State Champ Radio Royalties
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If the 2010s were the decade that established streaming as the de facto way that most people enjoy music, the 2020s will be the decade the platforms’ royalty rates took a leap forward.
For much of streaming services’ existence, the industry has tried to gently balance the need to foster growth with the need to generate something close to subsistence-level income for creators and rights holders. If rights holders squeeze too tight, they could strangle the life out of the companies they depend on to carry them in a post-CD, post-download world. Too loose a grasp on streaming platforms would mean the spoils of technological disruption would remain with tech companies.
The process requires patience. With social media apps, licensing deals start small, with lump-sum payments rather than percent-of-revenue royalties while the fledgling platform builds a sustainable business model. Because licensing deals are renewed every three years, rights owners endure long waits to secure better terms that will result in more royalties. It will take a few cycles for a platform to generate meaningful royalty income for its label partners.
This year, there were numerous developments that point to better royalty rates in 2023 and beyond. They have different degrees of certainty, however. Higher subscription prices are sure to move the needle and result in higher payouts to artists and labels. Whether artists and labels will finally get paid for terrestrial radio play in 2023 is less certain, although the mood in Washington D.C. seems favorable. And with the authors of Chokepoint Capitalism, Cory Doctorow and Rebecca Giblin, currently making the media rounds, and the Federal Trade Commission cracking down on companies that take advantage of gig workers, the plight of creators in today’s digital economy is getting mainstream attention (my colleague Rob Levine brought attention to tech companies’ value destruction in his book, Free Ride, a decade ago).
Congressional Bill to Get Artists & Labels Paid for Radio Airplay Clears Critical House Vote
12/09/2022
Music subscription price increases
Artists have wanted a raise from streaming services for years. Part of the problem is how royalties are calculated — a pool of money is split according to the number of times the tracks were played. That puts album-oriented artists at a mathematical disadvantage to mainstream artists in popular genres like pop and hip-hop. Another common complaint is that streaming services have barely raised their subscription prices for more than a decade. With prices flat, the best way to improve streaming royalties is to attract more subscribers. Keeping subscription fees relatively affordable, especially when Netflix and other video streaming services routinely hiked their prices, ensured customer acquisition would continue. Affordable family plans, which cover up to six people for 50% more than an individual plan, helped attract customers and reduced churn — but didn’t help artist payouts. Finally, this year Amazon, Deezer, YouTube Premium (which includes YouTube Music) and Apple Music announced broad price increases to individual and family plans. Spotify has hinted it will follow with price hikes of its own in 2023. The financial impact could be massive: A modest increase of $1 per month for individual plans and $2 per month for family plans in mature markets — less in developing markets with lower prices — would easily generate many hundreds of millions of incremental subscription royalties, which totaled $12.3 billion in 2021, according to the IFPI.
A TikTok subscription service
TikTok doesn’t pay much in royalties, but it plays an outsized role in cultural trends — the app has over 1 billion active users and is especially popular with Gen Z consumers. That has changed the balance of power in music streaming. “The major streaming platforms are reacting to culture now rather than driving it,” Tatiana Cirisano, music industry analyst and consultant for MIDiA Research, recently told Billboard. In that light, news that TikTok is working to expand its Resso subscription service (it’s available only in Indonesia, Brazil and India) is a big deal. Currently, TikTok creates impressions and demand for music that has downstream effects on other platforms — see a TikTok video, listen to the entire track at Spotify, YouTube Music or Apple Music. But if TikTok owned both the short-form video platform and the subscription platform, it could better convert that initial interest into downstream listening while eroding the influence of the Spotifys and Apple Musics of the world. More importantly, a TikTok subscription service would help change TikTok’s status as a royalty underperformer.
Subscription streaming rates
Publishers and songwriters will get a slight raise in subscription streaming royalty rates over the next five years due to a settlement reached in August by the National Music Publishers’ Association, the Nashville Songwriters Association International and the Digital Media Association. The headline royalty rate will go from 15.1% of revenue in 2023 to 15.35% in 2027. That’s not a huge gain, but it’s an improvement. The settlement could help in other ways, too. Streaming services were able to get favorable terms for bundles and free trials that allow them to get more subscribers into the ecosystem. That would help songwriters and publishers by increasing the number of subscribers — the major driver in streaming royalty growth — as they enjoy modest annual increases in royalty rates.
