November 15, 2012 at 5:09 pm

Hey Damon from Galaxie 500: There Has To Be a Better Way

Another artist has come out against the royalties paid out to artists by the top two music streaming services of our times (Pandora and Spotify). In a widely-circulated Pitchfork article called “Making Cents,” Damon Krukowski of Galaxie 500 and Damon & Naomi reveals some truly startling figures:

  • “Galaxie 500′s ‘Tugboat’ was played 7,800 times on Pandora in the first quarter of 2012, for which its three songwriters were paid a collective total of 21 cents, or seven cents each.”
  • “For the 5,960 times “Tugboat” was played [on Spotify], Galaxie 500′s songwriters went collectively into triple digits: $1.05 (35 cents each).”
  • “It would take songwriting royalties for roughly 312,000 plays on Pandora to earn us the profit of one – one – LP sale. On Spotify, one LP [sale] is equivalent to 47,680 plays.”
  • Selling 1,000 copies of the 7″ vinyl version of “Tugboat” earned the band as much as they would get from 13 million streams from Spotify, given the 2012 rate for indie bands.
  • Spotify pays indie bands/labels $0.004611 per stream per user, and its actual payouts are lower, at least in the case of Galaxie 500.

Yikes. Considering that Galaxie 500 was my favorite band at one point in college (in fact they played their final show there), this made for a heartbreaking read.

Krukowski’s conclusion: that just as Galaxie 500′s first single was sold only on vinyl, the next album from his current band, Damon & Naomi, will also be “likely” be only pressed on vinyl again, and that both bands will continue to stream all of their music for free via BandCamp as a “punk rock” protest against the pittances paid out by Pandora and Spotify, which he accuses of being “divorced from music” and in the music game only so that their founders can cash in when big new investors get on board and increase their valuations.

Despite his well-founded protestations, Krukowski admittedly subscribes to Spotify Premium for $10/month. Clearly, he sees the value proposition of such services from the music fan’s perspective. I think he missed a few things, though I sympathize with his points:

damon krukowski galaxie 500 tugboat

Still frame from the video from Galaxie 500's first single, "Tugboat."

Traditional radio doesn’t pay a sound recording royalty at all, and nobody knows exactly how many people hear it.

Like North Korea, Iran, China, Rwanda, and no other country that we know of, the United States does not require traditional “terrestrial” radio stations to pay any performance royalty for sound recording (it does pay songwriters). So to complain about the performing royalty paid by Pandora and satellite radio services via SoundExchange doesn’t totally make sense. Also, while Pandora and other online radio streamers pay for each stream to each listener, terrestrial radio works with vague estimates. Wouldn’t it help to know how many people terrestrial radio reaches, in order to compare its payouts to that of online radio?

General listeners don’t go to BandCamp, and those streams generate no revenue.

If putting music on Pandora and Spotify, where thousands of people are streaming it even if they aren’t generating much money at this point is such a bad idea, why is it a good idea to make the same music available on-demand on BandCamp, where potential fans who haven’t heard of these bands will never come across it? Not only do those streams generate zero dollars, but they fail to attract new fans who might come see Damon & Naomi play live, and are arguably even more substitutional for selling downloads on iTunes or Amazon to pre-existing fans than Spotify is.

Nobody’s going to buy a record player to hear the next Damon & Naomi record.

If the next Damon & Naomi record is available only on vinyl, as Krukowski says it might be, nobody who is currently using Spotify to listen to music is going to say to themselves, “Well, that settles it, I guess now I have to go buy a record player.” As much as Krukowski and others might wish we were still living in the ’80s and ’90s, those times are gone.

If Spotify grows, Daniel Ek is not the only person who will make more money.

Damon claims that Spotify co-founder and CEO Daniel Ek mainly wants it to grow because that way, he can sell his shares — in other words, that Spotify is more of a finance play than a music play. But as the head of indie label consortium Merlin told in an exclusive interview, he thinks it’s worthwhile for indie bands and labels to put their music on Spotify in part because it’s growing — as is the number of users who choose to pay for it, which is ultimately the number that determines how much musicians, labels, songwriters, and publishers are paid for the music streamed there.

If all of the music fans who listen to free online radio and buy five or so downloads per year were to suddenly start paying $120 per year for Spotify, Rdio, or any other streaming service, that would not only grow those services; it would also represent a significant uptick in money spent on recorded music in general. It’s not happening suddenly, but many argue that it is happening.

