Canadian Musician - November/December 2017 - Page 62

BUSINESS Sarah Falzon is a lawyer, music enthusiast, and violinist. She is a lawyer with Taylor Oballa Murray Leyland LLP, and works with musicians navigating through varying stages of their careers. For more information, visit www.tomllawyers.com. By Sarah Falzon Where the Money Goes 3.0 A Breakdown of One Million Digital Streams A bout 20 years ago, entertainment lawyer Chris Taylor provided a break- down of the retail sale of a $19.95 CD in this column (Ex. 1). Then, nine years ago, with the dra- matic shift towards digital album sales, entertainment lawyer Pat Leyland provided an approximate break- down of the sale of a $9.99 digital album (Ex. 2). A significant portion of music consumption has since shifted towards use of streaming services such as Spotify, Tidal, Apple Music, etc. Recent growth in this area has been substantial, and royalties from streaming have become more important to record- ing artists than ever before. The payment structure for rights holders varies significantly from service to service due to several factors, including (but not limited to): the type of streaming, being “on-demand,” “non-interactive,” or “semi-interactive” streaming; whether it is a paid sub- scription or ad-supported service; the agreements the service has with the major record labels; and the country from which the streams originate. The result is several complicated and non-trans- parent payment structures and royalty payouts to artists. For this article, we will be looking at revenues generated under the paid subscription, on-demand streaming format of Spotify Premium. Note that calculating a “per stream” royalty is not entirely reliable. The rate fluctuates from month to month and there are several other factors at hand. For example, we have learned that major labels may have a minimum payout guarantee, and Spotify is constantly negotiating its mechanical royalty obliga- tions and its agreements with labels and publishing rights organizations. Being as that may, the purpose of this article is to provide a general breakdown of the complicated world of streaming royalties. Let’s take a look at “where the money goes” in 2017 by breaking down 1 million streams. mula used to determine the amount of money al- located towards any one particular song: [(monthly revenue) x (monthly streams per individual song / total monthly streams)]. Put simply, the amount of money attributed to any one song in one month is determined by calculating the number of times it was streamed relative to all other song streams that month. Data published in 2015 by music royalty col- lection agency Audiam (the most recent publicly available data, the “Audiam Data”) shows that Spoti- fy earned between $24 million and $42 million per month from its premium service between January 2014 and March 2015. In order to illustrate where the money goes, we will be using the Audiam Data for the month of March 2015. According to this data, Spotify collected $42,559,077.44 USD and generated 4,314,366,992 to- tal streams from its premium tier service that month. Applying Spotify’s royalty formula to our 1 million streams [(42,559,077.44) x (1,000,000 / 4,314,366,992)] we can conclude that $9,864.50 would be allocated to those 1 million streams. The Audiam Data shows that Spotify retains 20-30 per cent of the gross rev- enue. On the high end (30 per cent), Spotify retains $2,959.35 in our example. The Label In Canada, on-demand streaming services must currently pay 12.78 per cent of gross revenue to the composition rights holders, which would leave 57.22 per cent to sound recording rights holders. In our example, the owner of the rights in the sound recording is owed $5,644.47. Under a typical re- cording agreement, the record label would collect this amount, whereas independent artists who own their own masters would collect this. their music on streaming platforms like Spotify. These aggregators provide such services for a fee. The Artist Generally, a record company pays the artist a royal- ty for commercial exploitation of their recordings, and the same royalty usually applies for streaming as for standard sales. This rate is applied to the net revenue received by the label in connection with the 1 million streams. The artist royalty is commonly somewhere between 13-18 per cent. Using a midrange artist royalty of 15 per cent, the artist is entitled to $677.34 (subject to any recoupment provisions) and the label is left with $3,838.24. The artist is then responsible for paying any producer or mixer a royalty in connection with the sound recording. The Producer/Mixer The producer or mixer royalty is negotiated in the producer’s agreement with the artist, and is typi- cally taken from the artist’s royalty. For streaming royalties, the producer’s share is customarily a per- centage of what the artist receives. The percentage varies depending on the specific agreement, but taking a mid-range producer royalty of 20 per cent and assuming that there is only one producer receiving a royalty, $135.47 would be payable in producer royalties, and the artist’s royalty is reduced to $541.87. Songwriters/Composers In Canada, Spotify must currently pay 12.78 per cent of its gross revenue to the owners of the composition. These amounts are paid directly to the writers and publishers who have rights in the composition via their public performance organi- zation and their mechanical license agency. In our example, $1,260.68 would be paid to the writers and publishers. The Retailer Spotify is the undisputed leader in streaming. They offer an ad-supported free tier service and a paid premium tier Xܚ\[ۈ\XKHܛ]KBYHYHX\HXXY\\\X]YۈB[۝H\\ˈYHX[HX\YH܋HH\X]܂HX[X^H\HH\\HY][\X]܋XX^H]Z[]Y[ MKLH\[وB[Xܙ[\K\[[]\YH\XKB[ۈYHو \[ H\X]܈\[]Y‰ K L KX][HX[] LMKN [KB[[\\[ٝ[\HY][YܙY]ܜ›ZHXH[[XܙHXH[YZ[\\^ NHXZۈوH]Z[[HوB NKMH NNN H^ HXZۈوH[HوH KNBY][[[HۛY  H^ ΂HXZۈوHX[Y\H BZ[[ۈYHX[\ MBX[YX\[”]Z[\\X]܂ۙܚ]\\\X\XܙX[[]Z[\\X]܂ۙܚ]\\\X\XܙX[[]Z[\\X]܂XܙX[\\X\ۙܚ]\X\\[ K  KMB B B KB  M‰ NKMB8(HHHHHHHHH IJB K JB JB ˍIJB JB JB IJB L JB NB K B K  ˍBKNB JB LJB ˎIJB LJB JB IJB L JBۘ\[ۂ[[[X\KH K LT[\]YH HZ[ B[ۈX[\[XZۈ\][Y[^ ˂HY][[[ۜ^\Y[\˜\XH\HYX[X]]H܂Y[YXKX[HY[XX\X[\[[K MNKB K L B   M K ‰ LK ‰ K K L JB LK JB IJB K JB K JB L JB L J