The arduous path between my money and musicians in the streaming era

It is not enough to follow your favorite artists on these platforms to reward them. It takes a fan-worthy effort to really support them – and sometimes, not even this is enough

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Musicians’ lives have never been easy. The equation that involves art and financial income rarely has a satisfying result and, when it does, it is only for a few of them – those with a large number of fans and millions on their bank accounts. Between these and the ‘committed enthusiasts’, who do not expect to receive anything in return for their creations, there is a vast musical “middle class” that struggles to survive from the art it produces.

Streaming platforms and services, perhaps the most potent response to the piracy epidemic that emerged at the turn of the millennium, arrived with the promise of promoting a fairer scenario. But, 15 years later – if we consider Spotify‘s launch, in 2006, as the foundational milestone of this way of listening to music –, it is possible to say that that promise lost itself in the way. Distribution means, habits, and technology have changed, but musicians are still often forced to pay instead of getting paid for putting their work out there.

The idea of producing this report came from a personal inquietude. Until November 2020, I was a satisfied Apple Music subscriber. Technically, I had nothing to complain about the service – apart from the horrendous app for desktops, which wasn’t really a problem because I don’t listen to music on the computer. But, after a while, I started to reconsider my choice for Apple Music for two reasons.

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First, because Apple already has a lot of money and it may be a good idea to “democratize” my meager pennies among smaller companies. Second, because I wanted most of that money to end up in the hands of the artists. I decided then that I would use the commission that the platforms pass on to them as the only criterion for choosing my new music streaming app.

Months later, I am a subscriber to Deezer, but not because I consider it a better choice. In reality, I come to the end of this investigation with many loose ends and inconclusive answers.

I discovered, for example, that in the path that money takes from my pocket to that of my favorite musicians, there are intermediaries, bureaucracies, and obstacles. I found out that the distribution system by streaming platforms doesn’t even pay who I listen to – and that, while revolting, it may not even be the biggest problem in this industry. I also discovered – see how ironic this is – that Apple Music is one of the services that best remunerate artists, at least in absolute values, or for performing a track.

It is not enough to follow your favorite artists on these platforms to reward them. It takes a fan-worthy effort to really support them – and sometimes, not even this is enough.

To what matters: how much do artists receive?

Before we get to those obstacles in the way between my money and what gets into the hands of the musicians, we need to take a step back to understand the gears of the streaming music market and make some considerations about it.

The first is obvious, but it may go unnoticed by some: only part of the money paid by “premium” users reaches musicians. A commission estimated to vary from 30% to 40% of the subscription fee stays with the platforms. A small part of what is left goes to composers (the royalties specifically promised to them, a tradition created before streaming). What is left after this goes to record labels, distributors, and other mandatory intermediaries because today, musicians cannot directly publish their songs, as someone would do with videos on YouTube or texts on WordPress; the participation of an intermediary is mandatory. Only after all that, musicians receive their share.

Another thing: The same streaming service can have drastic variations in revenue per user depending on several factors. The location is one of them: Spotify‘s “standard price” of $9.99 in the United States ends up being diluted in other countries with weaker currencies or where the competition is tougher.

In Brazil, for example, Spotify‘s individual plan (for most services, in fact) costs BRL 16.90 per month. If we consider the dollar at BRL 5.50, this translates to $3.07. In India, one of the largest consumer markets in the world, but with a relatively poor population, Spotify was launched in 2017 for a measly $1.70 month.

The price also considers temporary advertisings (incentives used to attract new subscribers), family plans, and commercial agreements, such as those that Deezer has with the Brazilian telecom carrier TIM and the Brazilian streaming platform Globoplay. To sum up, the average price paid per subscriber is never that North American “standard” and, almost always, it is (much) lower than it.

All of these “buts” are explained in this 2019 article published by Dmitry Pastukhov on the Soundcharts blog.

After all the aforementioned deductions, the part that goes for musicians can be divided according to two possible models: the pro-rata and the UCPS. The most popular, standard payment model on virtually all major platforms is the pro-rata. David Turner, who works at SoundCloud and maintains a newsletter focused on the music streaming market, summarizes it like this: All the money generated by the streaming service is divided by the total number of executions [of the songs], and that money is proportionately distributed to the musicians.

In other words, the value of my subscription does not go proportionally to the artists that I listen to, but to the artists that all users of the platform listen to. Even if I never listen to Israel & Rodolffo, Raí Saia Rodada or Os Barões da Pisadinha (some of Spotify‘s most listened artists in the first week of April), if I am a Spotify Premium subscriber now in April I will be paying a fraction of a cent to these artists.

