@digitalmusicnws: @Portisheadinfo Says SoundCloud’s ‘Fan-Powered’ Royalty System Has Boosted Their Payments by 500%

Back in March, SoundCloud introduced “fan-powered royalties,” or direct-to-artist payments based upon actual user engagement. Now, a track that Bristol’s Portishead released exclusively on SoundCloud in July has reportedly generated over six times the royalties that it would have made on streaming services with a pro-rata model in place.

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@ddayan is the Only Journalist Who Gets the Deep Implications of Scarlett Johansson’s Streaming Lawsuit Against the Happiest Place on Earth

Remember record clubs? 20 CDs by hit artists for 1¢? These were the absurd organizations run by some of the smarmiest of the smarmy in our business that could not wait to get their greedy paws on your records by your artist who you busted your hump to help find an audience, often at the peak of their popularity. Front line labels were under tremendous pressure to hand over our precious cargo to them at the earliest opportunity so the clubs, too, could snarf up the hit gravy train while giving the artists and especially the songwriter a truly raw deal.

Thus arose the “club holdback” a contractual provision that required a fixed period of time to pass before the record went to the club abattoir. The standard give was 90 days from LP release, but that really wasn’t long enough. It takes time to find an audience and 90 days isn’t nearly long enough. So true to form, successful artists or competitive signings could get a longer holdback, sometimes as long as 12 months. Another trick was that at least one of the clubs refused to pay full statutory or even the full 3/4 rate, so the tricksie label lawyer could also get rid of the 3/4 of 3/4 rate that the clubs would expect you to get because that was forever. Extend that holdback to 12 months and eliminate the reduced rate mechanical, and you could legitimately say “wish I could help, but you know, the contract. We fought like dogs and I had to give them something…so I gave them your money.”

As any artist or particularly nonfeatured artist (aka session player) will tell you, streaming cannibalizes higher margin physical sales. That’s a fact. Streaming also throws off significant’ profits to the streaming distributor in both revenue and market valuation. (I co-wrote a whole paper about this with Professor Claudio Feijoo for the World Intellectual Property Organization.) So it should be no surprise that in the finest tradition of the record clubs that the film studios have discovered a new way to rip off their featured and nonfeatured talent. And the best evidence is Scarlett Johansson’s lawsuit against Marvel and Disney for the way Disney bungled the artist relations issues surrounding the release of Black Widow.

David Dayan at The American Prospect nails the real labor relations issues underlying this pivotal lawsuit in his must-read post The Implications of Scarlett Johansson’s Marvel Lawsuit. David is one of the only journalists out there today who takes the time to understand the true implications of streaming. I highly commend this post to you and every talent lawyer and union negotiator.

We should all rally around Ms. Johansson for taking on what is sure to be a grinding knockdown dragout lawsuit, but we can already learn a few things from the Happiest Place on Earth.

  1. Yes, they will screw you no matter how big you are, even if the result is you’ll never work for them again.
  2. Streaming is probably the most corrosive technology to hit the entertainment industry in history.
  3. Holdbacks (or “windowing”) is a real thing but it’s only as real as the downside for the inevitable breach. Whether that is a lawsuit or a liquidated damages clause that requires the studio to pay as if the windowed event had not occurred remains to be seen. (Example, I get 10x up front and 1000X cash bonus on the backend if theatrical is wildly successful plus studio agrees not to stream in the first 100 days. If studio breaches and streams, I get my 1000x cash bonus regardless of how theatrical window performs, plus whatever else I would get from the streaming release.)
  4. The days of backend-loaded deals may be drawing to a close which will cost the studios more money up front for fewer actors.
  5. Streaming platforms should be paying residuals and bonus payments to all workers on a film, including below the line union workers.
  6. The Happiest Place on Earth is headed for a strike, the likes of which we have never seen before and if it weren’t for COVID it would already have happened.

It’s a very important case that tells a really sad story. And it’s probably the first of many.

