When music first appeared on digital media, many wondered how to protect the copyright of the creators of music tracks. However, streaming services hit the market almost immediately, and one by one, they changed the way copyright organisations work. Apple Music, Spotify, Tidal became those anchors who could organize the process of music consumption legally.
The business model for streaming music is different from previous schemes. Previously, songwriters received royalties from a percentage of their album sales. In the case of streaming music, payment is based on revenue from both subscriptions and ad-based free services. This article will look at the economics of organizing music streaming.
According to Statista, in the first quarter of 2022, 32 percent of global music streaming subscribers had a Spotify subscription, nearly double the share of Amazon Music subscribers. Other services on the list included Apple, Tencent Music, and YouTube.
However, at the start, the streaming services puzzled the artists.
For many songwriters and artists, streaming has made it challenging to profit from their work. The production process begins with contracts between songwriters (and other composers) and music publishers and between artists and record companies who deal with the rights granted to them by copyright law and terminals that broadcast music directly to the consumer for a subscription fee funded by advertisers free of charge.
The distribution of music via streaming platforms has violated established licensing agreements based on sales. As streaming is now an increasingly dominant way of accessing music, it accounts for over half of the music industry's revenue in major markets.
Economic organization and music industry
The modern economic organization of the music industry looks like an upward pyramid. The musical composition in the upward direction leads to its performance (live or on record) to the consumer.
Copyright law grants various rights to protect musical works of upstream creators (songwriters) and downstream and protects performance and recording rights in the music industry for the right to use copyrighted works for production and distribution. The transaction underlying these contracts has implications for the party that controls the use, such as streaming.
Creators and performers of rights that transfer or retain have subsequent consequences for their following income from the use of their works, including streaming.
However, Forbes notes that music streaming services may be forced to recalculate how they pay artists as the UK government has just begun investigating the economics of the streaming industry. They are concerned that “music streaming in the UK generated over $1 billion in revenue on 114 billion streams last year, but artists could only be paid 13% of the revenue generated.”
Economically, a songwriter is an entrepreneur. He invests his time, talent, and human capital to create a masterpiece. Depending on the situation, it will ultimately result in a payout based on its success if it is successfully used and thrives in the market. The type of contract determines which party has the right to decide on the use of their work.
Music and lyrics publishing contracts can take many forms. From an administrative deal to a single song broadcast or an exclusive publishing agreement. The publisher usually pays an advance to reimburse future royalties in a transfer of rights. When transferring ownership to a publisher, songwriter royalties from streaming are subject to an agreement between the publisher and the DSP through CMO, which licenses the mechanical and performance rights.
Music requires performance to get paid, and music publishers deal with record labels and live producers to promote their clients' work. While many songwriters are also performers performing their songs, copyright purposes need to distinguish between the two activities, as rights are different and governed by other CMOs.
Platform economics and streaming services
Platform economics is a term used in industrial economics to analyze the activities of businesses that distribute certain products on the Internet, such as streaming music. The platform coordinates individual groups of participants in two or more markets, offering a virtual “trading floor” on which they can trade. Network effects are critical to these business models.
Streaming revenue depends on both sides of the market: subscriptions and advertiser fees. Because the markets are international, payment is also influenced by other factors, such as currency fluctuations in the consumer's area of residence and national copyright laws.
However, how much is passed on to songwriters and recording artists depends on the type of contract.
How money reaches authors
There is a structure of deals and arrangements that transfer money from streaming auditions to creators that differentiate between songwriters, signed and unsigned artists, and supporting artists.
Streaming has disrupted the payment process for creators and performers. Because of the underlying contractual relationship, signed artists have less control over their performance revenues than songwriters whose CMOs close deals.
The creation of the right to grant access as an individual right (rather than a collective right that gives performers the right to fair remuneration) has, in any case, led to a reduction in payments to performers.
The evidence has long shown relatively low copyright earnings for the typical songwriter and performer. A middle class can make a modest living by recording alongside other paid activities, but only superstars benefit. The streaming rates are too low for most of them to fully support a career as a recording artist.
It means that most likely, the top custom software development companies will be engaged in developing a new, more perfect model of services for music when the authors will receive decent remuneration for their work.