Rdio Proposes an Insulting ‘Artist Compensation Plan’

The problem is that artists are feeling slighted by streaming services, especially as major labels, fans, and investors reap the enormous benefits.

Which plants the seeds for bigger content problems ahead.

Is this the solution?  According to details reported by Billboard on Thursday, Rdio is proposing an ‘artist compensation plan’ that is essentially a modified referral program.  So, if an artist refers a new subscriber, that artist receives $10 directly from Rdio, while other royalty payment structures remain the same.  “Payments that would not be sent through record labels’ accounting systems could be large enough to spur artists to take part in the program,” the report states.  “‘The goal is to effectively match the economics of what an album sale would be,’ says the source within Rdio.”

Which basically means Rdio is saying the following to artists:

(1) Bring us a subscriber with a lifetime value that probably exceeds $120, and we’ll pay you $10.

(2) We’ll do you a favor: we won’t pay this bounty through your record label.

(3) All other payments – ie, paltry royalties on your music – will remain the same.  

(4) We get to say, ‘we’re more artist friendly than Spotify!’

Rdio did not respond to an inquiry for this article.

31 Responses

  1. Jay Frank

    If you flipped the first point to have it read “Artists saying to (insert music distribution platform of choice)” to read “Bring us a subscriber with a lifetime value that probably exceeds $120, and we’ll pay you $10”, would an artist pay the distribution platform the $10? Distribution outlets, be it radio, TV or online, provide opportunities to introduce people to their music that can be converted to $100+ revenues with T-shirts, tickets, etc. Artists do usually pay this via promotions and such. That an outlet is willing to provide a bounty directly to an artist should be encouraged, not mocked.

    And these outlets are indeed discovery platforms. Today, I discovered the group Nerd Revolt from San Francisco on Rdio. Never heard of them before this morning, and now I’m aware of them and interested in what they do. That’s probably worth more than whatever royalty they get from my album stream.

  2. Casey

    I wouldn’t respond for an inquiry either. This is complete bias, not news.

    Believe it or not, Rdio is actually trying to work with the artists. Not against them. Paying $10 per subscriber is very reasonable, considering they are unprofitable. They most certainly are more artist friendly than Spotify. As far as royalties go, what do you really want? You complain they are “paltry.” What do you expect when a subscriber pays $5 or $10 per month? They can only pay so much. And if I recall, that amount is higher than what Spotify pays.

    • Mark

      I gotta agree… this is far and above anything any other store is offering. Not totally sure why this article seems so standoff-ish about this whole thing.

      • KDC

        Could not agree more. I’m totally baffled that DMN would take such a hostile stance on someone actually trying to do something FOR artists. It may not be a perfect solution, but at least it’s some real progress. Someone needs to take a first step and I’m glad to see the service I use every day (and truly believe is a far superior UI and experience than Spotify, etc.) are the ones to do it.

    • Guest

      DMN is completely misleading its readers. For every $10 collected each month, Rdio makes $3 after paying labels and publishers. Then add their operational cost, etc, they would be lucky if they net $1 at their scale. How do you get life time value of $120 per user? Maybe you think on average, a user stays on the service for 120 month?

      Very irresponsible reporting, or rather slandering.

  3. Jeff Robinson

    Wow, the artist generates sales leads? Insanely BAD concept. Turning it on the user to generate their own leads for unrestricted access would be a way better concept. The goal would be completely unrestricted access. Each person a user signs up could chip away at the necessary tally. That would be a pretty normal model, but asking the artist to do this is REPREHENSIBLE.

    • Casey

      Not really….

      They have already turned it onto the user, via Facebook. It isn’t working well because of the marriage of Spotify and Facebook. Now they are tapping into rather unknown area by paying artists to help the company grow. This is significant and innovative. This is a new way of making money for artists.

      Why is it artists always complain about not making enough money, then when someone does give them a chance to make money, they complain and criticize the company’s efforts? Seriously blows my mind.

