Music Industry Executive Predicts a Major ‘Wake-Up Call’ on Streaming

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Image by Eric (CC by 2.0)

BMG says its artists receive more than 75% of music streaming royalties.  Why are other artists getting 0%?

In the past few years, all three major music labels have posted higher financials thanks to one magic word: streaming.  Revenue from music streaming has pushed major labels to their highest revenues in years.  It’s off the charts!

So why exactly are artists still receiving such tiny royalty payments?

According to Hartwig Masuch, CEO of BMG, the reason may lie behind a “complex” excuse major labels use.

Streaming has provided a strong growth boost after sharp declines due to piracy and declining CD sales.  Just two months ago, in Warner Music Group’s Q1 financials, CEO Steve Cooper proudly said,

“Our strong momentum continues with excellent first-quarter results including 11% constant-currency revenue growth on top of 11% growth in the prior-year quarter. While streaming continues to drive industry growth, we are outperforming the market thanks to extraordinary music from our artists coupled with first-class execution from our operators around the world.”

However, the BMG CEO warned that as major labels continue to report higher financials thanks to streaming, artists will soon demand a greater cut of royalty revenues.  The simple reason is that the cost base can’t reasonably be justified.

Speaking with the Financial Times, Masuch said,

“I believe there will be some wake-up calls.  I am very cynical about the view that the good days have returned.  Every renegotiation [with an artist] will cut down massively on the margin.”

Artists have long complained about poor payouts from streaming platforms, including Spotify and YouTube.  Citing one example, Chris Difford co-wrote hits like ‘Up the Junction’ and ‘Tempted’ with his band Squeeze.  Yet, he has only received £1.50 ($1.87) for every 6,000 streams.

Masuch said that major labels pay out lower ratios due to “higher legacy expenses.”  These include the cost of warehouses, breakage, and logistics.  They spent an average 19% of revenue on artist payouts.  However, he also pointed out that BMG now pays its artists 75% of streaming royalties.

If artists push to renegotiate royalty deals at 50% or above, returns could head into negative territory for major labels.  Criticizing the low payouts as well as the artists who work for lower royalty revenues, he said,

“Scale is not working.  You have to massively bring down the cost base.  Digital is portrayed as very complex… but if you take that cost out, how do you justify such a low rate?  Why in the hell would an artist decide to take less than 75 per cent?  That becomes a very hard discussion.”

Midia Research’s Mark Mulligan confirmed Masuch’s argument that newer artists would demand much higher streaming revenue share.  And others are trying to take advantage of that.

Kobalt head Paul Hitchman argued that streaming offers artists more than just traditional record deals.  A new generation of middle class singers and songwriters could potentially earn a steady income on streaming platforms.

Mulligan stated that labels should not underestimate the scenario of artists refusing to sign traditional record deals in favor of streaming.

Masuch pointed to more lucrative offers made by BMG and London’s Kobalt to new artists.

“Next-generation artists know what they want and they know how to get it.”

15 Responses

  1. music stowaway

    It depends really on what tier of commercial recording artist you are.. Do you have a sufficient buying/streaming fan base that
    covers the costs that the record company incurs with marketing and promotions expenditure.

    A record company may spend a large sum on a hiring a top category record producer and songwriting team, video production,
    radio promotions, artist & small entourage accommodation and travel expenses as well as other artist maintenance and support services..

    Is it reasonable for the record company to first recoup these costs before distribution royalty payments to the artist.. or have a low base royalty rates that is cap based and moves to a move favorable
    level once certain revenue targets are achieved..

    As we all know, anyone can have their music up on the streaming and download platforms for almost free.. but a high % of music on these platforms is ignored by consumers.. Almost all hits have a marketing/promotions machine grinding away to make these records hits.. they don’t happen just by themselves..

    Never the less.. it’s an interesting topic and for back catalog
    established artists and established songs/records whose tracks
    already have a consuming fanbase and for these there’s a strong argument that they should receive the highest reasonable rate from digital distribution.

  2. Will Buckley

    While I do believe pass through revenue from the labels is a problem, it doesn’t impact indie artists who release their own recordings.

    The real problem is that streaming has dramatically reduced the number of musicians and songwriters who can earn a living.

    Making it in music has always been hard, streaming has made it much harder. Instead of the internet breaking down the barriers between creators and their fans, which everyone believed was a great thing in the beginning, it has created a highly diminished revenue platform that has destroyed tens of thousands of careers.

    Streaming revenue demands a very high volume of streams well beyond the reach of talented niche artists.

    • Sgold

      Yes Sir, there was a time not long ago when the majors were running the show and we all wished their demise. They were hated by fans of all music. Well, the dream of independence has arrived. Now, no one knows how to handle it or make money from it. Not a problem for listeners, they have more free music than anyone could have ever imagined. I do believe, however that this trend will not last longer than this decade. It’s the same with television. Traditional ways of making money are flipping over, as they should. The money brains will initiate the new game soon, as history speaks.

  3. music stowaway

    Very true comments… The answer today for people who are in the creative end of the recorded music business is to solely focus on
    creating the biggest hits possible.. it’s now all about mass appeal
    and to reach people all over the world… to make enough of a living you need to have global sales/streaming/airplay hits..

    There’s no money in little records anymore..

    • Jim

      “There’s no money in little records anymore..”

      I don’t know about this. I guess that on one side of it, the amount of revenues generated by a “little record” isn’t what it used to be.