The most recurrent critique of the pro-rata model are that it would be unfair to smaller, less popular artists and that the price paid for each song’s execution would be low. There is even a campaign centered on Spotify that demands the platform to pay at least $0.01 for each execution. According to estimates made by Soundcharts, at the end of 2019, Spotify paid about $0.0032 per stream; that is, it required four executions for the artist to receive $0.01 (or $ 0.0128).

This value fluctuates, as it is the result of a simple arithmetic operation with moving variables. Unless the user base grows at the same rate as the number of tracks played, the tendency is that the amount paid per track played will decrease – each new subscriber, it is expected, hears much more than one track per month.

By the logic of the pro-rata model, the only ways to increase the value per execution is to increase the total volume, that is, the amount of paying users or playing less music, but this last possibility is not in anyone’s interest – nor Spotify‘s, neither musicians’. What’s more, consider that Spotify works actively to increase engagement on its platform, with features such as “autoplay” and dynamic playlists that push down the amount paid for each executed track and, at the same time, increase the pressure to grow the paying user base.

The counterpoint to the pro-rata model is the UCPS (user-centered payment system). In it, there is a perfect match between fans and artists: if half of the music I heard in a given month was from one artist only, half of the value of my subscription (discounted fees and other expenses) goes straight to him.

In September 2019, Deezer was the first major streaming platform to announce that it would migrate from the pro-rata model to UCPS. Despite this, it was not the first to actually implement it – the platform still works with the pro-rata. The pioneering honor goes to SoundCloud, which adopted UCPS last April 1st. It can be argued that SoundCloud is a slightly different platform, more focused on independent artists than the others, but that does not take away its merit in embracing UCPS before everyone else.

At Deezer, UCPS is seen as “a new way of paying royalties to artists and the entire music industry chain, based on the consumption of each user, which we believe is a fairer way,” explains Marcos Swarowsky, general director at Deezer South America. Another advantage of the model, according to the executive, is that it “eliminates any possibility of bots [robots] influencing the amount of revenue that an artist would receive.”

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Interesting…, which leads us to the obvious question: why did Deezer, a year and a half after announcing that it would migrate to UCPS, not yet do so? “What is currently lacking is the acceptance by the phonographic market, that is, the chain of record labels, distributors, and artists,” justifies Swarowsky. Deezer, he stresses, is already prepared to take that step.

A peculiarity of the streaming industry, whether in the pro-rata or UCPS model, is its opacity. Even when they reveal data, it’s always in a strange way, with a very well constructed narrative, which leads us to the maxim of Ronald Coase, economist and Nobel Prize in Economics, who said that if you torture the numbers enough, they will tell you anything.

In the case of UCPS, there is still a lack of real situations that support what, in theory, could be a fairer model for artists. In his newsletter, Turner gathered some studies pointing out that, in the final balance, pro-rata and UCPS do not differ much – “increases for top performers, a decrease for the least popular musicians, and a modest rise in the middle.” Still, he says he would like to see UCPS in action.

“I never lived on music”

On March 15, from her home in Jundiaí, Sao Paulo state, the Brazilian artist Letty accessed her social networks to participate in a digital protest against Spotify. Singer, songwriter, and guitar player, Letty has some EPs and singles published on streaming platforms, and although music is her calling, she makes a living as an English–Portuguese translator.

It was in a translation job that Letty came across the #JusticeNoSpotify movement, organized by the Union of Musicians and Allied Workers (UMAW), in the U.S. “Coincidentally, I translated a text that talked about Spotify‘s operation model and how it is a model that explores artists,” she says. The movement calls for Spotify to be more transparent with artists and pay at least $0.01 per executed track, among other demands. The movement has already won the support and signatures of almost 28,000 musicians.

The Brazilian singer, songwriter, and guitar player, Letty. Photo: Courtesy.

Letty publishes most of her songs through Tratore, a distributor, but one of the most recent EPs came out on Howlin ’Records, a label of São Paulo. The label deal is more favorable because it does not require an initial payment. At the distributor, it is necessary to pay BRL 50 per launch, regardless of the number of tracks. In both models, the intermediary shares the revenue generated in streaming with the artist.

The singer defines herself as an independent, small artist – she stresses this before saying that she hasn’t got any payment from streaming platforms yet. “I couldn’t get a return on what I paid to upload the songs. These BRL 50 for each launch, I still haven’t received [back].”

It is not an unusual situation, even for more well-known artists. Letty comments that, in a recent live broadcast in which she participated, she learned that Violet Soda, a more popular band from São Paulo, faces the same dilemma. “If not even with my band, which is medium-sized, I can minimally pay for my weekly groceries with the money that comes from time to time [from streaming], imagine smaller artists,” pondered the band’s vocalist Karen Dió in the video.

