June 21, 2012 at 6:21 pm

David Lowery Might Be Right About Some Things, But He’s Wrong About Streaming, Money, and Artists

david lowery emily white spotify artists money charles caldas merlinEmily White, a summer intern at NPR’s All Songs Considered, didn’t know what she was getting into when she wrote her now-infamous screed about how, despite being a hardcore music fan and college radio station manager with 11,000 songs on her computer, she has only ever paid for 15 CDs-worth of recorded music with actual money.

Her essay caught the attention of David Lowery, former lead singer for Camper Van Beethoven and Cracker, whose widely-circulated, biting retort accused White of belonging to an entitled generation that pays extra for “fair trade” coffee and shiny technology while refusing to shell out for music, leading to the destitution or even death of musicians.

If you’re reading this, you’ve probably read both pieces. Everybody has been talking about them, all week long. As Digital Music News puts it, we’ve seen reverberations in “The New York Times, NPR, Los Angeles Times, Techdirt, Hypebot, Lefsetz, [and] the Huffington Post. Thousands of words, hundreds of comments, dozens of emails, several proposed guest posts; I’m not sure I’ve experienced anything quite like this.”

It’s true. Lowery’s post went incredibly viral — like, “rabies” viral. It has already inspired lots of soul-searching about what the digital music revolution means for music and culture in general (speaking of which, you can read our take on streaming and culture in Time).

All that commentary appears to have missed something that jumped out at me the first time I read Lowery’s inspired piece. He suggests that instead of ripping CDs from the college radio station or letting friends copy gigabytes of music onto their iPods, Emily White and the rest of her delusional generation should pay for the unlimited, on-demand music service MOG (among other choices) because it’s “legitimate” (more on that below). A few paragraphs earlier, he rips into a similar service, Spotify, because “the internet is full of stories from artists detailing just how little they receive from Spotify.”

David Lowery might be right about some things, but he is wrong there, for a few reasons. We know this not only because we obtained a confidential report detailing how much Spotify pays to labels, but also because we just sat down with Charles Caldas, the CEO of Merlin, which represents over 10,000 independent labels and helps them negotiate better deals from these services than they would get on their own.

He told us about Spotify’s payouts to artists firsthand, so we don’t have to rely on “stories from the internet.”

The reality: Merlin’s thousands of independent labels, and by extension their artists, are pretty happy with what Spotify is paying them — and happier still about big increases in those payouts. Those increases should be good news for the record industry, because Emily White says she wants “one massive Spotify-like catalog of music that will sync to my phone and various home entertainment devices.” Eventually, she would consider paying for that, as would, presumably, other members of Generation Entitled.

Lowery’s post received an insane amount of attention, which is why we want to clear up the ways in which he is wrong about Spotify’s payouts in particular — and in general about the viability of streaming services where artists are concerned — even the ones that let people stream music for free. (The short story: It’s not really his fault that he’s wrong.)

Here’s the deal.

Big Growth

Spotify’s payouts to Merlin’s 10,000-plus indie labels rose 250 percent from the year ending March 2011 to the year ending March 2012. More importantly, the revenue per user (RPU) “has grown significantly alongside the overall revenue growth and is currently the highest it has been since the launch of the service,” said Caldas. “We see consistent, ongoing growth on revenue per user, revenue per stream, and the total revenue the service brings.”

So, why doesn’t David Lowery know about that?

Music Services Don’t Pay Artists — They Pay Labels. Also, There’s Major Lag.

“The thing about ‘Spotify doesn’t pay artists enough’ — Spotify doesn’t pay artists,” clarified Caldas. “They pay labels.”

Label deals vary to a huge degree. In some cases, more of that money is absorbed by labels than in others. Artists have always complained about labels not paying what they owe, which is why they sometimes sue for the right to audit the books. The same thing could be happening with streaming services in some cases (which is another reason music needs one big database, but that’s another story).

But even if labels broke their contracts and passed along every cent from Spotify to artists, for some crazy reason, the picture for artists would still look far, far worse than it actually is. The issue is lag — up to a year of it, and an important year at that.