      On the other hand, what about the costs of producing a “little record”? You don’t have to spend a buck or 2 on having discmakers making you 1000 CDs. If you’re going purely streaming, you don’t have to print CDs that might not sell.

      The cost of recording equipment is cheap now, recording something doesn’t need to cost money. The amount of time, and effort and process going into a release is much less than it was before. So, if you have a fan base, you can release much more material at much lower cost than before.

      King Gizzard is releasing their 2nd of 3 albums this year in May. You just figure out how to get money from the fans. Bands can do this easier than before. It’s not like King Gizzard didn’t have vinyl at their show for $30. Some bands like the Districts have their vinyl at $15. Whatever works for them.

  4. dhenn

    It doesn’t matter if you are a major label artist or an indie, we are all still getting the same low rate while tech companies rake in the bucks. The rate has to change, period. And, the PRO’s need to do a better job of collecting our writer/publisher royalties. I can see every day how much I’m getting on the record/artist side from my distributor but I can’t see, nor do I believe I have ever received any of my writer/publisher royalties for streaming. It’s complete BS that the PRO can’t show me what I’m being paid for streaming!

    • Not Ari

      “And, the PRO’s need to do a better job of collecting our writer/publisher royalties.” You do realize that PRO’s only collect the performance right when it comes to streaming, right? The mechanical streaming royalty does NOT go through the PRO’s. Are you even collecting your streaming mechanical royalties? Have you received any NOI’s or license requests from the streaming provided using your songs? Not defending the low payments to composers/publishers (those are really unfair,) but please make sure you know where ALL your royalties are coming from. So many artists and composers leave money on the table as they don’t understand where the income really comes from. Yes, you are creators (and we love what you all do!) but if you want to make a living at this, it is also a business, so know your business. Ari has written a few articles for DMN about the numerous income sources for musicians and composers. Read them, go to seminars, take a class and/or find a reputable business manager or pub administrator to help and make sure you are not missing out. It’s mind boggling to keep track of it all, but don’t let the tech companies keep your royalties just because you don’t know how to collect them. Most importantly, register your songs, get your co-write splits in writing, keep your contact information updated (everywhere,) make sure you can be easily found and please, promptly respond to phone calls and emails.

  5. Jim

    Another good article by Digital Music News.

    The technology that these streaming giants have isn’t so amazing that acts can’t duplicate it.

    I’d like to see prepaid accounts and per stream streaming, in a place owned by the acts.

    I was at a Lowe’s recently, and noticed how many different types of gift cards they had there. Let’s say Taylor Swift says “I don’t need Spotify or youtube, or I can do something they can’t do, and the technology to do it isn’t hard at all to duplicate. When I have something new, like a video, I can put it on my own site, and get a quarter from everyone who wants to watch the video. I can keep it a quarter for a week, a month or just a day. I’m working with micropayments company A, or I’m founding micropayments company A, and I’m putting that plug in, which deducts a quarter, or whatever amount, on my website.

    I don’t use Spotify. I see Spotify plugins on places like facebook, and the Spotify plugin won’t play the music unless you are signed in to Spotify. You could put a plug in with micropayments that won’t play unless you are signed in and have a balance that allows you to play the video or stream the song, or do pretty much anything the act wants to sell you. There are bulletin board plugins, for phpbb, or vbulletin or whatever, old, old systems, that have complicated bank systems, you make a post, and they give you a fictional dollar, and people can steal your fictional dollars, and those fictional dollars can be gambled. These are old systems and what I’m suggesting is that whatever it is that you want, what Taylor Swift wants, is technologically achievable easily.

  6. music stowaway

    The pop music business is really about hits and that’s it.. always has been and no doubt that’s the future too..

    All this micro economy just doesn’t cut it.. you have to make the biggest hits you can do and develop your skillset to master a DAW such as Cubase Pro, Logic Pro, Pro Tools, Ableton Live.. if you’re creative you can probably make a hit tune or hit ringtone using GarageBand iOS on your iPhone.

    Hits are about big records..

    If you want to make millions out of recorded music you need to create big records !!

    • Viv Savage

      You’re a genius!! Only write hits! Wow. Problem solved!

  7. rikki

    Enough is enough DOUBLE the monthly streaming charge to customers and the problem is solved!!!

  8. john atonic

    Problem < Solution = Bandzoogle, they don't take a cut off any sales and are working on a streaming service. No I don't work for them, I host my band with them.

  9. Viv Savage

    Pffffttt. I believe “The BMG Executive” fails to understand the fundamental proposition with a major record deal. Artists generally demand advances. When that happens you have to set up a financial royalty structure based on success/failure ratio. Like only 1 in 8 artists are successful. So a royalty below 20% is demanded by the math. If artists don’t want recording advances tour support, promotion and publicity. Yeah labels can go to %75 or more. But then you have have to ask: Why have a label? I can’t wait for record labels to finally die. They don’t even understand their own business.

  10. snap crackle and pop!

    I’ve always been independent.. I guess it’s because a major or mini major has never approached me and I just thought I had fat chance of ever getting a (good) deal that I went the indie route and that’s how it’s been all along..

    So we have a direct with iTunes and through an aggregator for all the other platforms and we realize that streaming is now the
    dominant way consumers listen to their music now..

    The ratio in the last 12 – 18 months has gone berserk in favor of streaming over downloads..

    Revenue isn’t keeping up and for that reason we’re racking our brains trying to come up with some kind of hit.. In a world with 20 billion other tracks/artists all competing for attention it’s a tough racket that’s for sure..