A few weeks ago I posted a back-of-the-napkin comparison of the effective rate paid per listen for digital downloads (like iTunes sales) versus that paid for music service streams (like Spotify, MOG, Rdio, Deezer listens).  This post got a bit of attention from sources like MusicAlly, The Music Void, slammed by the Musical Disconnect, and the debate still continues.

I figured I would respond to some of the comments and criticisms, however.  Frankly, I appreciate both.

Your estimate of Spotify’s pay rate is off, no one is getting $0.0033 per stream:

I employed only the effective rates that had been posted publicly by a variety of sources. I was trying to work with an effective rate per stream (recognizing that deals may not be per stream rates, necessarily).

Those sources:

PaidContent reported that STHoldings claimed $2500 from 750,000 plays, which works out to about $0.00373 per stream. ST Holdings removed the post with this claims (I believe) as well as their content from Spotify for the reasons of the payout levels.

Gizmodo published a post from Uniform Motion who reported receiving $0.0029 Euros per stream ($0.00386 at present exchange rate or $0.0041 by Gozmodo’s calculations).

Billboard.biz reported that Mode records calculated receiving $36.98 for 11,335 stream = $0.0033 per stream.

Digital Audio Insider reports average payout of $0.002865 per stream.

DigiMuziek offered up screenshots of their payments, which were increasing from EU0.0019 to EU0.0022 from September to October 2011. The last rate works to about $0.0029 per stream.

Some Artists/Labels in the US are reporting lower amounts.  These per stream rates seem to be clocking in closer to the $0.0013 per stream that Sam from Projeckt Records is reporting.  I am looking into these lower rates to try to understand them and the differences.

Let’s be clear, however.  Different people appear to be receiving different effective rates.  That difference matters.

Spotify does not really pay a set per stream rate:

OK.  But I was trying to compare an effective rate per listen for both downloads and streams.  To do this I had to estimate something akin to a per stream rate.  Your contract may not say “per stream rate.” There still would exist an effective rate per stream (dollars received divided by number of streams).

Spotify (unlike some other music services) would like to operate by paying artists a percentage of revenue rather than a set rate per stream.  I tried to do the same thing with a music service more than a decade ago.  This sort of structure “makes sense” from the point of view of the service.  It may not make the same sort of sense for rightsholders.

When the rubber hit(s) the road, I think its worth debating whether certain rightsholders are seeing guarantees or minimas that present services such as Spotify with essentially fixed-rates in some cases, fixed portions of subscriber fees in other cases, and just raw % of revenue in others.

250 listens to a track over the lifetime is too high:

I may have overestimated that.  But to be clear, I was comparing purchased track downloads to music service streams.

The feedback I got was that the average is quite different if you look at single track downloads you purchased (higher range average listens), albums you purchased that have tracks you never wanted in the first place (middle range average listens), and giant music collections the bulk of which you simply obtained and maybe did not acquire (low range average listens).

Comparing CD sales to Music Services streams:

Some people responded by comparing CD sales to Spotify streams.  CDs have ten or more tracks on them.  So a single CD sale is actually 10 (or more) track sales.

CD/Track sales equate to millions of Music Service streams:

You will unquestionably find that CD sales in the near term are equivalent in dollar terms to millions (if not tens of millions) of streams on a music service.

I wasn’t denying this difference.  The different was the point of the analysis and estimates.

I was trying to understand whether these amounts were that different if you considered them in equivalent terms—payments per listen.

To be continued…

On numerous occasions over the past few months we have heard news of labels and artists disappointed with the monies they are receiving from Spotify.

Since Spotify is really just one of the music services alive and kicking on the planet these days (alongside Rhapsody, MOG, Rdio, Deezer, and others), its worth investigating this matter of the value of payments from streaming services versus those received from record sales.  So let’s get a napkin out and flip to the backside for some mathy stuff.

Assertion:

When you purchase a download you are paying in advance for all of your subsequent listens of that track.

When you listen to a track through a streaming music service, you are paying as you go for each and subsequent listens of that track.

First off, its important that we compare apples to apples and not apple to oranges. Comparing the value of a stream to the value of a sale is without question an Apples to Oranges comparison.  And so, let’s convert the sale to an estimate of payment per stream so we can compare apples to apples (or oranges to oranges if you prefer).

Second, let’s make a simple assumption: A single track purchased from iTunes will be listened to 250 times, on average, over the lifetime of the person who acquired the single.  This assumption may not seem that crazy—over twenty five years will you listen to the “average” purchased song in your library about 10 times per year?  Or twenty five times per year over the first ten years?

