David Lowery Is Wrong About Streaming, Money And Artists

Emily White, a summer intern at NPR's All Songs Considered, didn't know what she was getting into when she wrote her now-infamous screed about how, despite being a hardcore music fan and college radio station manager with 11,000 songs on her computer, she has only ever paid for 15 CDs worth of recorded music with actual money.

Her essay caught the attention of David Lowery, former lead singer for Camper Van Beethoven and Cracker, whose widely circulated, biting retort accused White of belonging to an entitled generation that pays extra for "fair trade" coffee and shiny technology while refusing to pay for music, leading to the destitution or even death of musicians.

If you're reading this, you've probably read both pieces. Everybody has been talking about them, all week long. As Digital Music News puts it, we've seen reverberations in "The New York Times, NPR, Los Angeles Times, Techdirt, Hypebot, Lefsetz, [and] the Huffington Post. Thousands of words, hundreds of comments, dozens of emails, several proposed guest posts; I'm not sure I've experienced anything quite like this."

It's true. Lowery's post went incredibly viral -- like, "rabies" viral. It has already inspired lots of soul-searching about what the digital music revolution means for music and culture in general (speaking of which, you can read our take on streaming and culture in Time).

All that commentary appears to have missed something that jumped out at me the first time I read Lowery's inspired piece. He suggests that instead of ripping CDs from the college radio station or letting friends copy gigabytes of music onto their iPods, Emily White and the rest of her delusional generation should pay for the unlimited, on-demand music service MOG (among other choices) because it's "legitimate". A few paragraphs earlier, he rips into a similar service, Spotify, because "the internet is full of stories from artists detailing just how little they receive from Spotify".

David Lowery might be right about some things, but he is wrong there, for a few reasons. We know this not only because we obtained a confidential report detailing how much Spotify pays to labels, but also because we just sat down with Charles Caldas, the CEO of Merlin, which represents over 10,000 of these independent labels, and helps them negotiate better deals from these services than they would get on their own.

He told us about Spotify's payouts to artists firsthand so we don't have to rely on "stories from the internet."

The reality: Merlin's thousands of independent labels and by extension their artists, are pretty happy with what Spotify is paying them - and happier still about big increases in those payouts. Those increases should be good news for the record industry, because Emily White says she wants "one massive Spotify-like catalogue of music that will sync to my phone and various home entertainment devices." Eventually, she would consider paying for that, as would, presumably, other members of Generation Entitled.

Lowery's post received an insane amount of attention, which is why we want to clear up the ways in which he is wrong about Spotify's payouts in particular -- and in general about the viability of streaming services where artists are concerned -- even the ones that let people stream music for free. (The short story: It's not really his fault that he's wrong.)

Here's the deal.

Big Growth

Spotify's payouts to Merlin's 10,000-plus indie labels rose 250 per cent from the year ending March 2011, to the year ending March 2012, according to Merlin. More importantly, the revenue per user (RPU) "has grown significantly alongside the overall revenue growth and is currently the highest it has been since the launch of the service. We see consistent, ongoing growth on revenue per user, revenue per stream, and the total revenue the service brings."

So why doesn't David Lowery know about that?

Music Services Don't Pay Artists -- They Pay Labels

"The thing about ‘Spotify doesn't pay artists enough' -- Spotify doesn't pay artists," clarified Caldas. "They pay labels."

Those label deals vary to a huge degree. In some cases, more of that money is absorbed by labels than in others. Artists have always complained about labels not paying what they owe, which is why they sue for the right to audit the books every once in a while. The same thing could be happening with streaming services in some cases (which is another reason music needs one big database, but that's another story).

But even if labels broke their contracts and passed along every cent from Spotify to artists, for some reason, the picture for artists would still look far, far worse than it actually is. The issue is lag -- about a year of it, and an important year at that.

"Chances are you [the artist] are getting reporting quarterly or six-monthly on sales that happened six months ago, so what you're seeing in your royalty statements could be a year old," said Caldas. "You're not seeing the service the way it looks today."

Considering that a year ago Spotify hadn't even launched in the US -- the world's biggest music market -- this distorts reality quite a bit.

What about all those stories on the internet, like the one about Lady Gaga only making $US167 for one million streams?

"That Lady Gaga thing was about publishing, not recording rights, and it was a single territory," said Caldas. "It was refuted at some point, but that story's had way too much air, and it's just ridiculous."