“Chances are, you [the artist] are getting reporting quarterly, or six-monthly, on sales that happened six months ago, so what you’re seeing in your royalty statements could be a year old,” said Caldas. “You’re not seeing the service the way it looks today.”

Considering that a year ago Spotify hadn’t even launched in the U.S. — the world’s biggest music market — this distorts reality quite a bit.

What about all those “stories on the internet,” like the one about Lady Gaga only making $167 for one million streams?

“That Lady Gaga thing was about publishing, not recording rights, and it was a single territory,” said Caldas. “It was refuted at some point, but that story’s had way too much air, and it’s just ridiculous.”

Streaming Can Make More Money Than CDs… If the Music Is Good

Lowery laments the decline of the CD, but artists can actually make more money from a single fan who streams an album over the course of their lifetime than they would from the same fan if he or she had purchased the album — an effect that will become more pronounced over time. Every time Emily White listens to a stream, an artist gets paid — but if she breaks out any of her 15 CDs, they’ve already gotten everything they’re going to get.

“Let’s say there are a thousand spins over that person’s lifetime,” said Caldas. “For whatever the wholesale price of that purchase was, it’s getting to the point where it would be better if that person subscribed to a music service for the rest of their life and played the songs the same amount of times. It would actually generate more money for the artist over that period of time. The challenge at the moment is that you sell the $8.99 album today, and you get your royalty check next month or next quarter, so that income is immediate. The challenge, as you say, is in building long-term artists… The more times someone plays a purchased download, the less money you get per play.”

Yes, for music that has real staying power, CDs and downloads are the real ripoffs — a fact that may have been obscured by all of those physical format shifts from vinyl to 8-tracks to cassettes to CDs, but a fact nonetheless. Every play gets paid for on streaming services, even the ones that happen 50 years after a song is released.

Reality Is All Around Us. Also, Kids Get Old.

Lowery isn’t the first to wish that everyone else would behave as if the world around them hadn’t changed, and he won’t be the last. But the reality is that we live in reality, and it is all around us, so we might as well live there instead of bemoaning the fact that people don’t always pay for stuff when they don’t have to. There are Emily Whites all over the place. But they will age.

“If there is an entitled generation that wants things immediately and free, now you have a Spotify free tier [on mobile], which at least brings them into a legitimate environment where every time they play or stream that song, the artist is getting a payment, and they’re building a relationship with that service,” said Caldas. “When they [get older] and get a job, there might be a bit more disposable income and less time to sit there dragging music from The Pirate Bay, and [they will] want that level of immediacy and convenience, and be willing to pay for it.”

We made the same point here, but it’s nice to hear someone else say it.

Some “Free” Services Value Independent Music

David Lowery didn’t go after Emily White because he wanted mainstream popstars like Christina Aguilera to afford another Belair home. He wants artists like Mark Linkous and Vic Chestnutt not to die of poverty and/or depression, and we’re with him on that front. We asked Caldas how Spotify, which Lowery accuses of ripping off artists, treats indie labels relative to the majors. Do they get as much as the major labels, with their Aguileras and Spearses?

“We wouldn’t have a deal with Spotify if we didn’t feel they recognized the value of what they [the indie labels] do,” explained Caldas. “I don’t think it’s any coincidence that the successful services in the marketplace — iTunes on the download side and Spotify on the streaming side — have understood that fundamental thing, that if you want a consumer to come to your site and pay money, you have to give them the music that they want. You have to make everything available, because there is a generation of people out there who are incredibly impatient and will jump from one place to another, and they have no real loyalty… if a service has Green Day but not Vampire Weekend, or Nirvana but not Arcade Fire.

“We won’t do a deal with any platform that doesn’t properly recognize the value of our repertoire, so we’re in business with Spotify and Rdio. We’re not in business with MOG [which Lowery recommends].”

