David Byrne explains the streaming music ripoff

Artists are taking home pennies for millions of plays and no one -- not the labels, not the distributors, and not the streaming companies -- will disclose the way that streaming music royalties are calculated.

It's all a big secret, but one thing is sure: "even as the musical audience has grown, ways have been found to siphon off a greater percentage than ever of the money that customers and music fans pay for recorded music."

Putting together a picture of where listeners’ money goes when we pay for a streaming service subscription is notoriously complicated. Here is some of what we do know: About 70 percent of the money a listener pays to Spotify (which, to its credit, has tried to illuminate the opaque payment system) goes to the rights holders, usually the labels, which play the largest role in determining how much artists are paid. (A recently leaked 2011 contract between Sony and Spotify showed that the service had agreed to pay the label more than $40 million in advances over three years. But it doesn’t say what Sony was to do with the money.)

The labels then pay artists a percentage (often 15 percent or so) of their share. This might make sense if streaming music included manufacturing, breakage and other physical costs for the label to recoup, but it does not. When compared with vinyl and CD production, streaming gives the labels incredibly high margins, but the labels act as though nothing has changed.

Consider the unanswered questions in the Swift-Apple dispute. Why didn’t the major labels take issue with Apple’s trial period? Is it because they were offered a better deal than the smaller, independent labels? Is it because they own the rights to a vast music library with no production or distribution costs, without which no streaming service could operate?

The answer, it seems, is mainly the latter — the major labels have their hefty catalogs and they can ride out the three-month dry spell. (The major labels are focused on the long game: some 40 percent to 60 percent of “freemium” customers join the pay version after a trial period.)

Open the Music Industry’s Black Box [David Byrne/New York Times]

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