Law & Policy, Music Business

Streaming vs. Downloads: Does Free Music Increase or Impair Artist Revenue?

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Recently Spotify announced that it would be paying music rights holders a total of $500 million in 2013. The president of global digital business at Universal Music Group also acknowledged Spotify’s contributions to the record company’s revenue in the past few years. Pandora also recently claimed that it dished out a whooping $3 million dollars to Drake’s camp over the past year.

In this digital age, few of us actually purchase CDs; few of us even purchase music at all. What with applications (“app” or “apps”) like Pandora and Spotify, we just hook our phones  to our cars with an AUX chord and keep it moving. These apps are great but they do leave the Nigerian listener yearning for her own music, as they tend to carry the music of very few popular Nigerian artists. No one knows Nigerian music like a Nigerian, so why aren’t more Nigerian acts on Pandora or Spotify? Why hasn’t a Nigerian created an app or site similar to Pandora or Spotify where people can stream our music for free? This is the point where Gidi lounge jumps in and says “we have.” (My response?) “Sit down, no you have not.”

I am not talking about a radio station that plays Nigerian music at random. I mean an app that lets you choose the particular kind of Nigerian/African music you want to listen to. The closest thing we have to a music broadcasting or web casting app that is specifically geared towards Nigerian music and actually lets the listener choose is Spinlet. Spinlet, however, is not free.

This article explores how apps like Pandora, Spotify and Spinlet actually work (there is more to downloading the app and picking a station); and how the companies obtain revenue for themselves and for artists.

Spinlet

Last year we saw the emergence of Spinlet. It was introduced to us in the summer by (Banky W’s) EME (Visit AML’s Ms. Uduak’s article during EME’s-Spinlet).This is an application that when downloaded to a user’s device will allow the user to purchase a musician’s material. So basically, like iTunes, consumers pay to download music with this app. The big catch with Spinlet was and is that this app does not allow the user to download music directly to his or her device. If you want to access your music you must access your Spinlet app. You can’t even search for the tracks on your Blackberry; they just won’t show up. It’s like the songs are not even on your phone, until you switch on Spinlet, and like magic, the music appears. Although you cannot access Spinlet files outside of the app, you can access your music library inside Spinlet, thus making the app a one stop music shop/audio player. (In terms of compensation,) artists are paid based on album sales, like most music purchasing websites.

Initially when Spinlet first introduced this app, I thought it was simply brilliant. After the EME ‘State of Mind’ Album released on the Spinlet platform, the only time I have touched Spinlet is to listen to select tracks on Banky’s new album. In fact, the only reason why I still have that app on my phone is because I don’t feel like paying for the R&BW album (Yeah I said it), when I can listen to it for free. I don’t think there are many apps like Spinlet here in the United States. If there are, they are not that popular. Spinlet has insinuated that it intends to provide audio streaming and file sharing. This would seem a much better route than its current one; and to be honest, if I am going to pay money to download a track I better be able to access it outside of your app.

pandoraPandora and Spotify

Many of us are familiar with Pandora and Spotify. These are music streaming sites with apps that allow you to create and listen to radio stations with tracks from your favorite musicians. Unlike Pandora, but much like Spinlet, Spotify actually accesses your system and makes your music library available inside the app in addition to the online music you choose to stream. Most of us listen to music on these sites for free and if you are like me, you have probably wondered how musicians get paid when you yourself aren’t even paying to listen.

These companies make their money from advertising and subscription fees. If you want to listen to music for free on these sites you will have to deal with the occasional advertisement. Advertisers pay these companies to blast commercials into your speakers at the most unexpected and inopportune moments. If you want commercial free music, you can pay an annual subscription fee (averaging about $100-$150) that will allow you to listen to unlimited music without interruption. That, AML people (especially artists), is how these companies make money. But, there still remain questions as to how artists receive compensation for their music being streamed from these sites.

How Do Artists Get Paid By Spinlet, Spotify, and Pandora?

Spinlet

Spinlet pays artists based on the ratio of the artists downloads to Spinlet’s total downloads. Basically if 1,000 albums are downloaded on Spinlet and 500 of them are the EME album, guess who gets about 50% of Spinlet’s revenue? Now of course there will be fees and other payments that may have been agreed to by the parties that Spinlet will more than likely deduct from revenue before disbursing payments to artists.

