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How to Steal an Artist’s Streaming Money, In 3 Easy Steps…

3ezsteps

Last week, we published a Lady Gaga contract showing exactly how major labels avoid paying anything to their artists from streaming services like Spotify.  But it turns out there are a few more tricks for paying artists absolutely nothing while pocketing millions in streaming revenues.

According to Rich Bengloff, head of independent label group A2IM, these dirty tricks are currently being employed by Universal Music Group, which just happens to the be Gaga’s label.  Bengloff spilled this three-step process to Billboard this week:

 

(1) “Universal Music makes the per-stream rate as low as they possibly can so they have to give the artist very little money.”

 

(2) “Then, on top of that, they have something called a ‘listener hour guarantee,’ which they know is going to up their compensation by about 40% — since it’s per listener hour, not per track, the artist gets screwed because it’s not attributable to a track, so the artist doesn’t get a royalty. That’s not fair, that’s not the way we do business.”

 

(3) “The third thing they do is get a minimum annual guarantee or an advance if they know the service isn’t going to reach that level of business and be able to recoup — it’s what’s called [digital] breakage and they also don’t share that with the artists.”

And this is the future of recorded music…

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Comments (24)
  1. Sebastian Wolff

    It sounds more like Lady Gaga is in a less-than-optimal label deal if she’s getting cut out of streaming royalties. At least she’ll be able to claim them via SoundExchange (theoretically.) In any case, I would assume that the label is compensating her differently for the lack of theoretical streaming revenue she may be receiving. I don’t know the details, and I would assume that those who do are disinclined to share more about her particular deal with her label.


    Reply
    1. Anon

      SoundExchange only collects for digital radio (i.e. sirius/xm and pandora), spotify and other subscription services are not part of this equation.. having said that, i have hard time believing that labels aren’t paying artist royalties for streaming. i’d have to check with my auditor buddies, but from what i remember from my days as a royalty auditor, streaming was treated as licensing revenue and most artists received 50% of revenue attributable to their work.

      Related to points 2 & 3 from Mr. Bengloff, based on my current knowledge of the industry, no matter how the labels are paid by their digital distribution partners (min. guarantee, listener hours, subscription fees, etc.) the revenue is always allocated down to the track level. Because some many “music groups” these days are made of unique record labels, the parent companies (UMG, Sony, WMG, Orchard, Ingrooves, etc.) need to have a way to report income to their labels because they all have independent financials that need to be tracked. This means that revenue is always attributed to the content and is usually done so on a pro rata basis based on streaming volume. Whether this is then reported to artist is another question, but as I mentioned, it seems highly unlikely that artists are not getting paid for this.

      Regarding point 1, this is just absurd. There is no reason the UMGs of the world would want a lower streaming rate. That would mean that they would be getting paid less from the distributors.

      It sounds to me like Mr. Bengloff is extremely uninformed or is purposefully trying to misinform.

      I don’t have dog in this fight at all, just trying to add some truth to this subject.


      Reply
      1. Sebastian Wolff

        Thanks for your insights! I’m in the same boat — I’m having trouble wading through all of the alarmist/mis-informed click-bait headlines before actually finding out what’s going on.

        You’re right; SoundExchange does only pay out performance revenue from streaming DSPs. As far as I know, they pay primary performing artists and labels separately (in addition to background/session performers?) For master usage, would make sense that the label collects and keeps its cut, as long as Lady Gaga(‘s management) collects the remainder. For Spotify, UMG might just be keeping it all. Who knows.


        Reply
    2. Paul Resnikoff

      Sebastian, you’re instincts are likely correct, if my sources are to be trusted. From what I’ve been told, labels like UMG set the default in contracts and agreements to nothing (ie, the artist gets paid nothing). For a superstar-level artist like Gaga, that introduces a separate negotiation, because Gaga would have the leverage to demand something like that.

      So, in that case, Gaga would receive a payout that is mostly distinct from per-play payouts and other markers. It is a separately negotiated amount that keeps the artist happy – and producing more material, not demanding catalog withdrawals, not making a stink about Spotify in the press (remember, labels have a huge percentage in this company), etc.

      For the other artists, they are SOL. Think someone like Outkast, Lauren Hill or James Taylor can demand money? Probably not, as their current earning power is far lower, they lack leverage and therefore they are screwed. Their only tactic is to pursue lengthy legal processes, audits, etc.

      In the end, some payouts are made to some artists, but most artists – a vast majority – receive nothing.


      Reply
      1. David

        Again I must ask the obvious question: if the contractual default position is that the label pays nothing to artists, why have we not heard any artist – not a single one – make a complaint about it? They are willing to complain about many other things, so why not this?


        Reply
      2. JTVDigital

        Paul, with all due respect, I think your source is misinformed or interpreted some deal terms wrongly (remember that in most cases a ‘normal’ lawyer does not understand anything about intellectual property, royalties…etc.).
        Whoever the label (major or not) is, there are always recording deals signed with their artists, which include royalties payment conditions, for all known (and often future) means of exploitation of the recordings.
        Physical record sales / downloads / streams / ad revenues…etc. ARE paid to the artist, at some point.
        The main question is WHEN, since given the multiple sources of income it can take ages to aggregate, verify, account and finally issue the payments to the artists.
        Then you have the concept of advances that can be misleading, big artists often get paid a significant advance, and no other money until the advance is recouped by the label (who, and it’s important to outline this, is taking all the financial risks and making the investment for recordings, manufacturing, promotion, marketing…etc.).
        Really, and it comes from someone who do not specifically like major labels, it’s not “gentle artist” vs. “bad label”, it’s both ways, all parties can sometimes be hiding information or communicate badly, things are just “Grey”, not “Black and White”.