This “Free” Music Isn’t Really Free

Lowery is correct that streaming services including Spotify allow users to stream stuff for free — in part to lure them away from bit torrent, and for that matter, YouTube. However, the labels who represent artists’ financial interest (don’t laugh — it’s true when it comes to harvesting money from distributors) take those free streams into account when negotiating with the streaming services. As such…

“There are no streams on Spotify where the rightsholder doesn’t get paid,” said Caldas. “It’s free to the consumer, but it’s not free to Spotify. It’s not rocket science. 100 percent of the revenue gets paid to Spotify. They pay the publishers and they pay their local taxes. There’s a percentage of the revenue that then gets paid to the master rights holder [typically the label]… And then on the free tier, you just have to make a judgement.”

That judgement is about the overall value of a service like Spotify in the marketplace, given the free and paid tiers. One relevant number is the ratio of paying to non-paying users — and Caldas hinted that Spotify has might have significantly more subscribers than three million, its last official count. That’s more good news for the commercial viability of a service Emily White admits she wants.

Sorry, David Lowery. You make some fine points in your piece, and we appreciate the issues you’ve raised this week. I even bought at least three of your CDs back in the day. But you’re missing some pieces of the puzzle here.

  • Jason W.

    The fundamental problem is that nearly everyone, including myself until I read this article, does not understand how the system works.  Knowing more about it would temper the warbling of the entitled and the whiners.

  • Anonymous

    *former* lead singer for Camper Van Beethoven and Cracker? Interesting, I wonder who will be singing for Cracker when they go on tour this summer with  Bare Naked Ladies and Blues Traveler? And I’ve heard Camper is putting out a new album this fall… who is singing on it?

  • Anonymous

    Eliot – what neither you nor Charles Caldas mention is Merlin’s ownership stake in Spotify.  In the galaxy of experts you could have chosen to analyze the merits of Spotify, you couldn’t have picked someone who doesn’t own the company and have a vested (literally!) interest in ragging on MOG?

    As far as missing pieces of the puzzle, that’s a pretty big one right there.

  • http://twitter.com/EasternAnchors Eastern Anchors

    Also something from Lowery’s article. Google is in the music business as they own http://rightsflow.com/ so in theory your video plays on youtube can make you money. xox

  • Brian C

    Spotify pays my label $0.05 for 1000 plays. And David Lowery was wrong about Spotify?
     

  • Vcc

    I’m gonna go buy a record now. Vinyl.

  • Anonymous

     And I just read an article that says Merlin bought it’s ownership stake “not by cash but by writing off the equivalent value of royalty payments.”  Kind of muddies the water a bit more.
    http://paidcontent.org/2012/03/01/419-what-happens-next-if-spotify-goes-public/

  • Chris Sattinger

    > Charles Caldas, the CEO of Merlin, which represents over 10,000 independent labels and helps them negotiate better deals from these services than they would get on their own.

    and there’s your problem right there. Default settings = next to nothing. But if you work with an industry insider …

  • John Krumm

    Why does everyone talk about Spotify, when Rhapsody is quite a bit better at the same thing, and actually has people who write about their catalog so that you can find what you want. Just had to get that off my consumer chest…

    But your points are interesting. So the streaming services keep giving money to the “Hotel California” hits, and the new music perhaps does less well. No biggie. Things have more or less sounded the same since the mid nineties.

  • M. Evans

    Spotify pays out to TUNECORE and TUNECORE is not a label. It’s a distribution platform for independent artists that pays out 100% of royalties, therefore, Spotify does pay independent or non-labels directly. Those streaming proceeds are in the hundreds and thousandths of .01 cent per play or worse.

  • http://twitter.com/spotidj spotidj ♫

    1000 plays should be good for $5 Better talk to your label or recheck  the data

  • http://twitter.com/spotidj spotidj ♫

    It is 0.5 cent at the time (Q1 2012). Check http://www.spotidj.com/spotifyroyalties.htm

  • Bphelps

    I’m merlin is about the least disinterested party you could have chosen for your expert opinion on the royalties paid out to artists from spotify. They have an ownership stake and have a major conflict of interest! Personal experience tells me otherwise- spotify makes you very little. Like, it’s at the level of a joke.

  • El Muerto

    You are an ass. You must not have music on Spotify. Stop misleading people. Here is a Spotify payment for a stream…  $0.00340000     And yes, the payment has gone up. To this. How many streams before I make a penny? This is not an “internet story”. 