Streaming Can Make More Money Than Selling CDs… If the Music Is Good

Lowery laments the days of the CD, but artists can actually make more money from a single fan who streams an album over the course of their lifetime than they would from the same fan if he or she had purchased the album -- an effect that will become more pronounced over time. Every time Emily White listens to a stream, an artist gets paid -- but if she breaks out any of her 15 CDs, they've already gotten everything they're going to get.

"Let's say there are a thousand spins over that person's lifetime," said Caldas. "For whatever the wholesale price of that purchase was, it's getting to the point where it would be better if that person subscribed to a music service for the rest of their life and played the songs the same amount of times. It would actually generate more money for the artist over that period of time. The challenge at the moment is that you sell the $8.99 album today, and you get your royalty cheque next month or next quarter, so that income is immediate. The challenge, as you say, is in building long-term artists… The more times someone plays a purchased download, the less money you get per play."

Yes, for music that has real staying power, CDs and downloads are the real ripoffs -- a fact that may have been obscured by all of those physical format shifts from vinyl to 8-tracks to cassettes to CDs, but a fact nonetheless. Every play gets paid for on streaming services, even the ones that happen 50 years after a song is released.

Reality Is All Around Us. Also, Kids Get Old

Lowery isn't the first to wish that everyone else would behave as if the world around them hadn't changed, and he won't be the last. But the reality is that we live in reality, and it is all around us, so we might as well live there, instead of bemoaning the fact that people don't always pay for stuff when they don't have to. There are Emily Whites all over the place. But they will age.

"If there is an entitled generation that wants things immediately and free, now you have a Spotify free tier [on mobile], which at least brings them into a legitimate environment where every time they play or stream that song, the artist is getting a payment, and they're building a relationship with that service," said Caldas. "When they [get older] and get a job, there might be a bit more disposable income and less time to sit there dragging music from The Pirate Bay, and want that level of immediacy and convenience, and be willing to pay for it."

We made the same point here, but it's nice to hear someone else say it.

Some "Free" Services Value Independent Music

David Lowery didn't go after Emily White because he wanted mainstream popstars like Christina Aguilera to afford another Belair home. He wants artists like Mark Linkous and Vic Chestnutt not to die of poverty and/or depression, and we're with him on that front. We asked Caldas how Spotify, which Lowery accuses of ripping off artists, treats indie labels relative to the majors. Do they get as much as the major labels, with their Aguileras and Spearses?

"We wouldn't have a deal with Spotify if we didn't feel they recognised the value of what they [the indie labels] do," explained Caldas. "I don't think it's any coincidence that the successful services in the marketplace -- iTunes on the download side and Spotify on the streaming side -- have understood that fundamental thing, that if you want a consumer to come to your site and pay money, you have to give them the music that they want. You have to make everything available, because there is a generation of people out there who are incredibly impatient and will jump from one place to another, and they have no real loyalty… if a service has Green Day but not Vampire Weekend, or Nirvana but not Arcade Fire.

"We won't do a deal with any platform that doesn't properly recognise the value of our repertoire, so we're in business with Spotify and Rdio. We're not in business with MOG [which Lowery recommends]."

This "Free" Music Isn't Really Free

Lowery is correct that streaming services including Spotify allow users to stream stuff for free - in part to lure them away from bit torrent, and for that matter, YouTube. However, the labels who represent artists' financial interest (don't laugh -- it's true when it comes to harvesting money from distributors) take those free streams into account, when negotiating with the streaming services. As such…

"There are no streams on Spotify where the rightsholder doesn't get paid," said Caldas. "It's free to the consumer, but it's not free to Spotify. It's not rocket science. 100 per cent of the revenue gets paid to Spotify. They pay the publishers and they pay their local taxes. There's a percentage of the revenue that then gets paid to the master rights holder [typically the label]… And then on the free tier, you just have to make a judgement."

That judgement is about the overall value of a service like Spotify in the marketplace, given the free and paid tiers. One relevant number is the ratio of paying to non-paying users - and Caldas hinted that Spotify has might have significantly more subscribers than three million, its last official count,. That's more good news for the commercial viability of a service Emily White admits she wants.

Sorry, David Lowery. You make some fine points in your piece, and we appreciate the issues you've raised this week. I even bought at least three of your CDs back in the day. But you're missing some pieces of the puzzle here.

Evolver.fm observes, tracks and analyses the music apps scene, with the belief that it's crucial to how humans experience music, and how that experience is evolving.

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    I, for one, had not heard of this Emily White character before. Quick search found the blog post:

    for those like me who've not seen it!