        Reply
  2. Anonymous

    As has been said elsewhere, this is pretty much the worst case scenario result of the UMG-EMI merger that all of us tried to tell the DOJ about.


    Reply
  3. Anonymous

    “Universal Music makes the per-stream rate as low as they possibly can so they have to give the artist very little money.”

    Not just so they can pay their artists nothing, Rich, but also so the services can go to the mid-majors (aka Warner & Sony) and indies and offer them tiny tiny rates and say they’re “paying everyone the same rates”


    Reply
  4. David

    As I’ve pointed out before, claims of this kind are inconsistent with Spotify’s ‘transparency’ statement (How Do Artists Get Paid On Spotify’). So either these claims are false, or Spotify is lying. I emphasise this because whenever there are reports like these, the Spotify fan club tends to put all the blame on the labels, as if Spotify had no choice in the matter. But nobody is forcing Spotify to tell lies, if indeed they are.


    Reply
    1. Anonymous

      That is an interesting point. I tend to believe Spotify’s claims more. Their claims are fairly similar to what other music services have said over the years and there seems to be more examples of this readily available.

      And the idea that Universal Music wants as low of per-play rates as possible seems unlikely. Especially since they are the only major label to not be present on Amazon’s new streaming service, which supposedly has laughably low per-play rates.


      Reply
      1. Anonymous

        Amazon wouldn’t pay UMG their king’s ransom upfront $$$, had nothing to do with rates.


        Reply
      2. Pete

        I work at a service with streaming and download propositions and can confirm that agreements are made with labels only – no direct artist deals.(a minority of services may do direct deals)
        Another factor to take into account is the territory where the service is located – the rights models vary between US and say UK and which bodies get paid and the artist relationship.
        Since payments are being made to labels – Majors and Indies – then the focus should be to ask them why they don’t pay their artists.


        Reply
        1. David

          Sure, the labels have questions to answer, but so does Spotify. According to Spotify’s transparency statement the rights-holders’ 70% share of revenue in each territory is paid and accounted for strictly in proportion to the usage (number of streams) of each track. This leaves no room for:

          a) upfront payments to labels, unless these are recoupable advances on per-stream royalties;

          b) different rates of royalty to different labels;

          c) royalties not accounted for on a per-track basis, such as the alleged payments ‘per listening hour’.

          We might allow Spotify a little leeway at the margin, as they can’t reasonably be expected to go into every minute detail in their statement, but if there are any significant payments – say, more than 5% of the total – in categories (a) – (c), then their statement is deliberately misleading, and the more culpable because it was intended to reassure artists, and the public in general, of the fairness of their payments.


          Reply
        2. Anonymous

          Labels tend to have an exclusive right to market a recording, the artist gives that away by signing a contract. It’s kind like you build a house and if you sell it, it no longer belongs to you even though you built it. It’s not surprising you are doing business with labels, because doing business directly with artists is illegal.


          Reply
    2. GGG

      He could mean showing artists the lowest possible rate. As in, if their breakdown from Spotify shows payouts of .006, .008, .004, etc they will base their royalty pay on .004, not the gross and not a varying per-stream rate. You have 100K streams, you’re getting 50% of 100Kx.004.


      Reply
  5. Anonymous

    This is one of the problems with Spotify’s licensing method that can’t be said about Pandora. No matter how badly run Sound Exchange is, they do at least guarantee artists (who don’t fall through the cracks) get (at least some of) their share of the money.


    Reply
    1. GGG

      That’s still on the labels, not Spotify. Record stores didn’t send checks directly to artists, nor did they give a shit how much a label was giving them once a sale was made.


      Reply
  6. Park Man

    Self producing is the way of the future.


    Reply
  7. Just curious....

    It’s apparent that labels don’t always have their Artists’ best interests at heart, but I’m curious to hear you feel a ‘fair’ streaming royalty rate would be?!?


    Reply
  8. Just Me

    Streaming music is a scam as far as artist’s go. Institutionalized theft at it’s best. The labels along with their tech partners have engineered a system that is terribly corrupt and favors no one but themselves. Based on large upfront payments to labels these monies are NOT shared with the artist and represent the bulk of the pay outs these streaming companies claim. Both parties, the labels and the streaming companies are complicite is this rip off.


    Reply
    1. ANon

      This is a bit ridiculous. Sure distributor’s pay large advances to the labels. Of course this isn’t passed to the artists because an advance is a guarantee for future sales/exploitation. The label will then not receive any revenues from the distributor until the advance is fully recouped. However, any revenues earned during the recoupment period will generate an artist royalty liability which the lables must pay. There’s no need to sensationalize this.

      The gray area that I see related to advances is when a label takes an advance that is never fully recouped. I’m nearly certain that the labels will keep this to themselves and not share a penny with their artists. The other gray area is the equity some labels hold in certain distributors (i.e. beats music). When the labels cash out in the 9 figure range, they keep it all to themselves as well. I’m not sure any artists are contractually able participate in label capitalization, but considering the direction the industry is headed it might be prudent to consider this when re-signing with a label.


      Reply
      1. Finally

        Thank you, finally someone gets it.


        Reply
  9. Facts

    This article was once again so much bullshit that clearly it is based on hearsay rather than facts. Or the source has seriously misinterpreted the deal terms. As a representative of UMG I can confirm that we definitely pay our artists based on streams their content receives. The model Spotify has communicated on their transparency statement is 100 % correct. We’re seeing excellent development on the artist payouts from streaming services especially on the more mature markets like the Nordic region.


    Reply
  10. Anonymous

    Why was this article on how to steal from artists shared on Facebook? I think that is wrong.


    Reply

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