The UN Report on Streaming
The WIPO, an agency of the United Nations, recently released a report on the streaming economy. The document concludes that current streaming economics are destroying music worldwide, and points to the need for a new royalty system to pay artists more fairly. The report is fairly long and dense, so here’s our summary of the main points.
THE PROBLEMS:
Streaming is dominating the music industry.
Streaming now represents a majority percentage of global music revenues, capturing a whopping 62% share in 2020. And that market share is increasingly dramatically every year. Streaming revenues grew by 22.9% in 2019 to US$11.4 billion globally and a further 19.9% in 2020 to US$13.4 billion.
During that same span, the revenue share of downloads--such as purchases from Bandcamp or from iTunes--has decreased by about 15-20% year over year. Income from physical sales represented 21.6% of the total music market in 2019 and just 19.5% in 2020.
Streaming, then, is growing every year, and replacing all other forms of income for artists.
“...global recorded music revenues have grown six consecutive years to a total of $21.6 billion in 2020, a substantial growth rate even in the pandemic. This streaming-fueled success has not trickled down to performers, especially non-featured performers. The more global revenues surge, the harder it is for performers to understand why the imbalance is fair—because it is not.”
Streaming is not paying artists fairly, and it’s getting worse.
“...as this study argues, per-stream payments for interactive streaming are so small that even for unsigned featured performers who collect 100% of the available streaming royalty, royalty payments are both unsustainable and out of balance compared to the value transferred to the streaming services.”
“The existing inequality has attracted considerable attention—and frustration—from performers who ask why does everyone in the streaming economy seem to be prospering except performers whose work drives it all? The imbalance is particularly acute in the COVID-19 era and is likely to remain due to the long-term economic scarring of the creative community by the pandemic.”
As UMAW has argued, streaming services like Spotify are simply not fairly paying artists, and the UN report agrees. According to the report, streaming companies’ market valuations have risen to billions while the vast majority of artists whose work is on these platforms are making little to no income from streaming.
In 2021, while musicians were facing economic devastation due to COVID, Spotify tripled in valuation to $66.9 billion. Major labels, who make special closed door deals with the streaming companies, are earning approximately $1 million per hour from music streaming alone, according to a report from Music Business Worldwide. Meanwhile, the average rate per stream for artists on Spotify, the dominant streaming service, is only about $0.0038. And that number has been decreasing, even as Spotify’s value has increased.
This table shows the decline in the average payout per stream over the years; in 2018, Spotify paid an average of $0.00540 per stream (just over half a cent), which went down to $0.00370 in 2019, then to $0.00307 (under a third of a cent) in 2020, a decline of 43% over two years. Amazon’s decline, the largest, was only slightly more so at 46%. Not only does this indicate an obvious loss of musicians’ income, but it also shows how streaming practices are leading to the devaluation of music.
Payments are so paltry that many performers are simply quitting. According to a survey taken by 5,800 artists in Europe, 90% of performers indicate that the streaming market has given them no meaningful return in income. Polls in the UK and Sweden reveal that 1 in 3 musicians are planning to quit their profession. Music recording is expensive and time consuming, and as musicians' incomes continue to dwindle, it could regress from a viable occupation to an amateur practice only the wealthy can enjoy.
“One question for policymakers is whether creators in all categories are to become hobbyists out of necessity due to the streaming imbalance.”
Streaming is quite literally destroying music.
Current streaming payouts give nothing to non-featured performers
The report repeatedly highlights that non-featured performers receive absolutely no compensation from streaming platforms. What is a non-featured performer? As the report explains:
“Performers of sound recordings can be divided into two primary categories: Featured and non-featured. Featured performers are associated by name with the exploitation of the sound recording concerned whether as an individual solo artist or as part of a group artist. Featured performers typically perform concert tours to support the marketing and sales of their recordings. Non-featured performers are the musicians and vocalists other than the featured artist who perform on the recording and typically do not necessarily tour with the featured performer.”
Many working musicians, then, are non-featured performers, and they are paid literally nothing on streaming platforms. In many countries, non-featured performers are paid royalties based on radio play, and in the US they are paid for play on satellite radio. Streaming services, however, claim they are a different form of listening, and so have been able to circumvent paying anything to non-featured musicians.
Spotify lies about its value, profits, and payouts.
Spotify has been particularly misleading about its royalty payment system and its overall economics. Like other tech companies such as Amazon or Uber, Spotify is more focused on market valuation than actually turning a profit selling their products. Much of the company’s immense market value as a company is derived from data collection, stock sales, and investments, but none of this value has translated to payments to artists.