      • Jeff Robinson

        Music and fan connection is practically impossible on Facebook. There is no discovery and the music pages are practically useless. Look to a site like Reverbnation for band/music hosting. That has single-handedly replaced sonicsbids.com or myspace.com as the ubiquitous standard for an indie band. That site doesn’t pay either.

    • Seth Keller

      I didn’t know Amway bought Rdio…

      I am awesomely psyched about the power of this new opportunity to stream music. I’m pumped! Now just get 10 of your friends, who will get 10 of their friends…You’ll no longer be a starving musician but a multi-level marketing millionaire!

      It’s almost as bad as that. C’mon, Rdio hipsters!

    • huh?

      Your post is nearly incomprehensable. Same as using Facebook ads but instead artists can reach their followers directly and turn them on or share Rdio, and if they sign up, there’s some money. Why wouldn’t every other subscription service do this? Artists should promote all of them.

  4. dave

    Seems reasonable to good actually. Should they really pay more for a referral?

    It’s not as if someone would sign up only to get music from that one artist. Does Netflix give referral fees to actors?

  5. jw

    I don’t think that they’re suggesting that bands openly campaign for the service. I read this more like… if you have a “Click here to listen to us on Spotify” button, switch it to a “Listen to us on rdio” button & you might make $10.

    Seems like this is a very small side story, hardly an insult.

  6. s

    A customer acquisition cost of $10 is on the high side. If Rdio has to pay this much for all of their new customers, they would probably go bankrupt. It would take simply too long to recoup the $10 per customer costs.

    However, I think that this is still a great strategy. It motivates an Artist to encourage people to choose one streaming service over another in a very competitive field. It begs the question why does a listener choose Rdio over Spotify over Slacker over Deezer, etc.?

    It can be a personal preference for the particular UI. It could be peer influence in that you may want to use the service that your friends are using so that you can share stuff. Now it can be because you can make a little money.

    Nothing wrong with the amount that Rdio wants to pay. It also doesn’t matter that Rdio will make a lot more from such recommendations. All of us FAcebook users just made a lot of people rich by using Facebook and adding friends. Last time I checked, I didn’t get paid squat by FB.

    This spiff program will probably only work a little bit. It’s not a long term strategy and I think that Artists are still going to recommend services that they personally like to use and are already using. In other words, we may see a little bump from this but not much.

    • bankrupt

      Rdio is owned by two billionaires, they aren’t going bankrupt.

  7. Why?

    Over about the past 5 years, it feels like DMN has gone from being a reputable, reasonably independent news outlet to basically a sensationalist Spotify puppet. What the hell happened??

  8. D-Man

    Where do you think all the money is going? These streaming services are running on the tiniest margins already because the labels / publishers are taking all the cash – if the artists aren’te getting anything they should talk to their managers. A model where streaming services get to pay artists direct is amazing, you idiot.

    • FTW

      Here Here. Glad I don’t have to post that since someone already has.

  9. Franz

    seriously what a load of BS are you spewing here, Paul? there’s a company trying something truly innovative to pay the artists more on top of their label negotiated royalties and you mock them? do you even understand what Rdio is trying to do? don’t you see that Rdio is the only streaming service that is all about the music instead of using the music to sell ads or hardware? seriosly annoyed … most of all cause I liked your service at one point, but it seems to me that what I’ve heard is true… there’s a lot of so called journalists out there in a certain streaming service’s pocket. I refused to believe it at first, but sounds like you’ve become a lobbyist.

    • mdti

      I feel the same. It is more and more obvious article after article that it does not matter if it is talked about in good or bad term as long as the brand is all over the place.

  10. Oliv

    It’s a pity this site doesn’t actually deliver news. Everyday are posted the very reactionnary opinions of only one guy about the changing music industry. And articles are not even indepth studies. You have to worry when the comments become more detailed and interesting than the article itself…

    More like a bad blog…

  11. Jason Stoddard

    A couple of things…

    – I am sick of hearing about on demand services screwing the artists out of money. The deals these services have are with the LABELS themselves. It is the labels that are screwing the artists because the labels are doing the deals that deliver the “paltry” royalty payments. Point the finger at the correct person if you are going to point.

