Jim Wilson/The New York Times
Zoe Keating published on her blog the details of what she made in royalties from the Web streaming of her music. It wasn’t a lot.
Like plenty of music fans, Sam Broe jumped at the chance to join Spotify two summers ago, and he hasn’t looked back.
Spotify, which began streaming music in Sweden in 2008, lets users choose from millions of songs over the Internet free or by subscription, and is increasingly seen as representing the future of music consumption. Mr. Broe, a 26-year-old from Brooklyn, said that having all that music at his fingertips helped him trim his monthly music budget from $30 to the $10 fee he pays for Spotify’s premium service.
“The only time I download anything on iTunes is in the rare case that I can’t find it on Spotify,” he said.
A decade after Apple revolutionized the music world with its iTunes store, the music industry is undergoing another, even more radical, digital transformation as listeners begin to move from CDs and downloads to streaming services like Spotify, Pandora and YouTube.
As purveyors of legally licensed music, they have been largely welcomed by an industry still buffeted by piracy. But as the companies behind these digital services swell into multibillion-dollar enterprises, the relative trickle of money that has made its way to artists is causing anxiety at every level of the business.
Late last year, Zoe Keating, an independent musician from Northern California, provided an unusually detailed case in point. In voluminous spreadsheets posted to her Tumblr blog, she revealed the royalties she gets from various services, down to the ten-thousandth of a cent.
Even for an under-the-radar artist like Ms. Keating, who describes her style as “avant cello,” the numbers painted a stark picture of what it is like to be a working musician these days. After her songs had been played more than 1.5 million times on Pandora over six months, she earned $1,652.74. On Spotify, 131,000 plays last year netted just $547.71, or an average of 0.42 cent a play.
“In certain types of music, like classical or jazz, we are condemning them to poverty if this is going to be the only way people consume music,” Ms. Keating said.
The way streaming services pay royalties represents a major shift in the economic gears that have been underlying the industry for decades.
From 78 r.p.m. records to the age of iTunes, artists’ record royalties have been counted as a percentage of a sale price. On a 99-cent download, a typical artist may earn 7 to 10 cents after deductions for the retailer, the record company and the songwriter, music executives say. One industry joke calls the flow of these royalties a “river of nickels.”
In the new economics of streaming music, however, the river of nickels looks more like a torrent of micropennies.
Spotify, Pandora and others like them pay fractions of a cent to record companies and publishers each time a song is played, some portion of which goes to performers and songwriters as royalties. Unlike the royalties from a sale, these payments accrue every time a listener clicks on a song, year after year.
The question dogging the music industry is whether these micropayments can add up to anything substantial.
“No artist will be able to survive to be professionals except those who have a significant live business, and that’s very few,” said Hartwig Masuch, chief executive of BMG Rights Management.
Spotify has 20 million users in 17 countries, with five million of them paying $5 to $10 a month to eliminate the ads seen by freeloaders.
In a recent interview, Sean Parker, a board member, said he believed Spotify would eventually attract enough subscribers to help return the music industry to its former glory — that is, to the days before Mr. Parker’s first major enterprise, Napster, came along.
“I believe that Spotify is the company that will make it succeed,” said Mr. Parker, who is also a former president of Facebook. “It’s the right model if you want to build the pot of money back up to where it was in the late ’90s, when the industry was at its peak. This is the only model that’s going to get you there.”
This article has been revised to reflect the following correction:
Correction: January 29, 2013
An earlier version of this article gave an incorrect estimate of the potential earnings of a song on Spotify’s paid tier. According to a number of music executives, Spotify generally pays 0.5 to 0.7 cent a stream for the paid tier, which results in $5,000 to $7,000 per million plays, not $5,000 to $8,000.
Streaming Shakes Up Music Industry’s Model for Royalties
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