Spotify pays royalties by dividing out their Monthly Service Revenue. This is not their total revenue, but rather a negotiated amount that excludes data-related fees or sales of user data, playlist branding fees, and all monies related to the trading of the company’s shares and the company’s valuation. So, when Spotify claims they pay artists a high percentage of their revenues, they are outright lying, as they are excluding huge categories of money coming into the company.
If we really wanted to correctly calculate Spotify’s ‘earnings’, and thus what they owe artists, we would need to look at the value of all the data and the market-share they have collected. For example, Spotify pays 63% of its earnings on the free and premium tiers of the app, but this does not account for the value these algorithms and market-share provide to the value of the company as a whole and its investors. Guess who has no access to these markets and the payouts that come from investing them? The users and performers, whose data and work created all this value in the first place, have no access to these markets and the payouts that come from investing them.
Artists see none of the immense profit created through data collection, stock sales, and investments, but artists provide all of the labor that creates that wealth. Artists’ tracks, for instance, enable Spotify to collect valuable data on listeners, but Spotify gives artists no compensation for this exploitation. Musicians’ labor is used and uncompensated.
“Platforms use fans as assets to build personalized offers based on user tastes, preferences and behavior that powers algorithms to extract information by creating consumer profiles, later used to customize the service offer. Platforms do not compensate performers for these efforts or the valuable data they extract, yet attracting fans is a major factor driving valuation metrics (such as the “average revenue per user,” monthly active users and the ratio between subscriber lifetime value and subscriber acquisition costs).”
Spotify’s “Loud & Clear” website, supposedly built to clarify payment structures amidst backlash from musicians and fans, does not acknowledge this discrepancy.
“Spotify’s total pay out to artists is not a percentage of its total profit, but a negotiated sum... The Loud and Clear site does not address the billions in market valuation derived from that value transfer which the authors and performers believe must be included in the discussion.”
Spotify increases its value through collecting your data.
It’s worth taking a closer look at how important user data is to Spotify and other streaming platforms. The business objective of streaming platforms is to capture and maintain the consumer's attention for as long as possible, with the goal of developing better algorithms. Each second longer, or extra interaction the user gives, the more data about users’ habits and tendencies streaming platforms amass and the better able they are to predict what will keep a user listening.
These highly refined algorithms offer suggestions of what to listen to via curated and customized playlists and auto-playing songs after a chosen release has finished.In accurately predicting what a user wants to hear they provide a ‘value-add’ that encourages the user to switch to a paid subscription or keep paying for their current subscription.
These algorithms also help streaming platforms figure out how best to serve users songs by their preferred partners that the users will enjoy and thus listen to again and again. These preferred partners are major labels, large commercial indies, aggregators, and distributors that the streaming platforms have pre-existing relationships with. This can mean partners who were promised ‘marketing perks’ as part of their licensing deals or licensors whose business interests coincide with the platforms.
For example, Spotify’s new ‘Discovery Mode’ uses the algorithms that Spotify’s has developed to get the music of certain licensors to users who are statistically most likely to enjoy it. What’s the catch? For this very exclusive service, the licensor has to agree to get paid less per stream while their song is in ‘discovery mode’. It’s essentially payola: pay for plays. As more artists use the feature, the system creates a race to the bottom, in which artists must accept lower and lower payments to receive algorithmic priority.
These algorithms are not just the neutral calculations of a detached computer; they are very biased tools developed to make platforms (and occasionally their preferred partners) more money, to the detriment of actual organic discovery and commercially under-represented artists and musical communities.
Streaming platforms collect all this data to develop marketing algorithms that are in turn a ‘value-add’ to advertisers and hence how Spotify convinces advertisers to pay top dollar for ads on Spotify. These marketing algorithms add huge value to Spotify and allow it to charge a lot of money for advertising campaigns on its platform, which in turn makes their company more valuable and drives up the price of their stocks.
Again, artists are compensated nothing for the enormous data driven value that their music creates for Spotify and its investors.
Streaming companies reporting data lacks transparency
In addition to the issues on per stream rates and the differences in how to share value for digital music platforms and for performers, the report notes that there are issues with lack of information and transparency in the supplied accounting data.
According to available studies (Centre National de la Musique, 2021) on digital music services, some data is simply not available, such as the identification of the singing language. Others lack reliability, such as the identification of production countries using ISRC codes.
Also information on royalties per stream is missing. For instance, during the DCMS Inquiry, the head of institutional relationships at YouTube refused to provide per stream rates with the argument of YouTube being based on advertising model.