Inflation adjustments to noninteractive streaming rates
Each year, the rate paid by noninteractive streaming platforms in the U.S. is adjusted to account for inflation over the previous year. In 2023, artists and labels will get a raise due to inflation rates that reached a 40-year high in 2022. (The rates increased 7.1% for subscription plays and 9.1% for ad-supported plays.) In years past, noninteractive streaming services such as Pandora were a more significant part of artists’ and labels’ incomes. That gave extra weight to the decisions of the Copyright Royalty Board and changes in the per-play streaming rates. Now, on-demand services like Spotify and YouTube dominate the streaming landscape and noninteractive webcasting has diminished in value and relevance. Still, Pandora’s ad-supported listening hours fell only 5% year over year in the third quarter of 2022 — to 2.75 billion — and it paid out $921 million in royalties in the first nine months of the year. Above all, a raise is a raise.
Terrestrial radio royalties
Legislation that would pay artists and labels for airplay on U.S. terrestrial radio was passed by the House Judiciary Committee on Wednesday (Dec. 7). With only a month left in the current Congress, Rep. Jim Jordan, ranking member of the House Judiciary Committee, said he’s confident the bill could make it through the next Congress (that could be 2023 or 2024). While this isn’t the first legislation to address the lack of a performance right, the AMFA arrives at a time when lawmakers — in D.C. and elsewhere — have taken an interest in creators’ ability to make a living in the streaming age. Outgoing House Judiciary Committee chair Jerry Nadler has shown concern about a “race to the bottom” in streaming royalties, for example, and U.K. lawmakers examined the equitableness of streaming royalties paid to artists in that market. Passage of an AMFA-like law, or a settlement with radio broadcasters, would be a huge coup for artists and labels who get only promotion from radio airplay while radio stations are obligated to pay songwriters and publishers. In fact, U.S. radio royalties would be two — not one — new stacks of money. That’s because the lack of a performance right for broadcast radio in the U.S. means European countries withhold royalty payments from American artists for performances on their soil, SoundExchange CEO Michael Huppe explained in a recent Billboard op-ed.
The American Music Fairness Act (AMFA), which would require AM/FM stations to pay performance royalties to music creators and copyright holders for radio airplay in the U.S., just cleared a key hurdle in Congress — though the bill is unlikely to pass before the new session of Congress convenes in January.
In a mark-up session on Wednesday (Dec. 7), the House Judiciary Committee (which deals with copyright matters) voted to advance the bill, clearing its way for a full vote on the House floor. To become law, the bill would need to be approved by the full House of Representatives as well as the Senate and then signed into law by President Biden. However, the proposed legislation is unlikely to pass in the current session of Congress, which is drawing to a close at the end of the month, unless it’s tacked onto a must-pass bill during the lame duck period.
In an opening statement prior to the vote, Judiciary Committee ranking member Jim Jordan (R-Ohio) noted that bipartisan negotiations over the AMFA in recent months “stalled and never reached a resolution,” though he expressed confidence the bill could make it through the next Congress.
“While today’s debate is an important start in this conversation, if the American music Fairness Act has not become law this Congress, negotiations must resume next year,” Jordan said. “We believe there’s a deal to be struck here that is fair to all sides most importantly, fair to taxpayers and consumers.”
The AMFA is just the latest attempt by members of Congress to compel radio stations to pay performance royalties, which is a common practice in other countries but has not historically been required in the U.S. In Nov. 2019, Sen. Marsha Blackburn (R-TN) and Rep. Jerrold Nadler (D-NY) introduced a similar bill, the Ask Musicians for Music Act, which would have allowed artists and copyright owners to negotiate performance royalty rates with radio stations in exchange for permission to play their music. That piece of legislation followed a previous bill, the Fair Play Fair Pay Act — also introduced by Blackburn and Nadler — that set out to achieve the same goal.
The AMFA was introduced in the House by Reps. Ted Deutch (D-FL) and Darrell Issa (R-CA) in June 2021, with the legislation announced during a press conference attended by singers Dionne Warwick and Sam Moore and Dropkick Murphys singer/bassist Ken Casey. A companion bill was introduced in the Senate by Sens. Alex Padilla (D-CA) and Marsha Blackburn (R-TN) this past September.
Unlike satellite/online radio and streaming services, AM/FM stations pay only songwriter royalties on the music they broadcast. To rectify that, the AMFA legislation would establish fair market value for radio performance royalties in the same way it has been for those other platforms.
The bill was a response to the Local Radio Freedom Act, a non-binding resolution introduced in May 2021 by Rep. Steve Womack (R-AR) and Rep. Kathy Castor (D-FL) that opposes the imposition of a performance royalty, which proponents argue would be financially devastating for broadcasters. A companion resolution was introduced in the Senate by Martin Heinrich (D-NM) and John Barrasso (R-WY). Both resolutions are backed by the National Association of Broadcasters (NAB), which has long been opposed to enforcing a performance royalty payout on terrestrial radio.