If these services can’t make free music pay, people will have to pay for it.

Unfortunately for Pandora, and fortunately for Krukowski, not many industry experts seem to think that Pandora’s bid to convince Congress to lower streaming radio royalties is going to work (increasing satellite and/or terrestrial radio rates could be a different story). That means that if Pandora can’t make free music pay its stockholders, it will have to force users who listen to more than 30 hours per month (or whatever) to pony up $3 per month (the current rate for premium Pandora) to keep using it. If people love Pandora enough to listen for more than an hour per day, every single day, they might simply have to be willing to commit a few bucks in order to keep the wheels in motion.

Music is still too free to be expensive and too expensive to be free. How can Damon not mention piracy?

Spotify’s Daniel Ek has said on many occasions that his company’s main goal is to get the people who pirate music — a group that includes many of the most dedicated music fans in the world — to pay for it, or at least to generate a tiny rivulet of revenue by making them sit through ads, then divvying that money up among rightsholders. Piracy is without a doubt the force that is driving the price of online music down, which is why these royalties are so small, even though both Pandora and Spotify are losing money. How can Krukowski make all of the points he makes without mentioning it — or all the free music on YouTube, for that matter, which is how the kids are listening to music?

Streaming will change culture for the better.

For the first time in recording history, music that people listen to for long periods of time after they first pay for it will earn more money than the disposable, one-hit wonders they listen to only a handful of times. That has to be a good thing, especially for bands like Galaxie 500 and Damon & Naomi, to which fans tend to return years later, even as yet another replaceable teen idol has captured the popular imagination.

It’s early days on a number of fronts.

Granted, people like me have been saying this for well-nigh 15 years now, but… it’s still early days. Pandora, Spotify, and other services with a mobile component have yet to crack the much-vaunted nut about how to advertise to people based on their location and where they are going. Remember the infamous example from the early mobile ad days about pop-up ads alerting people to a deal on coffee at the shop three blocks away? That has yet to happen, and it could mean lots more money coming in. The online ad ecosystem still needs to get more robust, and all of these services need higher conversion rates from free to paid, before we can really know whether online music is a sum-total rip-off for musicians.

Those arguments might make more sense to a forward-looking label executive than they do to a musician with a mortgage that needs to get paid right now, which is one reason I understand where Damon Krukowski is coming from, and I don’t want to pick a fight here (especially with a guy who went to Harvard). He can do whatever he wants, obviously. But to chuck everything in favor of vinyl-only releases and free streams doesn’t seem like a strategy that’s built to last.

  • Brian

    The problem isn’t piracy or royalty rates for streaming. The problem is that music has been commoditized and de-valued. Once you make something free – thanks Youtube! – you can never charge for it again. If a Ferrari cost the same amount as a Yaris do you think people would still drool over them? No way. The real value=the perceived value=the actual value.

    The Galaxie 500 guy is doing exactly what he needs to do. Sell to his tribe of skinny jean wearing record player people. Why waste time giving it away to the 80 when you can sell to the 20. THAT is the future of the music business.

  • Gavin

    The whole “at least pirates are now paying for the music” Ek rhetoric echoed here is ridiculous.

    1) paying artists pennies for thousands of streams is not “paying” for it. It’s insulting – you’re telling the artists exactly how little they’re worth to you. I’d rather not even know how many people are dl-ing my music. If you’re gonna rape me, don’t throw pennies at me on your way out.

    2) Presuming the large majority of “pirates” do not buy the premium service—a fair assumption given that only 20% of its total users pay for Premium— they’re not, in fact, “paying” for it. To be clear, the one “paying” for it is a corporate sponsor. And what are they paying for? 30 seconds with which to interrupt the artists’ album sequence to encourage the listener to abandon the current track in favor of the hot new major label artist’s single (“click the banner now!”). As Brian pointed out, the issue here is value perception, and Spotify has done nothing to teach them to value it. Spotify encourages everyone to perceive it as free (i.e. worthless) — as free as water.

