Streaming Money Is Flowing … But Where To ?
Mason . He is also the VP of the Songwriters Association of Canada and sits on the board of directors for SOCAN . “ Each label , especially the bigger ones , will have their own ranges of what they ’ re willing to move within [ on the sales revenue split ] and that is wholly dependent upon what tier of artist you are . If you ’ re an established artist that ’ s still making a big impact , you ’ re obviously going to be on the higher end of that spectrum and if you ’ re an up and coming artist that basically they ’ re going to develop , you ’ re going to be on the lower end of it ,” says Javed . “[ The major label ] will offer a certain percentage . If you ’ re lucky it ’ ll be in the 20 per cent range and if you ’ re new it ’ ll be in the 15 per cent range , maybe less . But that is based on the PPD , so basically based on sales figures minus returns . Then there are the complications of how that actually gets sussed out and , again , bear in mind all the recoupables coming off the top and those recoupables only get paid back at that royalty rate .”
So , to simplistically recap on the major label side : on-demand streaming services pay the label based on an ( unknown ) percentage of gross revenue , the label lumps that money in with all other sales revenue from physical and download sales , the label pays the average artist about 15 per cent of those royalties from their work based on PPD , but not until the label has first recouped the money it already spent on that artist ( artist advance , recording , tour
support , video production , etc .) at a 15 per cent rate . It ’ s largely a formula adapted from the analog age , but it carried over into the iTunes era where there was still some logic in digital downloads being categorized as “ sales ” rather than “ licensing .” But is it logical that streaming revenues are considered sales ? After all , no one is selling , buying , or owning the songs . They ’ re effectively licensed by the label to the streaming service to be rented by consumers .
There is a famous 2007 lawsuit where Eminem ’ s production company sued Aftermath Records and its parent company , Universal Music Group , to have downloads be considered licences rather than sales . “ Eminem won that case but ever since then the record labels have amended the deals to make it very clear that those are not licences , they ’ re sales ,” says entertainment lawyer Paul Sanderson , who also wrote the book Musicians and the Law in Canada , now in its fourth edition . As such , when it came time for labels to include streaming revenue in record contracts , they made sure not to make the same mistake . “ I think they were able in that case to anticipate that and not get caught in the same situation because there is a big difference between 15 per cent and 50 per cent .”
For his part , Javed agrees that on the surface it is not logical for streaming to be considered sales . “ Effectively , aren ’ t you licensing the music to stream ? You ’ re not selling it , right ? No one owns anything . So , in that case , shouldn ’ t it fall under the third party licensing revenue split , which would be 50 / 50 , which would be amazing ,” he says , before adding , “ But not to be too negative , I don ’ t think you ’ ll ever see that happen unless maybe a court mandates that .’”
To be fair , the labels do take a significant financial risk by paying possibly millions in production and promotion costs on an album that may not ( or even likely won ’ t ) sell or stream enough to break even , let alone make money . You can understand why they feel entitled to a return on that risky investment and streaming is increasingly providing the only chance of a return . “ There is a strong investment [ by the labels ] and that investment has actually stayed very steady
over time , even while label revenues have gone down ,” says Terrill . “ Globally , over a five year period from 2009 to 2014 , industry revenues declined by 17 per cent and artist revenues declined only by six per cent . So they didn ’ t drop as much and you know the reasons for the industry revenue declines are obvious . So the investment in artists remains strong and , in fact , we like to think of it as our R & D . Record labels continue to invest 27 per cent of their revenues in R & D , which is pretty high compared to other industries .”
So the major labels invest 27 per cent of their revenue back into developing and supporting artists while physical and download sales crater . So it ’ s only fair they should keep the majority of streaming revenue by classifying it as “ sales ,” even if no one is actually selling the music , right ?
“ Yes and no ,” says Javed . “ It ’ s such a weird concept ; so the label pays for the product you ’ re making up front and because of that , they own the product . But you ’ re going to pay them back from money off of that product , off your royalties from that product . So in the end , if you ’ ve made enough money back , ultimately you did pay for it , it was just basically a loan , but you don ’ t see ownership revert back to the artist do you ? So it is kind of a weird notion .”
Javed continues , “ Having said that , it ’ s also a notion that ’ s been in place for a long time . If we ’ re assuming the jumping off point is , ‘ Well OK , we ’ re willing to accept that ,’ then the next question is , ‘ OK , is it fair for [ the label ] to have the royalty rate be as low as it is for the artist because they took the risk of putting the money in ?’ Well , let ’ s see , you ’ re now seeing more and more labels taking pieces of other revenue streams . So , because the overall revenue pie generated from record sales has diminished significantly , labels are now often taking a piece of touring income and sometimes publishing income and a lot of the time from merchandise .” These , of course , are often referred to as “ 360 deals ,” though the
42 • CANADIAN MUSICIAN