In a statement on Wednesday’s vote, Recording Academy CEO Harvey Mason jr. called it “an important step,” adding, “I am grateful to Chairman Nadler, Rep. Issa, and members of the committee for supporting the music community’s right to fair pay. It is vital to the health of our industry that creators are compensated for the use of their intellectual property on terrestrial radio, and the Recording Academy will continue to advocate for AMFA until this bill is signed into law.”
The Recording Academy is a key supporter of the AMFA along with organizations including the AFL-CIO, the American Association of Independent Music (A2IM), the American Federation of Musicians, the Recording Industry Association of America (RIAA), SAG-AFTRA, SoundExchange and the musicFIRST Coalition. Over the past several weeks, more than 100 artists including Warwick, Common, Harry Belafonte, Jack White, Becky G, Cyndi Lauper and Gloria Estefan have signed their names to a letter urging lawmakers to support the bill.
“To be clear, this fight is far from over,” said musicFIRST chairman and former Democratic congressman Joe Crowley in a statement. “We still have further to go before this important bill can be passed into law and improve the lives of artists across this country, and we know that Big Radio corporations will continue to oppose us every step of the way.”
In his own statement celebrating Wednesday’s vote, SoundExchange president and CEO Michael Huppe called on the full House to pass the bill. “Tens of thousands of music creators – our family, friends, and neighbors – are counting on Congress to do the right thing and help them get paid for their work. We cannot let them down,” he said.
On the other side of the issue, NAB CEO and president Curtis LeGeyt thanked the committee members who voted against advancing the AMFA, along with members of Congress who have supported the Local Radio Freedom Act resolution that stands in opposition to the bill.
“These lawmakers understand that AMFA will harm local broadcasters and audiences around the country, undermine our ability to serve their communities and ultimately fail artists by leading to less music airplay,” said LeGeyt. “Broadcasters urge the recording industry to join us in serious discussions instead of using the few legislative days left in the calendar to pursue divisive legislation that faces broad congressional opposition.”
In a year historically high inflation has wreaked havoc on the costs of both touring and producing music, musicians and record labels received a bit of reprieve — thanks to high inflation.
The Copyright Royalty Board, which sets royalty rates for some streams in the United States, announced on Dec. 2 that per-stream rates for noninteractive webcasters’ streams will take a big jump in 2023: commercial webcasters will pay 0.3 cents per stream for subscription performances, up 7.1% from 0.28 cents in 2022, and 0.24 cents per stream for ad-supported performances, up 9.1% from 0.22 cents. Non-commercial webcasters’ per-stream royalty rate for 2023 is 0.24 cents for all digital audio transmissions in excess of 159,140 aggregate tuning hours in a month on a channel or station.
The CRB’s calculated the adjustment by multiplying the base rate by the percentage change in the CPI-U published by the Bureau of Labor Statistics before Dec. 1, 2022 (298.012), and the CPI-U for Nov. 2020 (260.229). In 2015, the CRB decided to add an annual cost-of-living adjustment to royalty rates paid for plays of programmed streams for 2016 to 2020. The rates for the current period, 2021 2025, are also adjusted annually. Previously, the CRB established a slate of increasing rates for a five-year period and did not revisit the rates annually.
Artists are ensured to feel the bump in royalty rates because webcasting royalties are paid by streaming services to SoundExchange, which distributes payments directly to performing artists from noninteractive webcasters such as Pandora. In contrast, on-demand services cannot operate under a statutory license and must secure licensing agreements from record labels. So, royalties from on-demand services such as as Spotify and Apple Music are paid directly to labels, which in turn pay artists according to the terms of the recording contract (or don’t pay artists if expenses have not been recouped).
A raise from noninteractive webcasters affects only a minority of an artist’s digital revenues, however. SoundExchange distributions – which also include royalties for performances by satellite radio and cable broadcasters — in the first half of 2022 declined 4.5% year over year to $464.9 million, according to the RIAA. That was about 7.2% of total streaming royalties, down from 34.4% in 2016. Today, most streaming royalties come from paid subscription services, which accounted for $4.5 billion of revenue in the first half of the year and are growing at nearly at double-digit rate.
Still, noninteractive streaming royalties have risen considerably over the years thanks to the cost-of-living adjustments. In 2016, a webcaster such as Pandora paid out 0.22 cents per stream for subscription plays and 0.17 cents for ad-supported plays. Low inflation meant the rates increased only once over the next five years. A new slate of rates for 2021 to 2025 brought the rates to 0.24 cents for subscription plays and 0.21 cents for ad-supported plays in 2021. The cost-of-living adjustments for 2022 took the rates to 0.28 cents and 0.22, respectively.