    Here’s a thought: maybe someone should look at how much the corporate sponsors are being charged for their ads on Spotify? Is the rate competitive with that of radio ads? Television ads? Banner ads on major sites? If not, why not? They’re surely disruptive, and the call-to-action is far more accessible and apparent – monetization is literally a click away… Why is it that these corporations would pay big money for product placement, commercial licensing, etc. elsewhere but embedding an ad in the actual album—INTERRUPTING THE MOOD AND FLOW OF A RECORD—with very effective targeting (presuming they’re selling music) is worth pennies? My guess is that, as usual, artists are the first one’s expected to take a pay cut. The only content providers who didn’t take a pay cut were the major labels who negotiated for shares in the company (and, not surprisingly, didn’t pass that ownership or revenue on to their artists). Spotify was more than happy to take advantage of the hundreds of thousands of artists who didn’t have that kind of bulk bargaining power. Yes, it’s capitalism. Does that make it cool or respectful? No.

    It’s one thing to claim that Spotify intends to change people’s relationship to music in a massive way. I think that’s undebatable. But it’s just too insulting when folks try to spint it as if Spotify is helping artists.

    If Ek truly wanted to help artists, he wouldn’t take a pittance on their behalf… if anything, he’d insist on a higher royalty rate than what is currently the standard. He’d also insist on paying the same rate to both majors and indies. If Ek truly wanted to help artists, you would see “Buy now” buttons all over the place. But, as Krukowski eloquently stated, that’s just not the team he’s on, no matter how many times he tries to sell that story. I’m not naive, I know he had to dance around a lot of big money and politics just to get the conversation going. Ask yourself: do you think he even considered inviting artists to that conversation?

    If you want to change the world’s relationship with music in a way that enriches culture, you’ve got to start by respecting and nourishing those who actually create the culture. Anything else is just business as usual.

  • Anonymous

    In fact, there is a much better way and it’s called Flattr and we’re currenly integrated into Grooveshark and Sound Cloud. We would love for more artist to use our platform to get direct support from fans in a easy way that no other service can offer.

  • Anonymous

    Dismissing the vinyl model is naive.

    I don’t think anyone would claim that we’re about to return the days of platinum-certified LPs, but it’s clear that there is value for niche artists and fans in offering a tactile listening experience.

    If piracy and Spotify has taught a generation that the music listening experience has no value, then maybe Maker Faire, Etsy and Kickstarter have taught some of them that there’s value in tying the listening experience to a well crafted physical artefact.

    Indie vinyl releases aren’t going to garner Rumors-level sales, but I’ll bet the level of satisfaction in selling that last copy in a 1,000 LP run is a lot more than you get when that US$1.05 check from Spotify arrives.

  • veetann

    Sounds like one crazy plan to me dude. Wow.

  • Chris Bell

    I used to spend anywhere from $100-300+ per month on music, now I spend $120 per year. The music industry needs to recognize those spending patterns will never come back. #glorydays

  • Vincent Pickering

    In the uk the bbc pays all artists a fee, they pay to a non profit organisation which distributes the fees, this also applies for public performances. Since playing on the radio at work counts as a live performance companies also (if they play music) are supposed to pay a contribution to the non profit organisation too.

  • Dave

    What I don’t think artists “get” is that Spotify is not their new revenue stream for fully supporting themselves. People aren’t going to pay physical media prices for streaming access. It’s never going to happen. Rail against the system, make Spotify charge me $20/mo instead and get $120 instead of $60 out of their royalty system and people will still complain that it’s too tiny.

    Meanwhile, if you were to pay for those 8,000 eyeballs in terms of advertising a thing you’re selling like say a vinyl release of a tangible thing… well the value of those 8,000 eyeballs is somewhere between what, 60-100 bucks based on advertising rates on most blogs?

    It seems that bands don’t want to work with the new system, and don’t understand how it works in their advantage. People will still buy your junk. They will buy your vinyl, your t-shirts, your hand-painted ukeleles as evidenced by Amanda Palmer’s kickstarter. The money is out there. It’s waiting for artists to pick it up. But doing it requires an artist to produce something more than the music they now have to mostly give away for free as advertising for their “brand” and not their band. That’s the hard and unfortunate truth of music today. Maybe it’ll change in the future when everyone gets all of their music through a service that actually pays royalties.

    Right now, Spotify is basically the new radio and artists should be happy they get anything at all from them AND should plan to have things they can sell. Merch is nothing new. If you’re really an artist, be creative and sell things. Then make more music.

  • expected

    I have a spotify account and a record player. i am not alone.