the artist needs to recuperate.

 

Spotify operates at a loss. They have occasionally had profit for a couple of quarters, but for the vast majority of the time they lose money. The fallacy is that the DSPs are rolling around in enormous piles of money that rightfully belongs to the artists, but the evidence says otherwise. I speculate that the issue of artists not earning enough is more of a deeper rooted issue than the streaming services skimming too much off the top.

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Earlier I mentioned a "pot" where all the money made from subscriptions is accumulated before being distributed to the rights holders. What is important to remember is that this 'pot' is a finite amount of money. And this finite amount of money is then split between the hundreds of thousands of artists that users listen to. No matter how little the DSPs take, there will always be a limit on how much can be paid. They can't pay more money than what is paid in. This means that the royalties are not controlled by the DSPs, but the listeners instead. And I think this is where the fundamental issue lies. Most people don't care about buying and owning music anymore which has resulted in the value of music dropping. Streaming is a side-effect of this.

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What we have now is a chicken and egg situation. Did music streaming devalue the art, or was the value already in a slump? Both sides can be easily argued, however, looking at the global recorded music industry revenues for 2001-2020, you can clearly see that the annual revenue for the recorded music industry was dropping steadily throughout the noughties before streaming became the standard for music consumption. In fact, after 2014, the music industry started growing again as a direct result of streaming. While this doesn't prove that streaming isn't the cause of underpaid artists, it does prove that it did not cause music to lose its value.

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Streaming seems like it is here to stay. I personally believe that the rise of streaming services is simply a symptom of music being undervalued, rather than the cause of it. It isn't unreasonable to conclude that many people aren't willing to spend as much on music anymore. And that isn't entirely a bad thing. Music should be accessible, and art shouldn't be kept behind a huge paywall. The current 2023 price of Spotify is £9.99/month. Less than £10 per month for basically the world's library of recorded music is an incredible thing to have access to, and I don't think that should be abolished. So, what needs to happen to make it better for artists? And what can you do as a consumer? With this large number of factors and the split of revenue along the way to the artist, it is hard to come to a complete solution that works for the listener, artist, label, and the other third parties involved. Without enough transparency in the industry, coming to a workable solution is made so much harder.

 

If you want to make a positive impact in the way you consume, buying the music that you love and going to live shows are probably the best ways to support artists. Streaming services have done a great job at making music accessible to more and more people; something which is important for both society and the sustainability of the music industry. But this comes at the cost of leaving artists short-changed. However, the increased accessibility of music means it is now easier to buy music that is personally meaningful to you. The risk surrounding buying music has largely been eradicated. You no longer need to commit to buying a whole album based on the strength of a couple of singles. Understandably, this isn’t an option for everyone. Alternatively, supporting your favourite artists on social media can also be a good option, especially if they are a personal friend of yours and are on a grassroots level.

 

In terms of wider change, we need an elevated level of transparency in how DSPs share royalties. This would discourage any potential exploitation of artists. A VAT cut on live music to 5% would also be beneficial. This will mainly help struggling venues, but would also have an important impact on artists, as it would be more profitable to tour. Covid-19 and Brexit both impacted the music industry hard, and it is still scrambling to recover. The best way to make this a sustainable industry for not only artists, but for everyone involved is through legislative action.

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