Quibbles and Bits

Musicians, Restauranteurs, Plumbers

You read a lot of brouhaha within the audio community about how musicians are not making any money out of streaming services.  There are so many streaming services available these days – with some now even offering high-resolution lossless content – and much like Netflix in the video domain, we as consumers can now access a lot of content for a nominal (i.e. affordable) outlay.  How, people ask, can the musicians who create the music in the first place be making any money out of it?

About three years ago, a study was published which analyzed the French revenues of the streaming service Spotify, and broke down how that revenue was divvied up among the Streaming Service itself, the Record Labels, the Writers/Composers, and the Artists.  The report was prepared by the accounting firm Ernst & Young, so it has at least a minimum acceptable level of credibility, and is still available on the web site of Music Business Worldwide.  It would not be unreasonable to extrapolate these figures across all of Spotify’s operations.

Ask yourself this – according to the report, for every dollar you spend on Spotify, just how much of it ends up in the pocket of the artist whose music you are listening to?  Before you go on to read the answer, I want you to ponder the issue for a moment and ask yourself how much you think OUGHT to go to the artist?  Also, stop for a moment to consider the rationale behind your calculation, so that it is a little bit more than a number you pulled out of thin air.  On what basis do you think the artist ought to receive whatever it was that you thought was appropriate?  Include, if you like, any and all of the streaming services you may subscribe to (TIDAL, Qobuz, Apple Music, etc.).

So what figure did you come up with?  50 cents?  20 cents?  10 cents?  The actual answer according to Ernst & Young turned out to be less than 7 cents.  Not seven cents every time you listen to a track, but 7 cents out of every dollar you spend.  If you subscribe to Spotify’s premium service that’s about $10 a month, which works out to 70 cents a month to be shared among all of the artists that you listen to.  Let’s imagine that you are a serious listener and stream 20-25 tracks a day.  And let’s assume for the sake of the argument that this money gets split evenly among the artists you listened to on a per-play basis.  In that scenario you’d be playing about 700 tracks a month.  So each time you played a track, the artist you were listening to would earn something like one tenth of one cent.

In some circles, this arouses the anger of musicians who feel that the Spotifys of this world are screwing them out of their rightful earnings.  But there are two problems with that.  The first is that, as best as anyone can tell, none of these streaming services are actually making any money … Spotify’s $26 Billion IPO notwithstanding!  It is one thing to argue a case against someone who is making off with truck loads of cash, earned off the backs of others’ minimum-wage labor, but another thing entirely to vent your spleen at someone who isn’t even profitable – unless your complaint is about the lack of adequate profit margins, which would be an entirely different discussion.

Which brings me to the second problem.  Can it really cost that much money to run Spotify?  What happens to all the money they rake in, which in 2017 amounted to a whopping €3.7 Billion?  The answer is that Spotify pays the majority of it to the Record Labels.  Spotify France pays about 17 cents on the dollar in taxes, and uses 21 cents to run its own operations … so any profit they made would have to come out of that 21 cent share.  The rest – amounting to nearly two-thirds of their revenues – is paid directly to the Record Labels.  In other words, Spotify doesn’t have any say in how much of their take goes to the Artists.  That is entirely within the purview of the Record Labels.  And according to Ernst & Young, only about €0.26 Billion of that €3.7 Billion would have ended up distributed among the artists.

Let’s take a look at the money that the Labels receive – how do they distribute that?  According to the Music Business Worldwide report, only 11% of what the Labels receive goes to the Artists.  Another 16% goes to the Songwriters and Publishers, which means that the Labels grab a whopping 73% of Spotify’s pie.  That’s a lot of pie.  But also take great care to note that the Songwriters and Publishers net more than the Artists do – those songwriting credits turn out to be seriously important.

It is therefore wrong-headed for Angry Artists to get their panties in a bunch over Spotify eating their lunch.  It is the Labels who are doing all the munching … which is how it’s been for as long as there has been a music industry.  But, the argument goes, it is a different world in 2018.  Labels used to have to pay for record stamping plants, or even CD stamping plants.  They had to maintain a sales force to get their product stocked by the music stores, and a promotional force to get their customers into the stores.  Plus the costs of transporting the product internationally.  Today this doesn’t happen any more.  All of the above is theoretically replaced by an “Upload” button that someone has to click on.

