Paying The Piper: Music Streaming Services In Perspective

As sales of recorded music continue to plummet, the concept of fans "owning" music may soon be considered old-fashioned. Today, it's all about access to music, rather than ownership of an album or a song, and newer streaming services like Spotify are at the center of the storm.

Two weeks ago, musicians Thom Yorke and Nigel Godrich, of the bands Radiohead and Atoms for Peace, announced on Twitter that they were pulling three albums from Spotify in protest of the streaming service's minuscule royalty payments.

Yorke and Godrich are influential guys who can afford to make this stand — what Godrich calls a "small, meaningless rebellion" — and they didn't pull the music they made as Radiohead, just the two Atoms for Peace albums and Yorke's solo album, Eraser.

But other big names are rebelling, too: Pink Floyd wrote a terse op-ed in USA Today about Pandora. Aimee Mann just filed a lawsuit against MediaNet, a company that supplies music to streaming services.

So what's going on here? Are these the opening salvos in an all-out war against streaming? Or should artists just be happy that they're getting paid at all for music that could easily be stolen?

A Service's Perspective

Mark Williamson, director of Artists Services at Spotify, says the company pays close to 70 percent of its revenues to the people who own the rights to the music it offers for streaming (that's usually the recording labels).

Those rates are negotiated with the labels, and critics argue that the bigger labels arrange better rates for their biggest artists, and that the smaller labels, independents and new artists get paid less. Spotify has steadfastly refused to be transparent about their rates, but Williamson says the difference from one deal to the next is overblown.

"We have to do deals with tens of thousands of entities to get these rights, but whereas there are specific differences in those deals, across the board really they're equitable," he says. "And, you know, we're not massively favoring major artists; we're not penalizing smaller artists. We're providing a level playing field for all artists on the service."

By the end of the year, Williamson says, Spotify will have paid out almost $1 billion in royalties.

"One of the great things that we're doing is we're taking people who paid zero for music — we're bringing people out of that darkness in the industry and bringing them into this legal service where, once they're in there, we're actually generating a huge positive net impact on the industry," he says.

Comparing Companies

Last fall, musician Damon Krukowski wrote a story for the music website Pitchfork about how a song by his '80s group Galaxie 500, "Tugboat," was monetized on Spotify and Pandora. On Pandora, it received 7,800 plays in three months.

"We had earned for that 21 cents — the band had earned that. There are three of us who were in that band and wrote that song together, so we had each earned 7 cents for the quarter for those 7,000-plus plays," he says. "Spotify pays marginally more. Spotify had played Tugboat 5,960 times, almost 6,000. And for that, we as a band earned $1.05. So that was a whole 35 cents a piece. So we tripled our earnings from Pandora."

Spotify's Williamson maintains that the service pays out more money as it grows. "Whatever scale you are, whatever size you are, we wanna pay you fairly for your music, every single time that somebody clicks on it," he says.

Krukowski, currently a member of Damon and Naomi, says artists "shouldn't buy" that "sales pitch."

"Because there's really no responsibility that a company like Spotify has to the people making records," he says. "Even the biggest record labels, who may have ripped off artists in extraordinarily Baroque ways ... they still had to make sure that records were made to stay in business.

"That's not true for these companies — Spotify, Pandora and Apple — who are making enormous amounts of money by making use of our music, but they're never really under any pressure to have it flow back to us. I don't see why they would start to do that later."

He says that reports from Spotify and Pandora showing they're losing money don't tell the whole story.

"The problem is how they count revenue. ... They're in the red because they don't really have very much revenue. What they have built is capital," Krukowski says. "Spotify in particular I've read is now valued at $3 billion. They're not funneling any of the $3 billion back to artists. And that's the thing that I think is missing here."

Krukowski says he actually has no problem with music streaming online for free. In fact, he says, "I'm not convinced we should be paid by Spotify and Pandora at all."

"These digital goods that are online, they don't really operate as property in the traditional way that we understand it. Our records are still our records. We own them, we control where they're sold and for how much," he says. "Companies like Apple, Pandora, Spotify, what they've done is they've set up businesses based on the idea that these streams are property. But they've laid claim to these streams as their property rather than anybody else's."

Krukowski suggests giving up the idea that sharing music online is piracy. Then, he says, "we'd actually open ourselves up to entirely new models of how music can function in the present day."

The Songwriters' Rights

Paul Williams is the president and chairman of the board with the American Society of Composers, Authors and Publishers, or ASCAP, which is currently in a legal battle with Pandora.

Williams has written hits for The Carpenters, Barbra Streisand and Kermit the Frog. He's been paid for one of his songs, "The Rainbow Connection," in many ways. First, by the film studio (he was hired as a songwriter for The Muppet Movie). Then there's licensing for television and commercials. And of course, record sales, radio airplay and concerts.

But, Williams says, "the bulk of a songwriter's income comes from a continuing performance of the song." So when Willie Nelson or Weezer cover "The Rainbow Connection," Williams gets paid.

"And that's where a performing rights organization comes in, like ASCAP," he says. The organization's clients rely it to strike deals with these new streaming services.

At present, one of those services, Pandora, is suing ASCAP. Pandora is arguing against having to pay both the songwriters and the folks who own the recordings. Terrestrial radio doesn't pay both rights holders; terrestrial radio only pays the songwriters, not the performers.

Williams says it's kind of like the Wild West in the music business right now, but he's encouraging his clients to remain hopeful.

"I have to tell you that at the introduction of any new device to bring music — any new form of delivering music — there's always been the process of, first we establish a right, we have the right to collect this," he says. "Songwriters are small businessmen. They've created this, they own it. They have a right to receive income from this."

After a right is established, then a rate is established.

"When cable began, it was a very small rate. As the years go by and as we create meaningful relationships with not only the audiences loving the music, but cable and the people presenting the music, the rate begins to come up to something that is appropriate," he says. "And what started out with cable very small, is now probably our largest ... source of income for our writers."

Don't be mistaken, they're not against technology, he says.

"Why would we ever be against any world that is providing an opportunity for our music to be heard around the world?" Williams says. "But we have one major issue."

The fundamental dilemma, he says, is this:

"We're songwriters who are writing for the center of our chest providing songs for the world to dance to and fall in love to, but we're doing it for a living. And when I'm properly paid for my songs, it becomes gas in the car to take my little girl to school. The fact is that for us to have a life, where we can continue to make music, we have to be properly paid."

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