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News / Kitty Lester / 20 Apr 2023

Facing The Music Part 1 – How Has Streaming Transformed The Music Industry?

8 minute read

The first in our three-part series exploring music streaming in depth - from its origins to how it’s shaping the music industry for better or worse.

Music streaming has long been talked about within the industry in binary terms. Friend or foe; saviour or existential threat; a democratic force for good or a broken system that is in need of fixing. The reality is that it is all these things and more. In this expansive three-part discussion, music and technology expert David Hughes takes us on a deep dive into music streaming, providing an altogether more nuanced look at how it’s changing the industry as we know it. Here are just some of the big questions asked: 

  • How are streaming services changing the way artists create music?
  • Is every stream worth the same?
  • What might an AI policy for DSPs might look like?
  • What impact is algorithmic inequality having on the overall landscape? 
  • Can DSPs learn from other industry models, such as Netflix?
  • Why does nobody get paid if a track is only streamed for 30 seconds?

Let’s jump straight in with the big question on everyone’s minds – is music streaming broken?

DH: When the industry was still primarily selling physical products like CDs, a band with a regional fan base of, say, 20,000 fans, they knew that if they toured up and down the UK and Ireland and Western Europe, and they had 20,000 hardcore fans who were willing to spend £15 or €15 every year on a CD and then another £40 for a concert ticket, well that’s £55 x 20,000. That’s over €1,000,000 – even after paying managers, agents and attorneys, they would still have enough money for a band of four to make a good living wage and support their families. I like to say, if you can make as much as your friend who is a firefighter or your brother who is a teacher, then you’re doing well as a musician. Artists have dreams of being multimillionaires like Drake. But if you can make a solid living, that’s great. And for a long time you could. 

However, in the streaming world, if you have 20,000 hardcore fans and they all listen to your songs a few hundred times, that’s just a few dollars from each of them. In 2021, only about 13,000 artists generated over $50k in annual payouts from Spotify. We’re talking about a small number of artists that are making enough money so that they can quit their day job and dedicate themselves to making music. Digital Music News calculated in 2021, that artists would need roughly between 235k and 487k streams per month just to earn minimum wage

I believe the fundamental goal of the music industry should be to empower enough professional musicians who are not burdened with another job that they have the time to create quality music. So we need to figure out a way to get the industry going in that direction again.

What can we do to fix the problem that the majority of artists and songwriters aren’t able to make a living from streaming? 

DH: I’m going to tell a quick story. I was on a panel many years ago with an acquaintance who worked for Spotify, and there was a musician in the audience who stood up during the Q&A and started to criticise him, saying “you don’t pay us enough money”. Well, I stood up and said, “Spotify is actually paying 70% of the money they receive to rightsholders. That’s pretty good. The problem is that they’re only charging $9.99 a month and they can’t raise their price because they need to compete with YouTube, and YouTube is free. It’s not easy to raise your prices if you’re competing with free.”

Why does YouTube operate differently to other Digital Service Providers (DSPs)? 

DH: YouTube pays as little as sixth one hundredth of a penny per stream because the Digital Millennium Copyright Act has a safe harbour that says people can upload their own content and YouTube only has an obligation to take something down if they’re notified by the rightsholders to do so. This means that if you’re an artist and you don’t want YouTube to monetise your music at a fraction of what the other DSPs pay, then you have to use your own money and pay a lawyer or a detection service and an attorney to try to take your music down off YouTube, which is practically impossible for independent artists.

YouTube is effectively saying, would you like to collect a cheque for $500 from us or would you rather spend thousands of dollars blocking your stuff on here? So it’s a Hobson’s choice, which really means you have no choice at all. YouTube knows that they have everybody over a barrel because they have the safe harbour and they’re not going to be held liable for content that gets uploaded. So they let it go up, they monetise it, and they can afford to offer submarket rates for the music.

For the uninitiated, what exactly is a safe harbour?

DH: I can explain the concept of safe harbour with an example. When AT&T was expanding its telephone network in the U.S., there was concern that if callers used their network to, say, arrange and coordinate a crime, that AT&T might be somehow implicated in that crime. The legal outcome was that, as long as the network operator had no knowledge or involvement that they would be free of liability. So if people used the service to arrange a bank robbery, that wasn’t on them.  Interestingly enough, in the United States, if you arrange a bank robbery by sending letters through the federal post, that’s a federal crime. But perhaps because the government didn’t own the telephone network AT&T ended up with what might be called a safe harbour.