In the latest example of a stellar synch bringing in a surprise windfall, The Cramps‘ 1981 psychobilly classic “Goo Goo Muck” has become a breakout hit over the past couple of weeks.
Since Netflix’s new Addams Family spinoff Wednesday debuted on Nov. 23, including the series’ titular heroine performing dance sequence set to “Goo Goo Muck”, the track has taken off on streaming services.
In the week following the show’s release, from Nov. 25 to Dec. 1, The Cramps’ “Goo Goo Muck” was streamed on-demand over 2 million times in the U.S. — a more than 8,650% increase from the average 47 weeks before this year. That adds up to $11,089.85 in a single week for the Capitol Records master recording and $2,492.33 in publishing, according to Billboard estimates.
Those numbers dwarf the rest of the song’s 2022 activity — until the Wednesday dance sequence came out, “Goo Goo Muck” this year had generated a total of $130.21 per week for the master and $32.28 for the publisher. Thanks to the Wednesday synch, The Cramps’ “Goo Goo Muck” earned in total almost 78% more money in a single week than it had for the entire year.
“It’s a really amazing, fun little bonanza,” Jim Shaw, a member of the late country legend Buck Owens‘ Buckaroos, who happens to own the publishing, told Billboard last week.
Early streaming activity suggests “Goo Goo Muck,” a cover of a 1962 single by Ronnie Cook and the Gaylads, could potentially follow Kate Bush‘s renaissance when her minor 1985 hit “Running Up That Hill” landed in Stranger Things and turned into a smash. “Goo Goo Muck” had 2,500 daily on-demand streams as of Nov. 22; by Dec. 1, the track jumped to more than 209,000 daily streams, according to Luminate.
The streaming boost for “Goo Goo Muck” is a bonus on top of the upfront synch fee — the amount of which is unknown — that would have been paid on both the master recording and the publishing for the song.
Capitol reps did not respond to an interview request, but Shaw, who runs the Buck Owens Foundation, said he scored the publishing rights after the original publisher, Dave Bell, felt guilty about owing his friend Shaw “a couple thousand dollars” and offered the song instead. (Bell, who died in 2013, owned a recording studio, label and publishing company in his hometown of Bakersfield, Calif., and put out Cook’s original version of “Goo Goo Muck.”)
“It hasn’t really done much until recently,” Shaw says. “That’s what every songwriter, and publisher, hopes will happen. Anything they put on YouTube, they hope something goes viral.” If “Goo Goo Muck” goes full Kate Bush? “Well,” Shaw says. “[It] wouldn’t break my heart.”
A federal judge says he won’t undo his ruling that Slacker owes nearly $10 million in unpaid music royalties to SoundExchange, seemingly unmoved by the streamer’s warning that the ruling will have a “devastating” impact on the company’s finances.
SoundExchange claims Slacker’s parent LiveOne has failed to pay royalties for years, and last month won a ruling requiring the streamer to hand over $9,765,396. Slacker said last month that the huge judgment could trigger financial ruin for the company – a warning SoundExchange urged the court to disregard.
In a decision issued Wednesday, Judge André Birotte Jr. did exactly that. He ruled that the seven-figure judgment was simply the result of an agreement that Slacker itself had signed – and noted that the streamer was not actually legally disputing the terms of that deal.
“Defendants cannot argue that the judgment is a result of ‘excusable neglect’ or that it is ‘without fault,’ when the judgment was entered pursuant to stipulation that defendants negotiated for and assented to,” Judge Birotte wrote. “Because Defendants signed the stipulation, and in fact do not dispute the amount of money Plaintiff is entitled to, the court finds the judgment is fair, adequate, and reasonable.”
SoundExchange, which collects performance royalties for sound recording copyrights, sued LiveOne in June, claiming the company had stopped paying artists and labels way back in 2017. And it claimed that a subsequent audit revealed it had been underpaying for years before that.
Court records show the two sides entered into the repayment plan in 2020, which gave Slacker two years to pay off its debts. But in the June lawsuit, SoundExchange claimed that Slacker had quickly failed to live up to the terms of the agreement.
“By refusing to pay royalties for the use of protected sound recordings, Slacker and LiveOne have directly harmed creators over the years,” SoundExchange president and CEO Michael Huppe said at the time. “Today, SoundExchange is taking a stand through necessary legal action to protect the value of music and ensure creators are compensated fairly for their work.”
Just a few months into the litigation, SoundExchange played an unusual legal trump card. On Oct. 12, the group invoked a so-called consent judgment, which had been inked and pre-signed by execs at Slacker back in 2020 as part of the repayment plan. Under the terms of that earlier deal, if Slacker ever defaulted again, its executives agreed that a judge should enter a so-called judgment against the company for the full sum owed.