Riding the Third Rails: Making the case at WIPO for performer streaming remuneration — Music Technology Policy

One potential solution to the crisis with performer compensation from streaming is an expanded remuneration right paid directly to performers and featured artists by streaming platforms. Remember–the session musicians and vocalists you hear on streaming platforms get nothing and all but a handful of featured artists get next to nothing.

Endless babble about how streaming saved music industry is unmoored from reality. And revenue has demonstrably resulted in lower pay to music workers. 

U.S. Recorded Music Revenues Are Still 46% Below 1999 Peaks https://t.co/wmyAiCV9iB— David C Lowery (@davidclowery) June 17, 2021

Thanks to the support of the American Federation of Musicians and the International Federation of Musicians, the World Intellectual Property Organization commissioned a policy study on this subject for consideration by WIPO’s Standing Committee on Copyright and Related Rights that I co-authored with the noted economist, Professor Claudio Feijoo.  (The study is available here.)  WIPO has never before commissioned a study on the economic effects of streaming on performers, and I think we should all be appreciative of WIPO’s response.

I was pleased to see the study quoted in the recent letter to UK Prime Minister Boris Johnson from the Rolling Stones, Sir Tom Jones and many others calling on the PM to support streaming remuneration according to the BBC.

We considered the pros and cons of a number of potential solutions, which are summarized in this table from the study. Streaming remuneration paid by platforms was the main recommendation for a number of reasons:

–streaming remuneration helps to balance the extraordinary growth in share price by companies like Spotify. (Apple is approaching a $2 trillion market capitalization and still pays session players nothing for streams on Apple Music).

–enterprise playlists are increasingly a substitute for radio by Spotify’s own admission yet pay nothing to non-featured performers.

–streaming remuneration does not expand the compulsory license and leaves private contracts in place.

