Behind the Numbers: Song Streaming

Michael Driscoll 03/27/15 WSJ.com

Payments in the recording industry were once a straightforward affair. A label sold a compact disc through a retailer like Tower Records, and percentages from that one-time sale were divvied up among musicians, the label and others involved in the process of making and distributing the music. That was about it: a single transaction multiplied by, at most, several million albums sold for top artists.

The advent of the streamed file has complicated the equation. A streaming service sells access to a song–a single listen, rather than a permanent copy of the recording–and a tiny per-play sum is split among the same coterie of musicians and industry players. But now what was once a single transaction for a CD purchase is multiplied by hundreds of millions, and even billions, for each individual “listen.”

“You go from selling 10 albums to a hundred files to a million streams, and the amount of data you’re dealing with is phenomenal,” says Martin Goldschmidt, co-founder of the U.K.’s Cooking Vinylrecord label, whose roster of musicians includes the Prodigy, Marilyn Manson and Groove Armada.

The new distribution model may be a boon for those interested in knowing exactly how many times their songs are played, and by whom. But managing per-song, per-play transactions isn’t a simple task.

A figure Spotify AB released last year hints at the scope of the data involved. In a November blog post, Chief Executive Daniel Ek said the company had paid $2 billion to artists and other rights holders since 2008. Given its payments average 0.6-0.84 cent per stream, that would amount to more than 250 billion transactions.

And that’s just Spotify. Songs today are streamed on an array of services, whose big players include YouTube, Rhapsody and Pandora. And those services may have different pricing levels even within their own frameworks, like Spotify paying higher amounts for songs streamed by paying customers than for songs streamed on its free, ad-supported tier.

“You need to build whole new systems to deal with it,” says Mr. Goldschmidt, who thinks the people focusing on minuscule payouts for each stream have their priorities misaligned. “It’s a much bigger problem than just the [per-play] numbers.”

Willard Ahdritz, chief executive of Kobalt Music Group Ltd., has built a system to help manage the data deluge. He founded his company in 2000, in the early days of music on the Internet. Today, in an average week, Kobalt tracks digital royalties for about 40% of the top 100 songs and albums in the U.S., the company says.

Cooking Vinyl has established its own framework to manage the many revenue streams, Mr. Goldschmidt says, adding that he sees tracking such payments as a vital part of his work with musicians.

“We’re really good at it,” he says. “It’s important that artists are accounted to properly.”

Kobalt’s Mr. Ahdritz says he sees addressing accounting problems as key to helping bring cash back to the music industry, whose revenue in the U.S. has fallen by half since peaking around $14 billion in 1999.

“Very few…can process the volume of data so actually people get paid,” he says. The industry can be “significantly more profitable than it’s ever been before, if you run it with the right structure.”

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