On Oct. 13, Judge Birotte did so, ordering the Slacker to pay $9,765,396, which covered both unpaid royalties and late fees. He also permanently barred the company from using the so-called statutory license, an important federal provision that makes copyright licenses for recorded music automatically available to internet radio companies like Slacker and Pandora at a fixed price.
A week later, Slacker asked the judge to overturn his own ruling, saying it had been procedurally improper. To support the request, Slacker warned the judge had quickly caused other creditors to call in other debts owed, threatening “economic damage” to the company that would be “unsustainable.”
“Plaintiff’s surreptitious request for entry of judgment has triggered LiveOne’s default on two substantial senior secured notes which are secured by all of LiveOne’s and their subsidiaries assets,” the streamer wrote.
SoundExchange urged the judge to deny the request, saying it had spent years “indulging” the company’s “many excuses for non-payment,” and that it had simply become time for the streamer to be legally forced to pay up: “Five years is long enough.”
In Wednesday’s decision, Judge Birotte sided with SoundExchange, ruling there was no legal wiggle room for Slacker to challenge an agreement signed by its own executives. The judge said that unless there is proof of “fraud or misconduct” – and there is none – there was no reason to undo the ruling. And he was unmoved by the company’s warnings of economic ruin.
“Defendants argue that the ‘repercussions will be devastating to LiveOne, its employees, and to its creditors,” the judge wrote. Defendants, however, have failed to explain what balance is actually due, whether defendants’ creditors have elected to require immediate payment, or how the repercussions will actually impact its business or livelihood.”
A representative for Slacker parent LiveOne did not immediately return a request for comment on the decision.
Read the entire decision here:
Imagine a platform where fans can buy and sell streaming rights from the music they love, as easily as buying a stock on an investing site like Robinhood. This is the vision of Web3 music platform Royal, which today announces a music rights marketplace.
Founded by DJ and producer Justin Blau, Royal launched in January 2022 with high-profile NFT drops from Nas, Diplo and The Chainsmokers. The platform allows fans and investors to earn a percentage of streaming royalties alongside the artists. Thus far, the platform says it has paid out $100,000 to holders.
After proving the concept works, Blau says Royal is growing into its bigger vision. “The drops were very much a beta,” he tells Billboard. “We needed to show that you could actually pay out royalties in an efficient manner on chain … The next piece is the tradability of these assets.”
Royal’s marketplace allows fans to buy and sell music rights directly on the website. It includes a ‘portfolio’ where fans can manage their collection, track the performance of their assets and connect to a bank account. Since the beginning, Royal has worked to hide the crypto technology that underpins the platform, and that same Web2.5 philosophy applies to the new marketplace.
“You can buy and sell these things and never see crypto if you don’t want to,” Blau says.
Royal sees music as a rapidly growing asset class with global music revenues hitting $26 billion in 2021, according to IFPI. And while streaming accounts for 65% of recorded music revenue — also via IFPI — most of the value is locked up in legacy music companies and investment firms. “The private markets have controlled all the value in music rights,” says Blau. “It’s not moving between artists and fans, it’s moving between institutions.”
The concept of Royal’s marketplace is to unlock some of that value and let fans participate.
“If you’re a fan and you own a piece of a song and it comes on the radio, there’s something really special about saying you own that.”
Hanging over this announcement, however, is a lawsuit served to Blau over an $11 million NFT auction connected to his Ultraviolet album in 2021. Songwriter Luna Aura — who says she owns a 50% royalty share in one of the tracks on the album — claims she was not adequately compensated from the NFT sale.
Blau could not offer further comment on the details of the lawsuit, but did say the experience of releasing the Ultraviolet NFT and navigating IP laws with 21 other artists informed how they built Royal.
In the coming weeks, the platform will also host more than a dozen new drops from independent artists, starting today with Bingo Players & Zookëper and their new single “Bathroom Line,” followed by “I’ll Wait” by Madison Ryann Ward, as well as music from Yemi Alade, 27Delly and Matt Cooper.
Last year, Milana Rabkin Lewis, co-founder and CEO of the distribution company and payment platform Stem, was among those who read a series of frustrated tweets from the rapper Meek Mill. “I haven’t got paid from music, and I don’t know how much labels make off of me!” Mill wrote in a since-deleted thread. “How much have you spent on me as an artist? How much have you made off me as an artist?”
“Why can’t he know that?” Rabkin Lewis asks. The problem has frustrated her since she was an agent at United Talent Agency and saw “just how messy the whole process” of royalty accounting was. “We were working with major artists who realized they had no visibility into when they were going to get paid and how unrecouped they were,” she recalls.
