The Streaming Imbalance: The UN Report On Streaming

I think we know this already, but our super cheap or free access to the World’s music catalog comes at a price. And that price is making working musicians an endangered species.

Here’s a big part of the problem illustrated in red and blue from the UN’s WIPO (World Intellectual Property Organization) report:

And in black and white:

credit: WIPO

Streaming is replacing buying and the revenue artists receive from streaming is paltry compared to selling albums. Another part of the problem is streaming is just so damned addictive. Its the old dealer adage, The first one’s free updated to include, and so are the rest. Hi, my name is Michael and I’m a streaming addict.

The trend has been particularly pronounced over the last five years driven by the dominant music streaming platforms, such as Apple Music and Spotify. Spotify’s 2018 direct public offering as a “pure play” music service demonstrated the value of the recordings created by performers and did so with disproportionately little revenue paid to featured performers and no revenue paid to non-featured performers. These market forces have exposed a pronounced imbalance between the significant market benefit to streaming music platforms derived from the world’s performers compared to the relatively scant financial benefit received by these same performers.

…as this study argues, per-stream payments for interactive streaming are so small that even for unsigned featured performers who collect 100% of the available streaming royalty, royalty payments are both unsustainable and out of balance compared to the value transferred to the streaming services.

This value transferred to the streaming services is best exemplified by the fact that Spotify’s valuation tripled in 2021 to $66.9 billion, while many artists saw a loss in income due to COVID. The Union of Musicians and Allied Workers (UMAW) argues in their Summary of the WIPO report, …when Spotify claims they pay artists a high percentage of their revenues, they are outright lying, as they are excluding huge categories of money coming into the company.

What’s worse is publicly traded streaming companies like Spotify are not profit-driven, according to WIPO:

It must also be said that a primary business motivation of digital music services is to gain access to the public financial markets. It is the public sale of stock or debt to finance the company’s loss-making activities that ultimately seems to be the big payday for streaming services. Unlike the performers who provide the music to these platforms, streaming services arguably have very little connection to “making a profit” and every connection to the public markets to tell the company’s growth story.

The report goes on to explain any number of additional sad facts such as how some streaming services, like Spotify, have customers paying for music they don’t listen to, how the algorithms employed can be viewed as a pay for play model that favor the big players, and how all of this creates an unsustainable model.

The WIPO report concludes:

What remains is that performers transfer value to streaming services beyond that which is compensated by market centric royalty payments. It seems that the policy goals and principles of equitable remuneration are best fulfilled by a streaming remuneration in the nature of communication to the public royalty that is outside of any recording agreement, is not waivable by the performer and it is collected and distributed by performers’ CMOs [Collective Management Organization].

I would summarize this sorry state of affairs by stating the obvious — if we want working musicians to continue making music, something has to change. And this change is nothing short of a new streaming royalty that gets more of the value generated by streaming back into the creator’s bank accounts, instead of lining the pockets of executives. [footnote 1]

Here’s my favorite quote from the WIPO report:

Music value is twofold: not just an object for private pleasure, but also a symbol that helps define what we collectively are. People use music to embody and transmit culture. In fact, every culture has a certain music that can be attached to it. Music is part of the fabric of everyday life. Music is a way to improve people’s lives.

Amen to that.

I recommend reading the UMAW’s excellent Summary as well the WIPO report to get the complete picture.

1. I also recommend buying music from sites like Bandcamp, which gets more of our money directly into the artists’ hands.