Moke Hill — Thoughts On Music Streaming: Taylor Swift, Aloe...

For what it’s worth, this is the original text of the piece that was published in Wired, before it was edited, headline changed, and copy/images removed:

On Music Streaming: Spotify, Taylor Swift and Aloe Blacc

Spotify has been the topic of much debate the past few weeks, thanks in part to Taylor Swift’s decision to pull her catalog and Aloe Blacc’s piece in Wired entitled “Streaming Services Need to Pay Songwriters Fairly.”

I’m hoping to bring a different point of view to the discussion based on my somewhat unique perspective on the music industry. I spent several years on the business side of the industry, working at an indie label and management company. That experience gave me exposure to the process of how revenue flows from consumers to artists, and how that process is changing with new technology.

Today, I’m experiencing the industry from the side of the artist (although admittedly, miles from Taylor Swift and Aloe Blacc on the notoriety continuum).  In 2013, I formed a band called Moke Hill with my close friend Andrew Phillips and we were later joined by several other friends from within the industry.

For us, Spotify hasn’t been a negative, but an enormous positive. We planned to lay the foundation for the band with an EP that came out at the end of 2013, then work on new material to complete a full-length release as a basis to secure label, management and booking partners. Over the course of this year, with no marketing, PR or label support, Spotify has exposed our songs to an audience who would otherwise have little chance of finding us.  At last check, our song Detroit has been streamed 310,187 times.

Moke Hill – Detroit

In an attempt to offer a different point of view on Spotify, I dug into the value of streaming payments using the data available to me: Moke Hill Spotify numbers.

The payment numbers reported to date for Detroit are below (the payments haven’t caught up with the actual streams yet):

204,250 Spotify streams = $910.43

This means we’re getting paid ~0.4457 cents for every stream. Since we didn’t/don’t have a label, we used a distribution service to get the EP to the digital services and never pressed any physical copies. That service takes 15% off the top, so Spotify is actually paying out more than we’re seeing (~0.5244 cents/stream).

Obviously the math won’t be exact (more detailed explanation here), but applying our per stream numbers to the Avicii song (“Wake Me Up”) that Aloe Blacc references in his Wired piece tells me that Spotify will pay out upwards of $1,563,792 (our cents per stream x 298,203,998 current plays / .85, since our distribution service takes 15%) on the streams for that song, to date. One song, on one still relatively small streaming service.

That doesn’t sound so bad, right? It might even make you wonder why everyone is so upset with Spotify. The answer is complex, but the revenue generated from Spotify streams is divided much the same way it is on iTunes, and CD sales before that.

In the case of Spotify, the revenue breakdown looks like this:

Spotify keeps ~30% of the gross revenue, which they use to pay employees and keep the service running (major labels have an approximately 20% ownership share in Spotify, which is included in that 30%). ~60% is paid out to the owner of the masters (usually labels but in our case, us, through our distribution company) and ~10% to the owner of the publishing.

The biggest issue with most of the arguments against Spotify is that we don’t know the terms of the artists’ contracts. What are the details of their label deal? Do the songwriters have a publishing deal? Did the songwriter get an advance on his publishing deal? What is the songwriter’s split on the song(s) they wrote? Without any of this information, we can’t tell exactly what is happening to the money after Spotify writes the check.

It isn’t Spotify’s fault that the money isn’t making its way to the artists. These artists sign deals with publishing companies and labels to get the protection, distribution, expertise and exposure that come along with them. There is a huge advantage in having a label behind you, but that advantage comes at a cost. Let’s not blame Spotify because a label or publishing company is taking a cut of what Spotify pays, based on the terms of whatever deal they made with the individual artists. Spotify simply adheres to the model that has been in place for years, and therefore pays roughly the same percentage of revenue to master owners/publishers as CDs or iTunes.

In Taylor Swift’s case, we don’t know exactly why she decided to pull her catalog, but last week her label president (Scott Borchetta) made this comment:

“If [a] fan went and purchased the record, CD, iTunes, wherever, and then their friends go, ‘why did you pay for it? It’s free on Spotify,’ we’re being completely disrespectful to that superfan.”