One major issue that Nigerian artists dealing with Spinlet must consider is that Spinlet is NOT responsible for royalties and other third party payments. Basically, they give the money to the artist’s camp and these people sort out how the money reaches the performer, writers (if they are being paid at all), and others. Based on the way the Nigerian music industry is currently operating, this may not raise concerns. However, should writers, producers and other contributors begin to demand their rightful compensation for their contributions in musical works, Nigerian artists will find themselves in a not so pretty legal situation.

Spotify
Spotify claims to pay out the majority of all of its revenue. On its website the company claims that its payouts amount to close to 70% of its musical revenue. These payments go to artists, labels, publishers and performing rights societies like ASCAP, BMI, and SESAC (for whom I currently consult). Spotify has direct agreements with record labels, publishers, and performing rights societies, to whom Spotify regularly pays royalties. These labels, publishers and societies then pay recording artists and songwriters according to their own individual agreements.

Spotify is quite similar to Spinlet in that it pays the party they are in contract with directly, and that party is responsible for compensating other individuals who may have ownership rights in the music.

The major difference between the two is that Spotify does not contract with individual artists as does Spinlet. A Nigerian artist looking to get her material on Spinlet can have her manager contact the company, and the artist and Spinlet may enter into contract to provide the artist’s material to the general public. Spotify on the other hand will only collect an artist’s music from a distributor. Independent artists (like most Nigerian artists are) have to choose a distributor that will then help them get their music on Spotify. The distributors then determine when and how the royalties pass to the artists.

Spotify is not entering into any contracts with individual artists. With them it is get a label or find a distributor. They don’t want to get in the middle of it. Spotify calculates how much they pay an artist’s representatives based on percentages. Out of the songs being played, how often was yours streamed? That is how much your representative gets, not you. Your representative will then pay you based on whatever the two of you agreed to in your individual contract.

This model provides a good source of revenue for musicians but still seems to leave them at the mercy of record labels and/or distributors. Needless to say, the obvious question becomes can independent artists really be independent with Spotify?

Pandora
Now this is a company that is just different. Personally, I prefer this company’s model. As an artist myself, I believe that this company provides the most protection to artists.

Pandora, unlike Spinlet and Spotify, does not pay the artist or her representative. Pandora pays Sound Exchange. Who is Sound Exchange?

Sound Exchange is a non-profit organization that collects digital performance royalties on behalf of sound recording owners and performing artists.

Note that sound recording owners and performing artists may be two different people. These two could also be different from the person who actually writes the song. Most record labels work out contracts with artists whereby the record company owns the rights to the sound recording, and the performing artist is paid a percentage of the revenue obtained from the track. Most of the time this is done because of the investment by the label in the production of the track. Labels tend to bear the cost of production, publication, advertising and vigorous marketing of their artists. In all of these, the songwriter still owns the rights to the actual song (melody and words) itself.

For example, if Ne-yo did in fact write “Irreplaceable” for Beyoncé, Ne-yo would be considered the Songwriter, Beyoncé the Performing Artist, and Beyoncé’s record label would be the Publisher and Owner of the sound recording.

Instead of going into contracts with record labels, Pandora has decided to take advantage of a compulsory license for web casters.

The compulsory license for web casters is a license that is only available for web casters that are principally engaged in playing music as opposed to the sale of music. Basically this license is available for music streaming companies like Pandora and Spotify. With this compulsory license, Pandora is able to use the sound recording without having to obtain specific permission of the copyright owner (who in most cases is an artist’s record label) as long as royalties are paid and all the statutory rules are followed. This license is not available to web casters who are actually providing downloading services. Such broadcasters will have to actually obtain permission from the copyright owner and negotiate a contract with them. So Spinlet, for example, would have to keep on doing what it is doing because even if it should decide to stream music, it is by all means, a music seller.

All of Sound Exchange’s royalties go to the owners of the music. 50% goes to the owner of the sound recording, 45% to the performing artist, and 5% to the musicians and backup singers. And you wonder why I love this model? If the performing artist is an independent artist who actually owns the sound recording, she gets 95% of her royalties. The model even takes care of backup singers. So if Pandora did actually pay Drake’s camp $3 million dollars as it claims it did, a backup singer could have made 5% of that? Things that make you want to quit your day job and ad lib on every Drake track.