Part of the reason she started Stem in 2015 was to provide artists with more transparency. Now Stem is debuting Royalty Services, which aims to distill labyrinthine Excel spreadsheets into digestible dashboards and will be available to labels outside of Stem’s distribution network. (Some of the major labels also have their own version of a dashboard, though managers say they can be tough to navigate.) Users can view summaries of overall costs, earnings and recoupment status. They can drill down into more granular data — to determine which streaming platform or track is generating the most money, for example — with a click. And the process of linking bank accounts and sending money to partners is straightforward.
“It’s easy to see which song is doing the most each month on which platform, how much you’re making, when you will recoup,” Rabkin Lewis says. Stem’s chief product officer Brendan Kao calls the new dashboard “the next step in our mission to improve financial clarity for the entire music industry” for both labels and artists.
Royalty accounting has been a source of artist frustration for about as long as there has been a music industry. “The mystique of the music business is that, though profits are huge, accounting is incomprehensible,” CBS boss Walter Yetnikoff wrote in his memoir. Another company hoping to inject more transparency into an industry known for opacity is CreateSafe, which made a Record Deal Simulator freely available online so artists can input their advance, recording and marketing costs and get a rough estimate of how many streams they need to generate to recoup their deal.
If anything, royalty accounting has only become more complicated in today’s digital environment. Artists often release more music with more partners than in the past and work with more producers. And revenue comes from multiple streaming services as well as platforms like TikTok and Twitch. “We’re also seeing this trend of the admin and the responsibility of paying people out going more downstream,” Rabkin Lewis adds. “Motown pays out Quality Control, for example, but there are so many layers of people that need to get paid after that,” from artists to producers to engineers, and “often the people downstream from the major have no software.”
Quality Control has also started using Stem’s technology, as has Fool’s Gold. Rabkin Lewis says she hopes to have 50 clients by the middle of 2023. “Stem’s software makes royalty data easy to read to the point that I actually want to log in myself to look at trends,” Quality Control co-founder Kevin “Coach K” Lee said in a statement. “With any other solution, I would wait for my team to generate a report and then wait again while they pull the important details out of a massive spreadsheet.”
Justin Blau, best known as the DJ-producer 3LAU, is the founder of Blume Music, another label that quickly signed on to use Royalty Services. “We used to hire an accounting firm,” Blaus says. “We’d send them everything, they’d send paperwork back, and then we’d send payments manually to each rightsholder.” This system was “inefficient,” Blau continues, to the point that it was “just obnoxious.”
He was quick to sign up for Stem’s new product: “A lot of artists have been waiting for this.”
In September, “Dumb Dumb” — a song by mazie featured in the Netflix teen drama Do Revenge — caught a wave on TikTok, and listenership grew exponentially. Over the course of two weeks, “the record went from doing around 10,000 streams per day to around 1.4 million per day and has sustained since,” says Max Gredinger, who manages the 23-year-old artist. “We saw increases across the rest of her catalog as well, which showed new fans were sticking around to learn more about mazie and her music.”
Artists and executives compare success on TikTok to the lottery — it often seems just that random. But crucially, the payout on a winning ticket doesn’t come from TikTok itself. The financial rewards accrue outside the platform in the form of royalties from streaming surges or a label advance, with seven-figure deals routinely thrown at viral acts in recent years. TikTok, which has built a thriving business based largely on users syncing videos to music, pays “almost nothing,” according to one music distribution executive.
There isn’t a fixed rate for music on TikTok; labels and distributors negotiate licenses individually. But one thing appears constant: “The numbers are horrifying,” says one manager who has had several songs take off on the app and shared his royalty statements with Billboard. A marketer who oversaw the campaign for a single that was used in roughly half a million TikTok videos reports that his artist took home less than $5,000 from the platform, despite the views numbering in the billions. TikTok’s parent company, ByteDance, “doesn’t view music as a value add,” says another senior executive. “They just view music as a cost center they have to limit as much as possible.”
So far, ByteDance has been very successful in doing just that. One indie-label head shared several months of royalty information indicating that 1 million views on TikTok leads to about $8 — actually a better rate than the one exhibited on three other indie labels’ most recent statements that were shared with Billboard. In contrast, managers say that while payouts from YouTube vary, 1 million views will usually earn somewhere between $500 and $2,000.
It’s surely not a coincidence that music industry complaints about the money flowing from TikTok are gaining traction as the major labels are negotiating licenses with ByteDance, which is planning to expand its streaming service, Resso, beyond test markets in Brazil, India and Indonesia. Speaking at a recent industry conference in Singapore, Universal Music Group (UMG) CEO Lucian Grainge warned the music business of a value gap “forming fast in the new iterations of short-form video.”