Youtube circumvents and undercuts even the paltry existing regulations on royalty payments:
“...the video streaming activity of YouTube effectively competing with specialist music streaming services, but without proper licenses for the music it streams, nor paying fees similar to those paid by other streaming services.”
While UMAW has focused our attention on Spotify, Youtube is similarly anti-artist. The company uses so called “Safe Harbor” provisions to avoid paying out even the paltry royalty rates paid by other services. This practices undercuts the entire music market, further depressing musicians’ income.
“The paying services like Apple and Spotify ultimately have to “compete with free” including YouTube and Twitter’s manipulation of the safe harbors. This is particularly the case of video or social network services that rely partly on content created and or uploaded by consumers, such as YouTube, Youku and others.As the EU Parliament debate over the new Copyright Directive demonstrated, safe harbor laws are massively abused resulting in “value gap” problems that distort the market.”
WHAT ARE THE EFFECTS?
In addition to impoverishing artists, the UN report argues that streaming’s unjust payment systems are destroying cultural systems and violating human rights around the world.
Current streaming royalties undermine global cultural goals and preservation.
The report ties musicians’ demands for fairer business models to a larger fight for human rights. They note the Universal Declaration of Human Rights recognizes that, “Everyone has the right to the protection of the moral and material interests resulting from any scientific, literary or artistic production of which he is the author.”
“Music value is twofold: not just an object for private pleasure, but also a symbol that helps define what we collectively are. People use music to embody and transmit culture. In fact, every culture has a certain music that can be attached to it. Music is part of the fabric of everyday life. Music is a way to improve people’s lives.”
This cultural value of music is threatened by current practices in digital music. It asserts that UMAW’s and other groups’ protests are for more than economic fairness, they are for human rights principles:
“Preserving the value of music goes beyond discussing the rules for business models in a particular type of market and adopting a wider perspective…We have found that it is possibly for impinging these human rights principles that performers feel outraged by the economic imbalance between the fractions of a penny for their music compared to billions in market value for the streaming platforms.
This economic imbalance shocks the conscience however lawful it may appear. As streaming becomes a greater share of recorded music revenues, the market centric model may ultimately signal a devaluation and even commoditization of culture.51 That trend seems definitively out of step with, if not antithetical to, international cultural goals and preservation.”
Streaming’s unjust economics impinge artists’ human rights.
The report acknowledges the humanity of the music creators who make the work that these platforms stream, and that the exploitation of these creators is an impingement on their human rights.
“Beyond economics, the Universal Declaration of Human Rights recognizes the fundamental truth of the human rights of creators: “Everyone has the right to the protection of the moral and material interests resulting from any scientific, literary or artistic production of which he is the author.” This basic principle in the Universal Declaration resonates in a host of other human rights documents. Following Elliott (1990), music value is twofold -not just an object for private pleasure, but also a symbol that helps define what we collectively are. People use music to embody and transmit culture. In fact, every culture has a certain music that can be attached to it. Music is part of the “ fabric of everyday life (Levitin, 2006). Music is a way to improve people’s lives (Center for Music Ecosystems, 2021). Thus, preserving its value goes beyond discussing the rules for business models in a particular type of market and adopting a wider perspective. The recording industry (IFPI, 2020) stresses that “policymakers should recognize that music has both cultural and economic value. Rules should ensure that all services engaging in distributing music online, regardless of how they operate, negotiate licenses with rightsholders in a fair, competitive marketplace.
...We have found that it is possibly for impinging these human rights principles that performers feel outraged by the economic imbalance between the fractions of a penny for their music compared to billions in market value for the streaming platforms.”
Spotify’s Pro-Rata Model Hurts Artists, Consumers, and Communities.
Most major streaming platforms use what is called a “big pool” system to distribute a share of the platform’s revenue to artists by comparing the number of streams for that artist to the total number of streams of all sound recordings on the platform during the time period in question. As a result, an individual user’s subscription fee is not divided up according to which artists they actually listen to, and there is a tendency for major-label superstars to receive the bulk of the revenue.
Two big problems result: (1) subscribers end up subsidizing music they do not listen to, and (2) payable royalties decline, since subscription fees have been relatively constant over the last decade and revenues haven’t kept pace with the increasing number of overall streams.
Many artists object to the market centric model because of low payouts, consumer confusion, a tendency to disproportionately benefit Anglo-American artists and hit songs in certain genres.
Algorithmic playlists hurt artists, consumers, and cultural sustainability.
It’s not entirely clear how platforms’ recommendation algorithms work, and the potential they present for eavesdropping and manipulation has raised privacy and fairness concerns.