So with all this information one would wonder why Nigerians just don’t build an app like Pandora. Remember that we do not have an organization like Sound Exchange. Music service providers are required to obtain the permission of copyright owners before they can use their material in Nigeria. So although Pandora is obviously the more artist friendly model, the Nigerian society and music laws would require an app or service that is more similar to Spotify to efficiently stream Nigerian music for free.

So why don’t they just hop on Pandora or Spotify? Spotify, as mentioned above, requires the use of a distributor or affiliation with an American performing rights organization. Pandora on the other hand, does not require a distributor and can be used by Nigerian performers as proven by Naeto C and Asa who already have their own Pandora stations.

AsaOther Nigerian artists: You would do well to follow suit instead of sitting around waiting for COSON and MCSN to stop the shameless battle over who gets to “chop” your money. Audio streaming through companies like Pandora does increase revenue and is a good source of income via a model that is strictly regulated by US law. Not only would you be increasing your revenue, you would also be exposing an international audience to your music at the same time. I would think this to be a breath of fresh air for performers whose works are continuously exploited in their home country on a daily basis.

Please excuse me if I sound a little frustrated. I have made this, amongst many other lucrative suggestions, to close friends (you know yourselves) in the industry, many times. But many Nigerian artists don’t want to be bothered with “complex details.” They don’t care to know what their rights are or how the industry they work in functions. Some believe that the only way to make money is through manual labor performances. What happens when you can’t perform anymore? “Ahh you this Enzé you dey make sense oh. See, this is why you need to come home and be my lawyer.” If you are waiting for Enzé to come home before you look into this I am just sorry for you. Don’t be caught sleeping on a bicycle; expand your horizons.

-Ollachi Holman

Business of Music North Africa Roundtable

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Ollachi Holman

AML intern Ollachi Holman aka “Enzé is a recording artist commonly affiliated with Syndik8 Records. She has been featured on tracks with the likes of Lynxxx, 2Shotz and MI, and has had a few cameos in clubs and albums. A recent law school graduate from the University of Houston Law School, she is pursuing a career in Entertainment Law. Look for her posts on on Mondays and Wednesdays in the AML categories of "Music Law" and "Celebrities Behaving Badly", now until May 2013. Please give her your feedback and let her know how she is doing, what you like and don't like. Thanks!

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5 Comments

  1. Real says:

    Enze’s killing it already. Very very good article. Thanks a billie.

  2. Justin Ige says:

    This is a very well written article! But, may I suggest that you should not be too quick to conclude that the COSON/MCSN battle is about who should be “choping” artistes money.

    1. @Justin, I agree with you as to the article being well written. I’ll let Ollachi discuss her characterization of COSON/MCSN. Ollachi, I would have loved to see you delve into the financial strain on content distributors. Pandora, Spotify, among others, are really losing millions with their current business models. Spotify, of late, has made it clear they are trying to find new ways to generate revenue for themselves because they are operating at huge losses for now. If you pay 98cents out of every dollar you make in licensing fees, it will be hard to stay in business very long. This, needless to say, would affect artists in the long run. Even if you do not go too deep on the impact of these streaming services from the distributor’s point of view, touch on it a little for a different view.

      Solid writeup. I enjoyed reading as well.

      -Uduak

  3. Enze says:

    @Uduak thank you. I am actually currently looking into the Pandora situation. My next music law article should touch on that topic. I didn’t want to confuse people with an already lengthy article.

    @Justin thank you for your compliment. In regards to COSON/MCSN, I shall politely refer you to Ms. Oduok’s recent article on the COSON/MCSN battle to further bolster my statement. These two organizations clearly are more interested in each other than Nigerian musicians

    1. @Ollachi, got it.
      @Justin, I actually have had quite a lengthy and extensive discussions on MCSN & COSON here on AML, reference some links below as a starting point for prior discussions and some history from the parties:
      a) Chekc out the link Ollachi I believe is referring to: https://www.africamusiclaw.com/2013/03/bombshell-mcsn-performing-rights-agreement-with-prs-of-the-uk-terminated-since-2010.html

      Other Links

      b) https://www.africamusiclaw.com/2012/09/legal-drama-ope-banwo-attorney-for-musical-copyright-society-mcsn-issues-press-statement-on-nccs-illegal-raid.html

      c) MCSN files major class action against COSON: https://www.africamusiclaw.com/2012/12/aml-music-industry-lawsuit-of-the-year-goes-to.html

      Thanks for your comment Justin.

      -Uduak

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