But even taking all of that into account, it still misses the point entirely for the Artists to be taking pot shots at the Labels.  If the Artist feels that the Label is charging too much for what they provide, then their solution ought to be simple – they don’t have to sign with a Label.  Like just about any transaction, if you don’t like the price, you don’t have to make the purchase.  Unfortunately though, the majority of Artists don’t actually have the option to hold out for a better deal.  There are many more emerging Artists out there than there are Labels with available deal space.  The idea that Joe And The Nobodies can shop around and choose the Label that offers them the best deal is a pipe dream.

For the Artist then, what are the alternatives?  The obvious one is that they can start their own Label.  Sure they can … there’s nothing to stop them.  Is there?

The view from the other side of the fence is not all roses either (although I’m anything but a Labels fanboy).  As a Label, you are hopefully making money from your roster of Artists.  But they come and go, as do their sales.  You always need to be replenishing your portfolio.  For every new Artist that you have a budget to sign, there are a hundred who are convinced that they are The One.  So for starters, you’ll need to be really smart about which ones you sign and which ones you pass on.  But that’s not a problem, is it?  After all, you’re not as dumb as the Decca executive who said no to The Beatles because ‘guitar music was going out of style’ … are you?

Once you’ve signed a new Artist you are going to need to pay for some studio time to record their new album.  Maybe pay some studio musicians.  You’ll need to pay people to design the cover work and take publicity shots.  You’ll need legal work to get all the contracts and copyrights in place.  You’ll probably need professional video work doing.  You’ll need to schedule radio and TV spots if you’re sufficiently gung-ho about their prospects.  And you’ll need to cut those deals with Spotify et al.  All those expenses must be incurred without any guarantee that you’ll ever generate a penny in sales.  And for every Artist who generates a handy revenue stream for you, there will be four or five who fail to make any sort of impact at all.

For these reasons, most Labels are very hands-on when it comes to their stable of Artists.  They will want to control a large part of the product, how it sounds, whose arrangements are used – they’ll even kick members of the band they don’t like out of the studio and bring in better session musicians.  If they don’t like your songs they’ll use their own songwriters.  The Labels are in the business of knowing what will sell and what won’t.  They won’t always get it right, but like a professional stock trader, they’ll get it right more often than you will.  After all, even the poor sod at Decca who turned down The Beatles (his name was Dick Rowe) went on to sign The Rolling Stones.  Consequently, Artists very soon find out exactly where on the totem pole a place has been reserved for them, even as their backs are being patted and their egos stroked.

So, as musicians, if you have the wherewithal to do all of that yourselves, you don’t need the services of a Label.  You can form your own Label and make ten times as much money as you might otherwise have done … although if you’re not as smart as you thought you were, you’ll lose ten times as much.  Failing that, you have little choice but to work within the established Label system, always assuming you can get one sufficiently interested.  Otherwise, as one certain Norman Tebbitt might have put it, you’re going to have to get ‘on yer bike’ and find a proper job … :)

Here’s the thing about musicians in particular, but Artists generally.  And it’s the nub of this whole piece.  You are only an Artist while you are creating art for your own personal satisfaction.  As soon as you aim to sell it for even a modest profit you become a businessperson, no different from a restaurant owner or a plumber.  Like it or not, doing business is a dog-eat-dog world, and regardless of whether you’re selling art or amplifiers you need to have a minimum of business savvy if you are going to make a living at it.  You’ll need to be able to identify the smart things you should be doing, as well as the dumb things you should be avoiding.  The world has very little sympathy for poor businesspeople … it generally won’t pay $10 for something if there is something else it thinks might be just as good available at $9.95.  Don’t take my word for it.  Spend some time in Walmart.  [Of course, you should also spend some quality time scratching your head in an Apple store!]

My advice, for what it’s worth, to aspiring professional musicians is this.  Think of yourselves as businesspeople first and foremost.  Would you open a paint store that only sold blue paint because you felt a desire to pay homage to Picasso’s Blue Period?  I know I wouldn’t.  On the other hand, I might if I were smart enough to accurately identify a genuine unmet need in blue paint that everybody else had somehow missed.  The thing about business is that more often than not the best thing to do is not the same as the thing you really wanted to do.  If you can’t – or won’t – see that, and are not prepared to adapt accordingly, then your prospects for success will have a lot in common with buying a lottery ticket.  Bear in mind that most of us do not make particularly good businesspeople … just as we rarely win the lottery.  In which case you can still be an Artist, and create art entirely for your own satisfaction – but in your spare time, since you’ll have a ‘proper’ job to do as well.