Dividing the amount paid for a single by the number of times you listen to that single over the lifetime will give us the effective rate you have paid for each listen of the track.  This payment per listen is the closest equivalent to the payment per stream courtesy a music streaming service.

Third, now we can just divide the amount music rightsholders would earn from a sale on iTunes to estimate a “per listen” fee—the effective rate paid over the lifetime of the track’s enjoyment for each listen of the song.

$0.70 -> the amount a label receives for the sale of an iTunes single (US)
250    -> the number of assumed listens to the track over ownership life
——————–
$0.70 / 250 =  $0.0028 per listen

OK.  So some quick math has led us to the conclusion that our “per listen” payment for iTunes singles over the lifetime of our enjoyment of these tracks is just short of 1/3 of a penny.

From the perspective of songwriters and publishers, in the US, some of this $0.70 above should be flowing back to you—about 9.5 cents (give or take for those various alterations like controlled compositions). And so, the per listen portion paid to the songwriter/publisher would be around $0.00038, leaving about $0.00242 for the sound recording owner(s) and performing/featured artist(s).

To repeat, if you convert purchases of downloadable singles to some value “per listen,” we get the following:

$0.00242  -> for the label(s) and performing artist(s)
$0.00038 -> for the songwriter(s) and publisher(s)
——————-
$0.0028   -> total amount paid to rightsholders per listen from a purchased track

Now we can ask, Is $0.0028 greater than or less than what rightsholders are receiving per stream from streaming music services?

Since disclosing the licensed rate at which these music services pay for music per stream would be controversial behavior, let’s just use the going rate as suggested by those who have chosen to disclose (or claimed to disclose) their payments from Spotify.  That rate is apparently about $0.0033 per stream paid to the label, some portion of which may or may not ever make its way back to the artist(s).

$0.0033 -> the amount believed to be paid per stream via Spotify (for SR only)
$0.0028 -> the effective “per listen” payment for a purchased download
——————–

$0.0033 > $0.0028

Could it be true?

Is the per stream rate paid by music services actually greater than the effective per listen rate we pay for a purchased download?

Next up, we will use some not-so-fancy financial tools (NPV) to compare the present value of these two payments schemes: up-front versus over-time.

UPDATE: While the terms of service for Spotify have not changed (within which they describe a six-month limit on the free service), the company has announced the following:

Well, it’s now been 9 months since we launched in the US. Time sure flies when you’re having fun! To celebrate, here’s some great news…

We’ve been so overwhelmed by the US response to Spotify that we’ve extended the honeymoon for unlimited free listening.

More time to discover more free music

Right now, if you’re a free user, you can continue to enjoy millions and millions of tracks without time limits, gimmicks or catches. It’s our way of saying thanks to the US!

And so, users in the US should not experience a 10-hour limit on their listening within the free service, at least in the near-term.

Original post:

Just how free is Spotify free?  A quick look at the terms of service once you signup provide the answer.

Spotify free is free and unlimited in usage for only the first six months.  After that term, users will be limited to ten (10) hours of free listening in any month, with a cap of five (5) listens to any particular track.  Unclear whether the # of listens limitation renews each month or is a true cap.

The quoted language of the Spotify TOS follow:

The Spotify Service can be accessed

(i) as an ad-supported free-to-the-user service having no monthly cap on listening hours or a cap on number of plays of a unique track during the first 6 months following creation of your Spotify account but thereafter a cap of 10 listening hours per month and a cap of 5 plays per unique track (the “Free Service”),

(ii) as an advertisement free version of the Spotify Service for which you pay a monthly or yearly subscription (the “Unlimited Service”),

(iii) as an advertisement free version of the Spotify Service including an offline mode which makes it possible to listen to music without a connection to the Internet via conditional downloads and other additional features for which you pay a monthly or yearly subscription (the “Premium Service”), and

(iv) as a version of the Spotify Service that provides access to aspects of the Spotify Service via a supported mobile handset (the “Mobile Service”).

Always read the fine print.

I recently gave a presentation as part of CISAC’s 2011 World Copyright Summit in Brussels. Many thanks to the Emmanuel Legrand and Marianne Rollet for their invitation to participate in and present at this event.

A “lean back” version of the presentation is below. Sorry, I haven’t had time to do a voiceover.

A number of people have asked for a version of the presentation. Please contact me directly.