Possible alternatives, new scenarios (to pay musicians)

Founded in 2007 in California, Bandcamp is an ode to music and musicians: a kind of social network mixed with an online store, it allows any musician or band to share their music themselves, without intermediaries, and sell it for the price they want – even in the pay-as-you-want model. Bandcamp also offers space for the sale of merchandising and never charges more than 15% as commission – on physical products, such as vinyl and T-shirts, the bite is even lower, at 10%.

During this report’s investigation, I tried to interview someone from Bandcamp without success. I also tried to talk to Spotify, who declined my invitation via its PR team, arguing that they were “rearranging some things internally and we are not allowed to schedule interviews.”

Asking for direct support from fans is a path that Gustavo sees as promising for independent musicians. “Bandcamp is a reference in that sense,” but it “ends up being a niche for that: those who support the artist are (directly and solely) their fans. That doesn’t mean that people who listen to FM radio don’t like music; that’s not it. But there is a difference in the way of considering what music is [and its importance].

With the coronavirus pandemic, which completely affected the most generous and recurring source of revenue for musicians, live shows, it became urgent to reform the rules of streaming and, in parallel, look for new sources of revenue.

In addition to the meager return, musicians are increasingly subjected to whims and demands from platforms, demands that may even sound subtle, but in practice, are imperative. In July 2020, Daniel Ek, founder and CEO of Spotify countered criticism from musicians dissatisfied with his platform when he said they could no longer think that releasing an album every three or four years is enough. “The artists today that are making it realize that it’s about creating a continuous engagement with their fans. It is about putting the work in, about the storytelling around the album, and about keeping a continuous dialogue with your fans.” To sum up: produce for the algorithm or get out.

The migration to streaming does seem to be an irreversible movement. According to RIAA, an association of record labels in the United States, in 2020, streaming (paid and supported by ads) accounted for ~67% of the $12.2 billion revenue from the music industry in the country. It is evident that streaming has helped recover the industry’s revenues as a whole. However, it is still far from raising them to the level of the golden times of the CD: at its peak, in 1999, the disks of plastics accounted for 87.9% of a $ 22.7 billion market (value adjusted for inflation).

In this consolidated scenario, in which streaming is the standard way of listening to music, its presence becomes something that transcends the financial aspect – it is a necessity as a means of dissemination of the artists.

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Loud and clear: Spotify’s numbers

In response to protests like #JustiçaNoSpotify, in March, Spotify launched the Loud & Clear website, which aims to “aims to increase transparency by sharing new data on the global streaming economy and breaking down the royalty system, the players, and the process.”

According to data from the site, 870 artists received more than $1 million each in 2020. In the same period, 13,400 artists worldwide received $50,000, almost double that of 2017, when 7,300 artists reached the mark. In either case, these are needles in a giant haystack: in 2018, when it last opened this data, Spotify had 3 million artists in its catalog. If we keep that number intact three years later (which is unlikely; it must have increased), that means that only 0.45% of musicians earned the equivalent of the average US worker’s salary in the first quarter of 2021, at $51,100 per year, according to the Bureau of Labor Statistics (BLS).

Another data revealed by Loud & Clear gives a dimension of what it is to be popular in the streaming era. A million plays of a song seems like a lot, right? Yes and no. On Spotify‘s extraordinary scale, reaching such a number is a mundane feat: 551,000 songs have been listened over a million times on the platform. The ones that passed the barrier of 100 thousand executions? 2.71 million.

Even with huge numbers and all the marketing effort to show itself lavish with artists who accuse it of being stingy, it was only at the end of 2019 that Spotify managed to close a quarter at a profit. A quarter; Spotify never made an annual profit.

In 2019, the company bled EUR 186 million; in 2020, the leak was even greater, at EUR 581 million. Much of this loss is deliberate, meaning that the company is still (heavily) investing in growth, a strategy seen as crucial to making its model feasible and which finds an echo in the sector. But all these numbers also point to a warning sign that perhaps the model may never be profitable enough for everyone in the music chain.

Apple, which debuted later in the music streaming game, but with both feet on the ground, differs from its competitors in a crucial aspect: it does not offer a free Apple Music plan (ad-based and less profitable). For this reason, it has a much smaller user base than Spotify‘s (72 million versus Spotify‘s 345 million, of which 150 million are “premium” ), but all of them are paying subscribers. This dynamic allows Apple to brag about paying that mythical $0.01 per track execution to artists. On the other hand, thanks to its out-of-scale size, Spotify still distributes higher absolute values to artists than Apple.

Translated by Fabiane Ziolla Menezes