Economics dooming free streaming sites?

For the last year or so, it's become clear that the economics of ad-supported streaming music services are not good for their creators or investors. As CNET's Greg Sandoval reported last week, the acquisition of streaming service Imeem by MySpace Music for pennies on the dollar is the latest bad news for the sector, following the bankruptcies of SpiralFrog and Ruckus and the similar fire sale of iLike to MySpace.

Offering your music via Spotify might help you fill up your piggybank.

Who's left? In the U.S., we've still got LaLa, which has the blessing of the major labels and seems to be enjoying dramatically increased traffic (as measured by Alexa) thanks to its recent deal with Google, and Grooveshark, which has kept a low profile. Neither of these services is purely ad-supported--particularly LaLa, which hopes to charge customers for downloads and "permanent" streams once they surpass a quota of 50 free streams a month.

But the service most often cited as the future of online music is Spotify. It's only available in Europe right now, but it seems like everybody who tries it loves it, myself included. Spotify offers a premium service as well, which offers portability and higher-quality streams, but the free service offers unlimited ad-supported streams, and that's the service that has everybody so excited.

But there's one small problem with the Spotify-as-savior story: it doesn't pay artists very well. According to this story in a Swedish publication, as translated and explained by the TorrentFreak blog, Spotify delivered more than one million streams of Lady Gaga's hit single "Poker Face" over five months. From these streams, she reportedly earned about 1,150 Swedish kronor--about $167--from the Swedish agency responsible for paying royalties. That's not even enough to cover the cost of four tickets to her upcoming concert in San Francisco.

If this story's true, why would any artist agree to make songs available on Spotify? With these kinds of payouts, it looks like music business expert Donald Passman is right--advertising is never going to support an online music service.

[iertry]

Wow, that is bad. I thought it would be much higher than that considering they play quite a lot of ads on Spotify. Hope it doesn't go away, I have the premium and love it. But if the artists aren't getting paid they need to sort it out, they deserve to get paid. <br /><br />I wrote an article about Spotify today also: http://kmcgrady.posterous.com/spotify-changing-how-you-listen-to-music

[admin418]

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[treefingers282]

So we are taking an "artist" like lady gaga and suggesting she isnt making enough money...? I think this is a problem with her contract and not with online streaming. How big of a cut did her label get? And how much money would she have gotten if she never was "discovered"? Lady Gaga probably would have made the same amount if she werent prostituted by the big labels and was left to fend for herself and not made to payback all the loans from her label.

[GreyFerret]

This article misses the point. It is not Economics that is dooming free streaming sites, but rather record labels and collection societies that have created absurd licensing fees for these sites to pay.<br /><br />Music (media) is no longer a scarce resource. Technology has made it an infinite resource now. Therefore, trying to make a living simply by charging for media is no longer viable. Your article has the necessary information, but doesn't make the necessary connection. You should NOT focus on the fact that Lady Gaga only made $167 from 5 months of Streaming, but should be looking at the fact that she IS MAKING that much on 4 tickets to a single show.<br /><br />You need to stop looking at media as a resource to be sold, but rather a means to build a community. You then need to find other ways to monetize that community. Such as live shows.<br /><br />If more people would grasp this concept, then maybe the record companies would finally decide to stop fighting technology (licensing it into oblivion) and find ways to embrace it.

[ihaveapony]

ehh, I don't perform live. Strictly music for tv. Licensing and publishing is were the money is... except for situations like this. For a lot of us that are in the trenches, licensing is our main bread and butter. It is always somewhat disturbing to hear people frame these arguments with phrases like "they have enough money already" etc While that may be true for top shelf artists, it is certainly not true for the many thousands just like me who earn a living through licensing. Music in commercials, tv shows etc. The big artists are the bell weathers for the rest of us. <br /><br />I agree with you in regards to ticket sales offsetting lost revenue but here is what you need to know: media companies in general NOT the record companies have been trying for awhile to kill royalties. major networks, ad agencies... the list goes on. That actors strike a couple years back was largely about royalties in the era of all these new and fantastic ways to distribute content.<br /><br />I've said it before but there is a land grab happening right now. For instance, did you know that on networks like mtv, they don't pay to license your music? it's gratis. These reason being that the back end will make up for it if the does well. A lot of shows on cable are like this now and there are more and more everyday that just don't pay anymore. So essentially, we as composers will work for free, take the risk that the show plays for a awhile and the back end kicks in and we get paid nine...months....later. <br /><br />now, lets add hulu.com to the picture. Awesome site, use it all the time... they don't pay royalties. They categorize their plays on hulu as rentals... not performances. But hold on now, there are commercial breaks, there is add revenue. It may be on the web but it's still tv. if it was commercial free I wouldn't care as much but they get away with it because of how they categorize something that is clearly not a rental. <br /><br />So, were am I going with all of this? basically, things are moving at light speed and these large media companies are counting on us be blindsided by all of this continual break neck speed change. And they count on people blaming the artist or the labels of which I am no fan I can assure you. Major labels are only one small piece of the puzzle. Once you grasp this, you will see that basically any large company that serves content is trying to make an end run around the artists and making it so our contributions are largely worthless. <br /><br />You want to know why streaming rates are so tarded? read above.