Studies have shown that the imbalances and distortions created by the interplay of these two different forms of editorialization (playlist curation and recommendation algorithms), both of which involve the input of “dedicated teams of music experts” and are open to manipulation by commercial interests, create barriers to audience access that disproportionately affect independent and emerging artists, not to mention artists outside the Anglo-American mainstream, which in turn hampers the diversity and sustainability of musical culture worldwide.
The authors also emphasize the need to fully think through the effect of these features and forces on music’s social value. They emphasize the centrality of the “musical work” and warn against the reduction of musical activity to the creation of a “product” in competition with other “content.” When creative music is placed on an already unlevel playing field alongside computer-generated and non-musical content, cultural diversity inevitably suffers.
Worst, creation of platforms’ own playlists and own tracks might distort the fairness of remuneration to labels and independent performers. For particular rights-holders in categories such as relaxing / piano / chill / jazz, the competition from tracks created by platforms themselves using their knowledge of user profiles and their influence on playlist might seem particularly unfair.
“According to Mariuzzo & Ormosi (2020) using data from the UK, the overall effect of the above factors is that major label recorded music has a greater share of the most popular playlists, which really drive streams, than they do in the less popular playlists. If the total share of independent labels in the total UK recorded music market is around 30%, the percentage of independent music in the top 100 playlist in Spotify (that drive most of the listening streams and that are basically curated by Spotify) is just 19%. As expressed by Antal, Fletcher and Ormosi (2021), this lack of access is likely to have a direct impact on revenues for independent labels and their artists today, and also an indirect impact on the sustainability of this important segment of the market in the future.”
WHAT IS THE SOLUTION?
The UN report argues that we need to create a new type of streaming royalty that is paid directly to artists, including non-featured performers. The authors note that streaming does not fall neatly into any existing royalty schemes, and so we must create an entirely new system in order to properly compensate artists and preserve cultural diversity.
Existing royalty structures were not built for the streaming economy:
Our laws on copyright and royalty payments are behind the times, and we need new laws to reflect the complexity of being a musician in the 21st century. The way streaming works for the user--employing both interactive and non-interactive elements--and the way it generates revenue--via data collection, venture capital and investment, as well as ads and subscription fees--are not properly reflected in the royalty structure, which files all streaming rights under one kind of interactive royalty payment. We need to update our royalty structures so that the money flowing into the music industry gets to artists.
The most effective solution would be a new streaming royalty payment that goes directly to artists:
The UN report recommends the worldwide creation of a new streaming royalty paid to artists, including non-featured performers. This royalty would be paid in addition to all existing royalties paid to songwriters, labels, artists, etc., and would therefore not reduce anyones payments, and would not interfere with existing contracts. The royalty would be paid to artists directly, and so would avoid the horrendous deals that record labels force many artists to sign. The report refers to this new royalty as an “equitable remuneration” or “streaming remuneration” royalty.
The royalties would be paid out through Copyright Management Organizations, or CMOs, such as Soundexchange. In the USA, these groups already collect royalties paid directly to artists for plays on satellite radio.
“A systemic problem cries out for a systemic solution. Accordingly, this study argues that one solution might be for WIPO Member States to revisit the principles of performer equitable remuneration without necessarily disturbing the underlying rights regime.”
“A different approach would be creating a new royalty payable by interactive music services in respect of phonograms for communication to the public (“streaming remuneration”). Streaming remuneration would not be an expansion of compulsory licensing for phonograms that would trump the existing making available licensing structure or the authority of producers or performers to permit the exploitation of recordings in the streaming configuration. Rather, streaming remuneration would be an additional payment paid by platforms directly to performers (and potentially to producers) through their CMOs.”
“[The plan] does not require additional transaction cost as matching and payment information already exists at CMOs; does not require renegotiation of licensing agreements or disrupt current licensing practices; platforms are already paying similar royalties in certain territories; recognizes value transfer from all performers to platforms; helps to preserve local culture by compensating both featured and non-featured performers”
Streaming services are a hybrid model of interactive and non-interactive listening:
A new royalty system is necessary because streaming is a hybrid system that combines both “interactive” and “passive” listening. Some users select which songs they want to hear--e.g. Interactive listening--while many users simply put on a playlist or a “radio” feature and let the platform decide what plays--e.g. “Passive” listening. Because existing royalty structures only recognize a binary of “interactive” or “passive” listening, streaming services have been able to get away without properly paying artists. We need a new royalty system that acknowledges that streaming is a hybrid of interactive and passive music consumption.