Adding to that sense of a value gap: As TikTok’s business expands — gaining more users and selling billions of dollars in advertisements — labels and distributors do not participate in that growth.
In a statement, TikTok global head of music Ole Obermann said: “We’re proud of the partnerships we are building with the industry and artists, and we are confident that we are enhancing musical engagement.” He added, “That translates directly to more financial and creative opportunities for music creators.”
Part of the debate over how much artists should earn from TikTok stems from a debate about the nature of the platform itself. TikTok is video-based, and Obermann has pointedly said that it is “not a streaming platform.” He reiterated this in his statement to Billboard: “Our community comes to TikTok to watch videos, not to listen to full-length tracks.”
But the app is already threatening established streaming platforms, which must battle for ear time with TikTok’s additive clips. And some in the music industry dispute Obermann’s claim — they already see a generational shift where “some people have a TikTok playlist and just use it as their music service,” as one indie-label head puts it. “Much of the [music] ‘discovery’ that happens on TikTok is consumption,” Mark Mulligan, managing director for music consultancy MIDiA Research, wrote in a recent blog post.
Sources say that individual labels and distributors have different deals with ByteDance, which negotiates lump-sum upfront payments to use their recordings on TikTok for a set period of time. (Since users can upload their own videos — with the music of their choice — to TikTok, ByteDance has added leverage in these negotiations. If a label doesn’t come to an agreement with the company, it will have to devote a good deal of time and resources to issuing takedowns.) In addition, each label and distributor can make its own decision about how to parcel out those payments to artists.
Many of the sources who spoke for this story are paid by their labels or distributors according to the amount of individual videos uploaded that incorporate their songs. Reports from one indie-label executive showed that acts on his roster earned around $150 from TikTok for roughly 100,000 videos made with their music. A manager who works with several artists who have had successful TikTok songs shared reports for individual tracks: One single brought in around $100 after being used in about 60,000 clips, while another earned $350 from over 80,000 videos.
Other sources say they see only TikTok views, rather than video creations, on the royalty reports they receive from their label or distributor — or make the decision to rely on views to calculate TikTok payouts internally. “If you’re paying based on creations, that’s saying it doesn’t matter if a song is heard one time or 1 billion times, and that would really devalue music,” says the indie-label head.
When executives examine TikTok payouts compared with views on platform, the money made seems even more minuscule. “TikTok doesn’t pay out nearly what any other view pays,” says a head of a record company that is distributed by a major. “It’s astronomically lower.”
Some in the industry who value TikTok as a marketing tool note that money flowing to the music industry has improved over time. And several sources compared the current situation to the music industry’s combative early relationship with YouTube.
In Singapore, Grainge warned of “repeating past mistakes,” citing both MTV and YouTube. “We were given a lot of reasons why our artists shouldn’t get paid,” Grainge told attendees. “People said, ‘It’s great promotion,’ ‘Or you can use it as a platform for discovering new artists’ … technology platforms were built on the backs of the artists’ hard work.”
Grainge called on key players to protect music’s “cultural and commercial value.” And the senior executive who believes that ByteDance sees music as a “cost center” expressed a similar sentiment. ByteDance “needs to move to a more rational model that equates more value with what is driving their business,” he says. “Only pressure is going to get them there.”
This story originally appeared in the Nov. 5, 2022, issue of Billboard.
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Apple Music’s recent subscription price increase and a likely forthcoming price hike by Spotify would provide a boost to U.S. and global music revenues and likewise impact catalog valuations.
Higher prices for Apple Music and Spotify’s individual plan could be worth hundreds of millions in additional subscription revenue annually in the U.S. Incremental revenues resulting from these price increases have the potential to reach roughly $650 million a year for streaming services. That assumes 7% growth in subscribers in 2023, no additional churn, a full year of higher prices and higher prices for both self-paid and promotional subscription plans.
However, a small amount of churn is possible, and Spotify is unlikely to raise rates at the beginning of the year. Additionally, not all subscription plans are subject to increase. (Apple is not raising the price on Apple Music Voice, for example.) Thus, the actual impact is likely to be lower next year and in successive years.
Apple Music’s individual plans rose $1 from $9.99 to $10.99 per month, while its family plan price increased $2 from $14.99 to $16.99. Apple One, a bundle that includes Apple Music, Apple TV+ and other services, rose $2 for the individual plan and $3 for the family plan (which includes Apple Arcade and iCloud+) and premier plan (which adds Apple News+ and Apple Fitness+).
Spotify could follow with similar price increases in the U.S. of $1 per individual subscription, though it may not further raise its family plan price on top of the $1 increase, to $15.99, that it imposed in April. Spotify also has discounted plans for students that cost $4.99 per month. For these purposes, Billboard assumes those discounted plans will remain untouched.
