The Trade Off Between Streaming Services And The Old “Buy To Own” Music Model

Today I was curious, as usual, about the average streaming royalty by platform. So I went to royaltycalc.com and took a look at what 1MM streams pays out. What I found: Spotify pays just $4000 per million streams. Apple pays about 50% more – the same stream number is ~ $6k. Let’s talk about the economics of streaming.

My first reaction was that the artists who cash in the most are those who sit atop the music industry (the Taylor Swift, Adele, Beyonce, Bieber’s) because their fan bases are already so large and were such before the streaming era took off. Then, there are the acts like Imagine Dragons who gained the majority of their popularity within the last five years – roughly when streaming became a part of the mainstream (no pun intended). They’ve amassed over 3 billion streams on Spotify alone – and that’s just from their top ten songs (stream totals revealed in PC platform for top 10). They have cashed in on the nature of streaming, and its ability to expand the interest of a fan base into their entire discography, rather than just the overplayed radio “hits”. Other artists who have capitalized on streaming include AVICII, Arctic Monkeys, and Ed Sheeran (this is obviously an incomplete list). This seems to upset a lot of feely artists and fans across the world who champion “the little guy”, but they are failing to see the true value of music streaming’s impact on the music industry – even for “the little guy”.

Streaming services grant new and young artists vast amounts of exposure (130MM+ users globally between just Apple and Spotify) and reach where they never had it before (Asia, EMEA, Latin America, Australia). These regions were hard to reach previously, because entry costs to promoting and discovering a new artist were too high, both on the music labels and their end listeners. Prospective fans had to pay the cost of a single song at $1.00+, or an album, whose costs were so high in part because marketing materials that labels had to pay for were extremely high as well before and during the “iTunes” era. If a prospective fan bites the bullet and purchases a single song, that one song may or may not be the tipping point for a user to further explore an artist – especially if the song didn’t blow them out of the water. The cost of buying another song is another $1.00+, equating to already 20% of the cost of a premium subscription using today’s streaming services – just to unearth two songs from an artist (and determine if their music was worthy of more purchases) in the pre-streaming music environment. Music ownership meant buyers had to be extremely selective on who they listened to, or go broke purchasing loads of music.

Now, with streaming services using learning & matching algorithms, discovering new artists with similar characteristics to the ones you like is as easy as a recommendation or custom radio station generated to your habits, and the costs of discovery are infinitely lower – there is no gross cost difference to a user who discovers just one new song vs one thousand new songs. Some services like Spotify even have a custom playlist generated each week for users based on their own personal listening habits, as well as the patterns of their “followers” circle. Talk about low barriers to discovery!

Bringing things back to my initial investigation, the trade off for these low streaming royalty rates is unprecedented access to global reach and lower discovery costs for potential fans, simultaneously. The rise to the top of the charts is far faster than it was before – one major hit song blows up and you can become an international sensation, springboarded into the everyday playlists of millions of listeners across the globe. Before, the only artists that made the charts were the big names- because the labels paid to put them there. Now, virality plays a large part in the success of artists. Sure, it benefits the large artists that everyone knows – but that’s a given, since their fan bases are already enormous. But now, the little guy, or independent artist, can play ball on the field of giants, where before, they’d be swept aside as irrelevant, or “not big enough”.

Advertisements

Leave a Reply