  • http://profile.yahoo.com/53L5ADAOGS36IDWQ342CFHFTPQ WVGS

    I am currently the Station Manager of a college radio station in Southeast Georgia. I think a great business plan would be to develop software that could be licensed in conjunction with a programming format for radio stations that utilize Spotify. We could pay a fee like we generally do to ASCAP, BMI, SESAC, etc. It could generate more revenue for the service without the advertising and could possibly help many stations break away from automation. Even if stations continue to use automation, they could become more unique if they take advantage of a new style of programming.

  • http://djdeweese.com/ D.J.Deweese

    Maybe it should be, but it’s not. The amount I receive through CDbaby for Spotify streams varies, but it is nothing close to .05 per song streamed. Looking at my royalties from Spotify, I receive between. .00002 (on 12/15/2009) to .0073 (on 3/15/2012). CDBaby keeps 9% for digital distribution, and there is no label, since I’m an indie, self-produced musician. Total Spotify revenue for 1000 plays? $0.07.

  • http://djdeweese.com/ D.J.Deweese

    Agreed. I posed a reply above, but I’ve seen Spotify stream revenue as low as $.00002 (on 12/15/2009), and $.0034 is the highest I’ve seen.

  • http://djdeweese.com/ D.J.Deweese

    Even your own link says it’s .005 of one cent on the high end), which is such a tiny fraction of .5 as to be laughable. Why are you reporting .5 cents in this post?!?

  • http://www.facebook.com/profile.php?id=603531244 CarlyErin O’Neil

    “The thing about ‘Spotify doesn’t pay artists enough’ — Spotify doesn’t pay artists,” clarified Caldas. “They pay labels.” That’s great for artists ON labels, which accounts for a very small percentage of music on the internet these days. And most of the artists that are “on labels” are Legacy Artists. (Artists who were big before the fall of the LABEL.)

  • The Dude

    Your arguments don’t at all include the inside deal that Spotify had to sell Labels FACEBOOK stock in order to get the catalogs of those labels. Also – you talk only about labels. You do not talk about INDEPENDENT ARTISTS who have MADE THEIR LIVINGS from ALBUM SALES and RADIO ROYALTIES and LIVE PERFORMANCE INCOME who now are being completely ripped off from Spotify. Yay – I should be making $5 from a 1000 spins. Do you know how much $$ I’d make from a thousand spins on a major market top 40 radio station? Do you?

    You rip apart David’s argument but you offer absolutely no solution to the plague that spotify is.

    The issue here is intellectual property and its worth in the western world and you are adding fuel to the fire that a song or an album that costs $10-100k to produce should be streamed for $.000353.

    Honestly I’d rather they watch a YOUTUBE video for free because THAT might make the listener come to the show.

    You rip on David but it is actually your facts and points that are not realistic in the REAL reality.

    Talk to Labels, Talk to Independent Artists. Talk to music fans who have canceled their spotify accounts knowing how much it rips off the artists.

    You are hurting the music business with your stance and you are obviously VERY UNINFORMED when it comes to FACTS about this issue.

    Keep living in the bubble that spotify is good for the music industry and you will bleed a wonderful batch of artists dry of their art and money.

    What do you do for a living good sir?

    Shame on you!

  • Pete Austin

    Either you confused dollars and cents, or they fixed a typo. It says 0.5 cents in that link, “The current payment per stream is $ 0.005 (€ 0.004)”

  • Pete Austin

    If yours are *dollar* figures, it means you were getting $7.30 per 1000 plays in 2012, which is actually more than spotdj said. The 2009 figures look very low, but that’s ancient history – I wonder how much of the complaints are due to the low rates paid back then, but people are unaware or unwilling to admit that rates have increased a lot since: seemingly by more than 100x.

  • Pete Austin

    Entitled much? If your intellectual property is so valuable, why did you make that comment unpaid? In fact, intellectual property has no set worth and over 99% of it is given freely – next time you have a conversation, try stopping and asking people for money to pay for your contribution and see their reactions.