Creators and rights owners effectively get a raise from a price increase. The same percentage of streaming services’ revenue would flow as royalties to labels and publishers. Higher prices wouldn’t impact listening habits — although some churn is possible — so the math is favorable to creators and rights owners: a larger royalty pool would be divided by the same number of streams to calculate the per-stream royalty owed to each track.
Higher rates from the two largest subscription services in the U.S. would make songwriting and recording catalogs more valuable, too. Price increases will add revenues to a catalog’s existing royalty income, and streaming growth has been positively correlated with higher valuations of music catalogs. As Billboard reported this week, a new paper by New York University professor Larry Miller found that streaming accounted for 62% of the average multiple paid for songwriting catalogs in 2021.
Spotify has not announced a broad price increase on its individual and family plan subscriptions, but CEO Daniel Ek signaled the company would likely follow Apple Music’s lead when speaking to investors during Spotify’s Oct. 25 earnings call. A U.S. price increase “is one of the things we would like to do,” Ek told investors, adding Spotify will have conversations with labels “in light of these recent developments with our label partners.”
Expect higher prices to become the norm. Amazon Music Unlimited raised its prices in May. Deezer raised its subscription prices in France, its largest market, in January and plans rate hikes in Germany and the U.S. in December. Apple Music’s decision to raise prices “opens the door for further price increases down the line,” Deezer CEO Jeronimo Folgueira said during its Oct. 28 earnings call. Exactly how much incremental revenue these price hikes will generate depends on many variables. In any case, creators and rights owners can expect more subscription royalties in 2023 and beyond.
Legendary lawyer Don Passman has likened the music biz and its transformation in the digital era to a Rubik’s Cube. It shifts so much that there have now been 10 editions of his industry bible, “All You Need to Know About the Music Business.”
The industry’s challenges, however, did not deter the lay economists at NPR’s Planet Money podcast after they heard an old song called “Inflation.” The funky, moody track with lyrics like “Inflation is in our nation… I can see a depression coming on” was written in 1975 when inflation was at levels slightly higher than today. A cassette tape of the song by Earnest Jackson‘s Sugar Daddy and the Gumbo Roux showed up in Planet Money hosts Sarah Gonzalez and Erika Beras‘ mailbox one day, and they “got a little obsessed” — so obsessed they embarked on an 8-month effort to start a record label and publish the song.
Gonzales and Beras discuss the challenges of creating a label, striking deals with different stakeholders and promoting the never-before-published song over two episodes of the podcast, this week.
Describing their reporting to Billboard, Gonzalez and Beras say that in the course of creating a contract that split revenue between the label and musicians, they came up with what Passman describes as “possibly the worst record deal I’ve ever seen, from a record company point of view.” (Passman was interviewed for the podcast.)
“We are not doing this to make money. We are really doing this because we want to explain the music industry,” Gonzalez says. “It’s just really difficult to make money in this industry, which we all knew. But it’s not until you get into it that you really understand it.”
If a typical deal gives 80% of revenues generated by a song to the record label and 20% to the musicians, Planet Money proposed giving 80% to the musician, namely singer and songwriter Earnest Jackson, and keeping 20% for their label. The hosts felt that was a fair deal given that even if the song was streamed 1 million times, they could only expect to collect around $4,000 total.
After much back-and-forth with Jackson’s old bandmates, which included Journey bassist and American Idol host Randy Jackson and others who went on to successful music careers, they landed on a deal that gives about 67% to Earnest Jackson, 15% to the bandmates and the remainder to the label and others.
Any revenue generated from the song that goes to NPR will go back into producing more shows, Gonzalez and Beras say. They say they do not plan to recoup expenses from publishing and promoting the song, which included at least $10,000 in legal fees.
Once they uploaded the track to TuneCore and started promoting their first, possibly only hit, they learned that “Inflation” had to be streamed 5,000 times in the first week for the label to be able to pay for promotion. Fortunately, the song crested 65,000 plays in its first few days, but it still has some way to go to reach 1 million plays.
“No one ever makes money on streaming,” Beras says, when asked what she learned from her reporting. “I feel like I’ve repeated that a thousand times and never understood what I said.”
“We put all of our effort behind this song and behind Earnest Jackson and are going all in,” Beras says.
Next, they plan to make it a ringtone — which earns a bit more than streams — and they are trying to land it in a Netflix documentary.
Since launching their label last week, Planet Money has received two more submissions from musicians, according to Beras. For now, they are focused on “Inflation” and have no aspirations to “become music moguls,” Beras jokes.