    – Prediction: This program will result in only negligible revenue for Rdio and especially the artists. The idea is relatively sound business-wise, but these types of programs rarely create the bump that is presented to the team on the spreadsheet. Sorry, but that is reality. All Spotify and Rhapsody have to do is put out the same or larger payouts to crush Rdio on this one. Or they don’t have to put out this program because no one will notice that Rdio did and they have a larger subscriber base. I will give Rdio some respect for even doing this though. They will probably wait a bit and then roll out this type of referral service to everyone… With still minimum bump in revenue btw.

    Oh, and I bet the LTV is below $120 as well.

    I love Rdio, and use them almost everyday (as my facebook friends will complain). FWIW.

    I just think that until the on demand services combine with the killer lean back internet radio services along with a dose of direct to artist payments nobody will be happy except for SoundExchange and the major labels.

    Sorry for the rant and I do love DMN.

  12. Jeff

    Paul needs to stop bashing streaming services and realize that artists that sign away their rights to sound recordings no longer have the right to the revenue from the sound recording (beyond the rights they’ve retained, if any). The artists beef is with the labels – and possibly a well-deserved beef at that.

  13. Al B

    I agree with so many posts on this page. Just reiterating the view so that hopefully Paul gets close to realizing he’s not fooling anyone.

    Everyone who reads this blog, even many people completely outside the Music Biz know the Labels own the recordings. If the streaming services are giving the money to the labels and the artists aren’t getting their share that has nothing to do with the service and everything to do with the label.

    The artist getting screwed by the label is as old as the business, why does Paul think this is news (and want to twist it to make the new services look like the bad guy)? Oh right, cause there’s nothing else going on in the Music biz except declining ticket sales, so these on-demand services are one of the only new opportunities avaialable.

    Paul – your blog is becoming more and more tainted by the day.

  14. lmnop

    Sorry: Rdio is hoodwinking you all. Truth be told.

    This will mean nothing to artists especially since Rdio has basically no subscribers.

    I reiterate: basically close to NONE.

    So, let’s get artists shilling for the service papering it over like we’re helping them? Bullshit. This is classic exploitation. Reminded of when the old blues singers would be given a Cadillac and no royalties. Same ish, different era everyone.

    Great article DMN! Always love you guys.

    l-p

  15. MisterSoftee

    Basic problem: not addressed.

    (a) Artists: still getting 1/3 penny on a stream. Probably little on referring money.

    (b) Labels: still getting millions plus shares.

    (c) Owners: billionaires

    (d) Investors: multi-millionaires

  16. paul

    Let me address the angry mob, before I find my head on a medieval stick somewhere.

    A fundamental problem that I think streaming services face is the very small amount of money that actually finds its way back to artists. This isn’t some righteous rant, rather it presents a potentially serious content problem over time, especially when contrasted against a service like iTunes. After all, artists are the ultimate source of the content that makes a service like Rdio, Spotify, Rhapsody, etc., work.

    Which leads to the fundamental – and yes, simplified question – ‘what do artists get paid from these services’? Answering that deal structures rarely include direct payments to artists is not a very good answer. That’s merely stating that the reason that artists are seeing very little cash is that byzantine, private deal structures prevent this from happening. But who made these deals in the first place?

    Obviously, they were not handed to us from high. Remember, these services aren’t very old, and there are ultimately a small number of groups that controlled the deal structures involved. There were different options for how to construct these deals and relationships, there was the ‘blank canvass’ to use the cliche. And look no further than a company like SoundExchange for proof that a totally different deal structure and payout system is possible. In the end, answering the question by pointing to problematic contract structures that send an outsized percentage of payments to labels, investors, and executives like Daniel Ek is not a very good way to address to core problem.

    And, it doesn’t even start to approach the very basic problem that is staring this young sector in the face. The reality is that services like Spotify and Rdio are also gigantic spin machines — yes, they are constantly in my inbox and complaining and cajoling (either directly, through threatening phone calls from groups like NARM, or whatever), and probably in this comment section as well (if I had to guess).