[Renegade Knight]

@ihaveapony <br /> <br />You make some good points. Sustainably cheap is different than free. It's ironic that most of the "free" scamming is coming from the Media companies.

[ketanc]

I saw an interview on BBC were a member of COLDPLAY said he was not to concerned about online music sales as they made most of their money from live performaces. He did say though that it may not work that way for new or unsigned talent. <br />Seems like he understands that new revenue models are required for the intrernet age. Shame the bigwigs at the record companies don't. Hollywood and the print industry also need to wake up to the new culture and stop trying to live of old methods that have no place today. <br />BTW Spotify ROCKS!!!!

[Goodman.seth]

Spotify will be popular once it comes to the US, there's no doubt about that. But it's that very popularity that will work against it. The influx of streams will greatly increase it's payments to content owners, and the only source of income to offset it will be an increase in advertising click rates. If those rates fail to keep up with the new streaming royalty liability, it will unfortunatley go under or be aquired like most of it's contemporaries. What's really ironic is that if Spotify does succeed against the odds, the labels and performing rights societies will become even more agressive at leveraging more money from Spotify, since they feel they are the REAL reason for the companies success, not the service or business model. Streaming services get torn apart by the many greedy players in the market, and it's unlikely this will change any time soon

[krosafcheg]

How much does she get paid for a million plays on the radio?

[just-another-username]

TorrentFreak missed the comparison at the end of the article:<br />If the song had been played in a popular radio show with approximately one million listeners she would have got 100 Swedish kronor, about $14-15.<br />But this comparison is not accurate because Spotify pays 2300 sek (~$330) for the song Poker face and the money is split between the composers (Lady Gaga and Redone) and the same thing would have happened with the money from the radio show...<br /><br />Sportify royalties: $330 <br />Radio royalties: $15<br /><br />Is Spotify such a bad option???

[MattRosoff]

Apples and oranges. Radio is not controllable by the end-user, which makes it a reasonable promotional tool for sales--you hear it on the radio, then want to be able to hear it any time, so you buy it. (That's been the justifcation for not paying certain types of royaties for radio play in the US.) Spotify replaces a sale--if you can play a song any time on demand, why would you buy it? <br /> <br />That said, the artist probably earned more than just publishing rights from Spotify.

[gggg sssss]

An excellent comparison. So much so that at one time labels PAID radio stations to play their songs to promote the artists. Then we in the US got anti payola laws. Now the labels want to GET PAID? LOL <br /> <br />Free stuff promotes paid stuff - whether attendance at concerts, purchases on CDs, or better quality paid downloads from iTunes. Doens seem rocket surgery to understand that. Taking advantage of it does take brains however.

[Renegade Knight]

That's 167 bucks more than they would have had otherwise. If that's what streaming can realisticly pay out, then it's still well worth doing for two reasons. It's money they don't have to work to earn, and it does help sell those concert tickets. If later the format takes off and the payouts get better, all the better.

[BCF1968]

I think the problem is that artist and labels still think they should be paid tons of money everytime someone somewhere plays their song. Things have changed and they are going to have to realize they are going to have to accept less. That's just the way it is.

[sahilk]

"it doesnt pay artists very well"<br /><br />..as if these multi-million dollar celebrities don't already have enough money.

[ihaveapony]

See, there you go again. This is a silly thing to say. Tinge of socialism aside, the celebrities are the bellwethers for the rest of us in this business.

[BreezeAssassin]

This is such an offensive, ignorant thing to say.<br /><br />I would never come to your job after you got a huge paycut or after your job was shipped overseas and say.....hey well he was making more than me anyways, so who really cares if he isn't being paid what he deserves.<br /><br />Not to mention ihaveapony's point, that this will ruin/hurt many industry professionals careers, like professional songwriters, that aren't multimillionaires, and rely on performance royalties to sustain themselves and their families.

[admin418]

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