When the Internet started, the Internet Service Providers (ISPs) said we can’t be held accountable for all the emails and everything that goes on our network, the same way that AT&T weren’t for all those phone calls. And the government thought that was quite reasonable. But it went further. The ISPs said look, if we run a service where people are uploading stuff on YouTube, we can’t be held responsible for every single person who uploads copyright infringement stuff on our platform as we don’t even know what they’re going to upload. The government agreed to grant them safe harbour on the condition that if somebody identifies that it’s copyright infringement and tells them to take it down, they have an obligation to remove it.

When one of Taylor Swift’s new albums came out years ago, one estimate I saw was that user-generated content (UGC) versions of her tracks were being uploaded four times a minute, which meant that keeping up with the sheer volume of uploads was impossible. That’s how YouTube came to introduce the Content ID system, which is an audio content recognition, usually often called audio fingerprinting system. And the purpose of Content ID was to automatically identify if it was a sound recording that the system had seen before. Then it would know to allow it through or block it if a block had been requested. The problem, as we know, is that every cover version, live version and remix slips through Content ID. 

That’s where companies like Song Sleuth come in because they use AI to find those and make claims so that the songwriters and publishers can claim their royalties.

Coming back to the point about the subscription prices – is YouTube the only reason DSPs aren’t raising their prices?

DH: For a long time, Spotify didn’t want to raise their price because they didn’t want to lose any of their subscribers ahead of their IPO. In April 2018, when they finally did their public offering, I thought, apparently naively, that they would be more inclined to increase profits by raising prices. 

Now, Spotify is pretty good at experimenting. They do a lot of regional experimentation around increasing their prices among other factors. I think they have tried to increase their prices in a couple of regions but what they need to do is say, okay, if we increase our price from ten dollars to twelve dollars, how many subscribers do we lose, and how does that impact  our bottom line. I’m surprised because we have been seeing Netflix’s price slowly creeping up and people historically have not been quitting Netflix, but we had not seen any price increases on music streaming services for 15 years – well not until this year anyway.

Can music streaming services learn a thing or two from business models from other industries, such as Netflix?  

DH: The difference between the music streaming services and the video streaming services is that there is no exclusive content. People will pay for Disney because they want to see the Mandalorian, but as a general rule, all music services are competing on a relatively level playing field in terms of product offering. There’s not much you can do as a music service. You can offer videos, you can offer better credits, you can offer a better offline experience for downloading and playback, sound quality, stuff like that. Tidal, for example, and later, Amazon offered the higher resolution music, although at a higher price point in the case of Tidal. 

So it’s much harder, I guess, for them to say, in Stockholm, we should raise prices at Spotify, because if our direct competitor is remaining at $10 a month and you’ve just raised your price to $12, we will lose some subscribers and we don’t have the exclusive content that will keep them the way that HBO had Game of Thrones or Disney has the Star Wars franchise or the Marvel Universe. So that’s a big difference.

What about podcasts? Spotify has famously secured exclusivity with podcasters like Joe Rogan, Prince Harry and Meghan Markle. 

DH: I think there’s a number of reasons Spotify and others have been getting in the podcasting space. One is the more they can increase their revenue stream and their listening hours to non music, and perhaps put them in a better position to negotiate with the major record labels. That might not be their number one reason, but it’s one of them. 

People tend to listen to podcasts for a long time, so it makes their services sticky. Podcasts are recurring events; so Lady Gaga and Bruno Mars don’t have a new song come out every week, but a podcast can have a new episode every week and people will keep coming back for that. 

The other thing is that if the DSP can own those podcasts as works for hire, then none of the money has to leave the DSP. They can keep the revenue and people are still paying the same $10 for the subscription fee but now they’re listening to podcasts. Spotify said they brought in close to $215 million in podcast revenue in 2021 so I imagine the economics are better on podcasts or they wouldn’t have an incentive to be shifting to them. What we do realise is that the majority of people want music – they can’t live without music, so it’s a balancing act for them, I think. 

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