    And that’s fine, to an extent. But the arguments that (a) streaming services are saving everyone from piracy, (b) all we need is scale, and (c) contracts are with labels, not artists, are coached talking points – not balanced discussion arguments.

    Also, there was a really good point made above about the actual money the Rdio gets to keep. Right, it’s not $120 in Rdio’s pocket, and there are thin profit margins associated. Fair enough, though I’d ask why are they so extremely thin to begin with? Part of the answer is that online revenues are typically slim, especially if there advertising support involved. But the argument starts to break down a bit when you consider extremely huge, upfront payments demanded for content inclusion, and outsized rewards for founders and top executives. Maybe these margins don’t have to be as razor-thin as we think – at least to this extreme.

    In that context, we have this program from Rdio. Which is almost like giving a piece of cake to the artist, while not fundamentally solving or addressing the issue related to dinner. In fact, branding this as a compensation solution – as Rdio seems to have spun – is really off the mark.

    And yes, insulting to the artist in my opinion.

    Thanks for reading.

    /paul

    • Faza (TCM)

      Thanks for replying, Paul. I agree with your sentiment wholeheartedly.

      There are some points that get lost in the whole discussion that need highlighting:

      It’s not just a question of label deals – a lot of the numbers for streaming revenue floating out there come from independent artists going through distributors. If someone goes through TuneCore, for example, then they get paid the whole royalty paid out by the service, with no deductions. These amounts are still in the fractions-of-a-penny range.Scale won’t solve the problem, because the business model fixes average revenue per user at a fairly low amount. If someone pays the upper end of the price range: $10 a month, the maximum a service can make from that user is $120 a year, some of which must go towards the costs of running the service (and ultimately towards its profit) while the rest is paid out in royalties on all the music that person has listened to. This will be hundreds, if not thousands, of songs – each song (and thus its creator/performer) is only going to earn a small amount from that user.While it’s easy to imagine why someone would stop buying music after switching to streaming, provided the service’s catalogue contains all music they want to listen to (it’s cheaper, overall), it’s not at all clear why someone who can get all the music they want for free (i.e. a pirate) would suddenly start paying for streaming, other things being equal.The biggest danger that streaming services face is artists jumping ship (as has been the case with a number of high-profile cases on Spotify). If people cannot get the music they want on a streaming service, they won’t pay for subscriptions. Streaming services need scale to turn a profit, but the total scale of a service doesn’t translate into scale for individual artists. That’s where all the spin comes in – trying to convince artists to work with services, even though on a pure business level it might not make a lot of sense.
      The problem you point out with long-term availability of new music, in the absence of a model that provides meaningful returns to creators, is something that needs harping on about constantly and it’s great to see you doing it. Streaming – like file-sharing – can subsist on catalogue (=old) items for a time, but how many people listen to Sinatra anymore? Ten years plus after Napster and we still haven’t figured out anything like a sensible way to make sure that we will have a healthy supply of valuable music in the future.

      (Note to critics: tens of thousands of garage-band albums that sell maybe 10 copies each doesn’t constitute a healthy or valuable supply of music. We could lose all of them and not even notice.)

    • Businessoutsider

      “The reality is that services like Spotify and Rdio are also gigantic spin machines — yes, they are constantly in my inbox and complaining and cajoling (either directly, through threatening phone calls from groups like NARM, or whatever), and probably in this comment section as well (if I had to guess). ”

      Come on Resnikoff, get real!! This is an outrage!!

      You don’t get streaming and hate it for no good reason. These companies pay out 70% of the revenue to rightholders. Do you expect them to pay 140% ?? It’s really simple. A paying customer brings in $10 a month so $7 is for royalties. The average customer streams maybe 20 songs a day so 600 a month. That leads to $0,00117 per stream. Easy as that!

      So you Resnikoff and all these complaining artists, stop whining!

      • Businessoutsider

        LOL. And now I make a stupid mistake. Of course it is $0.0117 per stream.

  17. an actual independent artist

    paul’s right on about this. indie bands aren’t in the business of commission sales for web startups – besides this being insulting, it seems like an incredibly dumb and desperate sales strategy. what bedheaded musician do you know who you’d want selling your product?