Throw Out the Big Pot: A Re-Examination of Streaming Pay (Analysis) Billboard – NewsDigital and Mobile By Gideon Gottfried | May 11, 2015 10:53 AM EDT

Published here in Billboard today:

Hands Holding out Money

Remember Portishead instrumentalist Geoff Barrow‘s Twitter rant last month? “34,000,000 streams. Income after tax = £1,700.” We already analyzed why it is hard to draw any meaningful conclusions out of this crude depiction. What is more: Barrow shouldn’t have been that surprised in the first place. It is the nature of the current payout structure of streaming subscription services that the more streams that are generated, the less each individual stream is worth.

It is hard to lift the veil entirely because the subscription space is a hazy jungle, with individual deals hidden behind non-disclosure agreements. But this much has become clear by now: all the money subscription services earn from advertising and monthly subscriptions ends up in one big pot. From there, it is distributed according to the number of streams generated by users. This means each individual stream becomes worth less the more streams that are generated.

The Baffling (and Slightly Insane) World Of Streaming Payments, Explained

That is why it is so important for these services to convert their free users into paying subscribers. It’s just about the only way the amount in the pot will grow while the amount of streams stays the same, making every single stream worth more. Granted, it’s not the only scenario where that could happen. According to some supporters, the more mainstream a model streaming becomes, the more users will stream less intensively. It is the early adopters who are so engaged that chop up the revenue pot into small pieces. It remains to be seen if streaming will become a mainstream model. It may be realistic to assume that most music listeners won’t pay for a streaming subscription in the first place, simply because they are content with internet radio.

Whether the subscription model turns out to be everybody’s favorite way of consuming music or not, there are advocates of a new payout model out there. One of them is the investor, entrepreneur and digital media consultant Jeremy Silver. He says: “I do believe that there is the makings of a solution to this. The problem is not about streaming, it’s about subscriptions and how you divide up the revenues. If a subscription service simply aggregates all the activity on its entire platform and then pays out pro rata against it, the winners will always be the larger players. But if they were to reorganize their payment mechanisms so that it reflected what individual subscribers are actually listening to, then indie bands in particular would start to make some real money.”

What that means is every user’s subscription fee could be divided up individually according to what that user actually listens to in any given month. If you only listen to, say, the new Rae Sremmurd album, all of your ten bucks would go to the band, their label and publisher. Silver starts his day to the exact same three songs every morning but the artists he listens to do not benefit from that because they get drowned out in the current payout model.

There are entire genres like jazz or classical music that are losing out in the current system because they aren’t streamed intensively. They too would benefit from a more individualistic approach. More so because these genres probably attract audiophiles who might be willing to pay double the amount per month for lossless streaming. Thus the effect of dividing up each user’s subscription fee by his individual streams would be doubled too. Of course that model still entails that the more streams that are made, the less each stream is worth. But it would still be a more accurate reflection because the pot is only divided amongst “your” artists.

The implementation of such a payout structure could be costly. “It may be expensive for existing players to re-engineer their systems”, says Silver. “It does raise the question of how committed the existing players really are to rewarding artists. It would also be interesting to see if Tidal — who aren’t as far down the road of their infrastructure and are genuinely artist oriented, but owned by big names — would demonstrate their commitment by trying it.”

Silver points out that “there’s data that shows users are more willing to pay if they know that the money is reaching the artists directly.” An individualistic payout structure might actually speed up the process of converting free users to paying subscribers. In an age where engaging with fans has become more important than ever, streaming services are in a great position. They collect enough data about their users to enable artists to reach out to their followers in unique ways. That, together with a new way of distributing the money, could very well be the next quantum leap in streaming.

Says Silver: “Streaming is still very young. It has only acquired a two-digit market share for about five years now. I’m optimistic that we’ll figure it out.”

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