    MOG is being served up by Telstra FYI: http://mog.com/

    I’ve just come across this internet hullaballoo. In his novel Misspent Youth, Peter F Hamilton explores the consequences technological advances impose on society. One of the things he considers is the death of art and culture – essentially popular/commercial art. He presents a world where digital storage is infinite and free, a world where everything is copied and shared instantly. A world where nobody writes or films or records anything anymore because nobody pays for it.

    This is that dystopian idea being played out in the real world. I find David Lowery’s well considered response to Emily White’s blog to be heart-breaking. Not because he tells us about two of his sadder musician friends, but because it’s the voice of creativity pleading to be saved from a parasitic death.

    I’m not perfect, but I do pay for 99% of the music, movies, video games and books I consume (I wish I could get a refund on much of the cinema I see). Not because I fear being caught doing anything illegal, but because I genuinely believe the artist deserves to be paid. I still hope that one day I could write for a living. If I get the chance I hope that there’s money at the end of it. Otherwise we’re doomed to a future of fan fiction grade writing, where every book might be free but they’re all called Fifty Shades of Twlight, all music comes to us via TV reality shows and all movies are made in Northern European bedrooms by unwashed man-children.

    I can't agree with what your saying. Yes, a lot of labels are happy, but the muso's definitely aren't. There's basically no point cutting a record at this point, because they make basically nothing per play. At .3 of a cent per play, even mega-bands like radiohead would only make a modest income.

    The more recent defence from pirates and the like is that they get new fans and make money touring and from merch. Unfortunately, most labels take all the merch income now (they need to recoup their investment too), and touring provides a shitty income. I know one guy that quit his contract 2 albums into a three album deal, because having to pay compensation to his label was actually more cost effective than cutting another record and touring.

    Another mate was in a pretty successful metal band. They broke up after touring Japan - despite a month long tour with sell out shows in venues with 200+ people, they actually lost a lot of money. They'll keep making music for the love of it, but they can't afford to keep touring any more.

    It seems that we are arguing semantics, ethics, morals, finances, creativity, culture and piracy all at the same time. Arguments are becoming confused. Straw men are coming out to play.

    What is needed are some back to basics discussions. We need to talk about what it means to be an artist in todays world. What the current and future online world mean for content distribution. What labels mean for artists, and where this leaves emerging artists.

    And then finally, what culture, what consumers want from music (or other artforms that can be streamed / consumed online etc).

    What role does music play in society - what do we want it to play? Can the current model / modes achieve this, or are we doing a disservice to music in general. Lets ask the big questions. The difficult ones, that tend to see most of us stick our heads as deep as they can go into the sand.

    If I see one more article on ... ZZZZZZZZZZZZZZZZZZZZZZZZZZ

    There you go. Groups like the Beatles jealously hoarding copyright - ultimately an epic fail. Their music becomes irrelevant as the kids listen to what is streaming now and they also lose a better revenue stream than selling a few cd's.

    Spotify like all big businesses, is only looking ofter its own wellfare.
    To that end, they'll give a better percentage to a band such as radiohead than other bands
    as well known acts will bring more people to the site.

    The reality of artists shares is as follow (source: Tunecore, Hypebot...as well as friends of mine!)

    ALBUM #1 - For Jan 2011 to Dec 2011
    6764 Spotify Streams: $34.48 ($0.005 per stream)
    ALBUM #2 - For Jan 2011 to Dec 2011
    4833 Spotify Streams: $25.34 ($0.005 per stream)
    Here are the difference in royalty rates from the first 6 months of 2011 and the second half.

    Spotify Royalty for first half of 2011 $0.0046
    Spotify Royalty for second half of 2011 $0.0056
    If I compare the royalty from the first month of plays to the last month it looks like this:

    Jan 2011 - $0.0036'
    Dec 2011 - $0.0043

    Well firstly, for all of Spotify's growth in paid subscribers in 2011 and introduction into the USA, the revenue paid out to indie artist grew only $0.001. In the meantime the majors have been happily skimming a nice fat royalty check off the top, as a result they of course tell the world it is the way forward.

    . . . . .To be consistent, you people who practice the Emily White entitled generation would have to run out of the apple store with a new laptop or ipod under their arm without paying for it...otherwise, all this talk of "benefiting " the artists is simply a weak excuse for cowardly theft without the danger.
    ...they should also, push the plumber out of their house after he fixed the toilet and tell him that their wallet is all the way in their back pocket , and too inconvenient to reach to pay for his services.
    Then, and only then, would they look like they mean what they say.

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