Streaming Payouts Need Some Simple Tweaks

Continued debate about how to share revenue generated by on-demand music streaming services is less enlightening than it could be, mostly because it is conducted in an almost information free context. We don’t really know how much money is being brought in, how it splits between subscriptions and advertising, or what’s in the deals that govern the payments to the recording owners. Nor do we know what the contracts between the artists and the labels say, including what the artist traded off against what now seem to some to be¬†grossly unfair royalty rates.

Different belief systems will of course have more impact on the opinions of the debaters than any evidence might; that is just human nature. One of the fundamentals is whether the price of something is considered to be the best available proxy for its value, or whether it is an ethical expression of some kind (look for the word ‘should’ to sift out the latter type). When lots of people collectively buy lots of things it is easy for the relative values in each of those things to get flattened, and a ‘fairness’ approach to pricing might even point in the direction of ‘one price fits all’. It could perhaps also be argued that each track in a catalogue has a potential range of values from highest to lowest; it just needs to find enough ears for this to emerge.

Common sense however suggests that some recordings will be generally valued higher by more people, and some might even be seen by most as a blight which warrants compensation for exposure to them. And by the time your ears tell you which is which it is too late. It is very hard to unhear something, and even Cher has not infallibly managed to turn back time.

When the consumer clicks the play button some noise must happen if the on-demand model is to become universally trusted and accepted. Any pricing or licensing scheme that could withhold a track at the moment of demand is therefore unlikely to work very well – driving away the subscriber is not how to create long term revenue growth for all. Search is also a sensitive moment for the consumer, and no service wants to be forced to advertise incompleteness.

Yet it seems clear that we need a more dynamic wholesale layer in the market, so that the reward and incentive is much better allocated than currently. Here are a very few simple suggestions, which might stem the criticism for long enough to find out if an on-demand world is capable of supporting professional recording artists making high quality recordings.

1. The first listen of each track by each listener could be royalty free, or even create a debit against the licensor’s account. This automatically shifts revenue towards artists who can make tracks listeners want to hear more than once. Preference data (favouriting, playlisting, caching) might then start to give some clues about likely future value, with relative rates adjusted accordingly.

2. Historical play counts could be used to stratify the catalogue, and each tier could be allocated a royalty pool. Models of what affects play counts will be naturally very complex, so this might be a relatively weak tool to discover how tracks are valued, but it could effectively, for instance, be used to incentivise external support for ‘growers’, or just ensure that providers of unpopular and unloved music had fewer reasons to market within a service.

3. Similarly, style and genre metadata could be used to differentiate between royalty pools, allowing a service to encourage and reward specialisation. This just reflects what happens in the downloads market with specialised stores. Combined with play count data it would also encourage better categorisation – faking a genre for a higher per play rate could quickly get punished.

4. Subtly different from (1), the first day, or week, of a track’s life on a service could bear a discounted royalty rate, pushing more revenue collectively towards the later stages of the sales envelop for the more popular tracks. This would explicitly drive windowing behaviour, which might end up being seen as overall positive for the market by supporting higher prices for¬†downloads.

It would be surprising if ideas like this were not being actively considered all the time by services and by the more sophisticated music providers. While they stop short of providing the wholly dynamic wholesale marketplace that would inherently be capable of rewarding higher value with higher rewards, they have the advantage that the skills required to optimise strategies on either side are close to the marketing and release management skills that already exist in the industry. We don’t all have to become futures traders overnight. And underlying all of it is a drive to discover a sustainable way to incentivise new production of a great variety of new music recordings. That has to be a decent goal for all of us.

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