“The study highlights that one potential solution to the imbalance could be to acknowledge the hybrid nature of interactive streaming and enterprise playlists by requiring streaming platforms to pay remuneration directly to performers in a way that is similar to, but distinct from, the current communication to the public payments. This approach avoids expanding the compulsory digital broadcast radio license while maintaining the exclusive rights of producers and does not change the private licensing regime for interactive streaming. This “streaming remuneration” would be additive and would not diminish existing communication to the public remuneration and would recognize the many benefits that performers confer on streaming platforms that are not compensated by the current royalty regime.”
“The research conducted for this study shows that main digital music platforms combine consumption modes considered not fully interactive, that is, they require a limited degree of interaction by the consumer, together with modes of full interactivity, in which the consumer decisively intervenes to reproduce a certain musical theme.”
“The business model for interactive streaming that has evolved since the adoption of the Internet Treaties in 1996 combines rights collected by producers and independent artists compensated under the making available right with the “lean back” enterprise playlist model that is easily analogized to broadcast radio. While consumers may always be able to use interactive functionality in addition to music discovery enterprise playlists, a large number of users simultaneously take advantage of “music discovery” or “lean back” playlists.”
A user-centric model alone is not enough:
UMAW has long supported a switch to a user-centric system, in which artists are paid out based on how many times their songs are streamed by users. Such a system would contrast with Spotify’s current “big pool” or “pro rata” system, in which streaming revenues are placed into a big pot and then paid out based on the proportion of streams that an artist received on the platform. Based on current data, it appears that user-centric will not offer a significant enough change for performer revenues, and would not impact non-featured performers at all. While user-centric is a step in the right direction that UMAW continues to support, it would not solve the problem. The creation of a new streaming remuneration must be prioritized.
“...while a user-centric model might better connect actual listening to royalties paid, the overall distribution of royalties would remain and the imbalance between billions in market valuation and fractions of a penny in streaming payments would likely remain.”
Fan driven micropayments are not enough:
Platforms such as Spotify and Tencent operate micropayment or “tip” systems, which allow users to choose to send money directly to artists. While in some cases this system may get more money to artists, it does nothing to address the systemic problems with streaming royalties. Moreover, it places the burden for paying artists on users, instead of on the tech companies earning billions in value off of artists’ work.
“The direct micropayment model has been used for some years in digital streaming services such as Tencent’s QQ Music109 and in fan-club type subscription services such as Patreon and OnlyFans. During 2021, SoundCloud (Singleton, 2021) has also announced its intention to adopt a direct payment model to artists. This “virtual gift” model could also be considered a form of “user-centric” in the sense of user deciding which artists to pay. It must be noted that platforms often take a share of micropayments as a processing fee. In Tencent’s case, these fees accounted for more than 70% of Tencent Music’s revenue.”
A new streaming royalty is an international solution:
A new streaming royalty is a solution that can be implemented internationally, and will benefit artists around the world.
“Moreover, given the global dominance of a reduced number of digital music platforms -such as Amazon, Apple, Google, Tencent, Spotify and others- in the streaming market in each country where they operate, streaming remuneration would allow Member States to create new revenue for local performers in large part paid for by these dominant multinational corporations doing business in their countries. While we have not addressed an appropriate royalty rate, Member States concerned with streaming remuneration placing too great a burden on their local streaming services or startups could adjust based on usage, subscribers, market share, revenues or other metric that would right-size the payment so that a local provider does not pay the same aggregate royalty as a multinational platform benefitting from larger economies of scale and scope.
The international administration of remuneration rights, both in the legacy and digital music marketplaces sometimes have limitations from CMOs such as qualifications for performers to be entitled to their share of equitable remuneration.125 A fairer environment would need, at international level, that any repertoire usage be paid to the performers without qualifications, regardless of the country of production, artist’s nationality or any other criteria”
UMAW is part of the international effort to win justice in streaming:
All over the world, artists are fighting back against an unsustainable streaming economy. The report cites the Union of Musicians and Allied Workers’ (UMAW) campaign calling on dominant streaming platform Spotify to pay artists fairly and to abandon exploitative business practices. Concerns addressed in the report about inequities in streaming are reflected in UMAW campaign demands such as payment of 1 cent per stream to artists, ending payola practices and closed-door contracts, and crediting of labor in recordings, among others. To date, 28,140 artists internationally have signed the demands, and on March 15, 2021, UMAW organized a global in-person action at Spotify offices in 15 cities around the world to deliver the demands.
The report also mentions Tom Gray’s Broken Record campaign in the UK, and the efforts of over 15,000 artists in France in September, 2020 addressing the Ministry of Culture over fair remuneration for streaming.