I’m not sure I follow his logic, but I do know that the music is not “free” on Spotify, since many users (myself included) are paying for the service, and the rest are paying in the form of ads. I might go so far as to say that it’s ‘disrespectful’ (to use his word) to force fans to buy CDs or use iTunes when they likely left that model years ago (or never joined it in the first place, in the case of many younger consumers).

The music industry failed to find a reasonable solution when CD burning and piracy took off, choosing instead to try and force fans to buy CDs. Why? Because half a century ago labels realized that they could make more money by forcing consumers to buy a full album instead of the individual songs they actually wanted, and labels today haven’t had the desire to innovate and change a system that was working to their benefit. We now have a sustainable model that can re-invigorate recorded music, and the industry is still fighting it in an effort to push people back to CDs and iTunes.

Rather than fighting, I believe the industry should embrace the change that’s coming (or more accurately, the change that has already arrived). Technological advances have made mobile access to millions of songs a reality - this is a great thing for music fans. Subscribers paying for the mobile version of Spotify in the US are spending ~$120 per year on the service - well above (almost 5x by some reports) what the average music listener spends on music per year. More people spending more money on recorded music (since Spotify’s total revenue increases with each new user) leads to bigger payouts for artists, writers, labels and publishing companies alike. 

Meanwhile, there’s another issue that’s been under the radar of the Spotify debate: artists now make the majority of their money on the road. The chart below shows the recent rise in concert ticket prices (source): 

This increase was the industry’s response to the dramatic fall in revenue from album sales, meaning that fans are still paying for music and supporting artists - just in a different way. Taylor Swift made nearly $40 million dollars last year - approximately $30 million (or ¾ of her income) from touring. Swift stated in Time that she “think(s) there should be an inherent value placed on art.” I couldn’t agree more. And obviously, so do her fans; in a year that she didn’t release a record, she made $40 million dollars. Sounds like “inherent value” to me.

Further confusing the issue, Swift’s label president told Time:

“Taylor Swift has been paid less than $500,000 in the past 12 months for domestic streaming of her songs.”

That number is deceptive, considering the $500k referenced includes US streams only, in a 12 month period that began a full year after she released her last album, “Red”. In other words, it’s not surprising that her streams and sales would be down when she hadn’t put out a record in a year. Borchetta is also using a number that only accounts for ~30% of Spotify’s total paying users.

Time published an article this week with a chart that shows Spotify payouts for top earning songs in 2014 to date:

It’s pretty safe to assume that Taylor Swift’s numbers for this year would have blown these out of the water, considering her first week (1.2 million album sales) was the largest sales week for an album since 2002. “Shake It Off” was streamed 46.3 million times on Spotify in October before it was pulled.

I have nothing but respect for Taylor Swift and Aloe Blacc and any musician trying to do this for a living, but I hope artists will pause and realize that misplaced blame and oversimplification of the issues could set us back. Physical album sales are not the long-term solution (case in point: the laptop I’m typing on doesn’t have a CD drive), and the alternative to streaming is piracy or YouTube (which has historically paid poorly, and allows users to upload anything they want, resulting in artists getting nothing for many of the streams).

Spotify is in it’s infancy, so the payout numbers are much smaller now than they will be as the service grows. Imagine if Spotify were embraced by notable musicians and revenue grew to 10 times what it is today (and the streams per song along with it); the singles mentioned above could be generating $9 to $17 million dollars each - for one song.

As for Moke Hill, we’ve spent next to nothing to get our songs on Spotify and it has exposed us to tens of thousands of people around the world that never would have heard our music otherwise. Spotify is not only paying us, but building our fan base while paying us - which will eventually make it easier to sell tickets to shows.

I worry that if more big acts follow Taylor Swift’s lead, bands like ours could lose an important outlet to have their music heard. And I can say definitively that were it not for Spotify, I would never have discovered many of the artists I consider favorites today.

~Ben Berry

mokehillmusic.com