SolutionProConFurther comments
Streaming Remuneration Paid By Platforms Through CMOsDoes not require additional transaction cost as matching and payment information already exists at CMOs; does not require renegotiation of licensing agreements or disrupt current licensing practices; platforms are already paying similar royalties in certain territories; recognizes value transfer from all performers to platforms; helps to preserve local culture by compensating both featured and nonfeatured performersPlatforms may seek to offset streaming remuneration payments against catalog license revenues; platforms may seek to expand compulsory licenses; additional operating cost for platforms; Flexible solution that Member States may elect to implement.  Benefits both featured and nonfeatured performers. Mandate may exclude deduction from existing licenses and may make payments non-waivable.
Status Quo—continue market-centric model unchanged with voluntary experiments in fairness-making royalty methods (SoundCloud and Apple, for instance)No disruption to streaming ecosystem, locks in market-centric royalty model, allows market forces to drive change (e.g., SoundCloud fan powered royalties and Apple messaging pro-artist royalty rates)Favors major labels and their featured performers, nonfeatured performers paid zero, does not respond to grassroots campaigns by featured and nonfeatured performers; burdens local repertoire and local culture (see concerns about streaming music raised by Heritage Canada and Canadian Parliament in current consideration of Bill C-10[1])Do not change and allow market forces to impact royalty rates through grassroots protests against streaming royalties like #BrokenRecord and #IRespectMusic campaigns and potentially litigation
Voluntary change in label streaming rate policy and Beggars (for instance) style forgiveness of unrecouped balancesFairness making move so that producer unilaterally updates all legacy contracts to current rates.  Simple to pay more than contract requires, can be implemented quickly, low transaction costs.  Forgiveness of unrecouped balance occurs after a fixed period of time.  (Beggars model forgives 25% after 15 years).  Does not change the underlying payments to featured performers, does not compensate nonfeatured performers. Might be arbitrary and subject to sudden changes.Labels should consider before legislation requires a change in response to grassroots protests (see DCMS Inquiry). Nonfeatured performers are not benefited. Compatible with other models. 
SolutionProConRecommendation
Mandate review of royalty statements and systems by independent accountants or “special masters”Biggest point of failure in royalty reporting is at the platform, so review of systems by independent accountants and experts would increase transparency and help to reduce third party fraud.  Expert review would be in addition to SSAE 16 type review.  At a minimum, public accounting firms should be required to publicly disclose systems reviews undertaken as part of audited financials.Biggest negative would be cost, but in the long run would potentially reduce the cost and increase the efficiency of individual audits.  Might be accomplished through disclosure and rebalancing of duties of public accounting firms.Member States may consider legislating transparency. Nonfeatured performers are not benefited. Compatible with other models.
Adjust corporate governance at streaming companies to make them more responsive to shareholders (such as eliminating dual class stock in publicly traded companies)Allows shareholders a meaningful voice in corporate governance denied by “supervoting” shares such as Spotify’s 10:1 insider shares, allows fans or users an opportunity to be heard by board of directorsDoes not by itself change underlying payment issues for either featured or nonfeatured performersMember States may consider as a general matter depending on existing corporate governance laws and exchange rules.  Nonfeatured performers may not be benefited. Compatible with other models.
Voluntary User Centric Share of Revenue Royalty methodsLikely to allow users to have transparency as to where their money goes; perceived greater fairness for featured performersCostly to implement due to transaction costs of renegotiating all licenses.  May just reallocate revenue without increasing the pie; does not recognize the value transfer from performers to platforms in market valuation and share price. Does not compensate nonfeatured performers.Allow platforms to experiment with different models.  Nonfeatured performers are not benefited under models tried to date.
Fan-to-performer Direct Digital GiftsDoes not require changing licensing agreements for services and producers; payments to performers can be made directly outside of recording or distribution agreements; if broadly established, could include both featured and nonfeatured performers. Excludes producers from compensation scheme; requires performers to sign up to accept payment; some services take a cut some do (like Tencent) and some (like Apple) do not take a cut if true gift and not disguised in-app purchase Allow platforms to experiment with different models.  Nonfeatured performers could be benefited.  Member States may consider legislation to curtail platforms taking a cut of digital gifts.
Extended collective licensing of the exclusive right of making available on demandRebalance relations between stakeholders; guarantee a remuneration for all categories of performers through collective managementLimited protection for performers when opt-out is possible; needs conclusion of new licensing agreements; will affect the perimeter of licensing agreements concluded between labels and platformsWould conflict with existing contracts, increasing litigation with uncertain results; non-retroactive application with limited effects
Compulsory collective management of the exclusive right of making available on demandRebalances relations between stakeholders; guarantees a remuneration for all categories of performers through collective management; protects all performers from unbalanced transfer of rightNeeds conclusion of new licensing agreements; will affect the perimeter of licensing agreements concluded between labels and platforms; deprives featured performers of their direct capacity to negotiate with labels through individual contractsWould conflict with existing contracts, increasing litigation with uncertain results; non-retroactive application with limited effects

[1] House of Commons of Canada, House Govt. Bill C-10 (43rd Parl, 2nd Sess., Nov. 3, 2020) available at https://www.parl.ca/LegisInfo/BillDetails.aspx?Language=e&Mode=1&billId=10926636&View=1

@drewjschwartz: The Way Streaming Services Pay Artists Is Broken. SoundCloud Is Trying to Fix It

[h/t to Jay Gilbert and Mike Etchart at Your Morning Coffee for tagging this explanation of SoundCloud’s “fan powered” royalties. My feeling about the SoundCloud version of user-centric is that it’s the beginning and not the end of the story. These things have a tendency to evolve over time, and SoundCloud may actually start negotiating instead of the usual “we’ll take it and you’ll leave it” attitude of Big Tech, particularly when it comes to independent artists. Remember when iTunes paid bigger labels at least 70¢ for downloads but indie labels and artists 65¢ for no good reason? That didn’t last. The most important part of this story is that it is happening at all and that suddenly a big music service has seen that being early on this trend is a competitive advantage. That may cause other services to react.

The next step will be when major artists get woke to the fact that if the dominant pro-rata model that user-centric rejects is unfair, they may be the beneficiaries of that unfairness. And then there’s the songwriters, who have a similar model applied to their share of the revenue. (And of course focusing on revenue alone completely ignores the valuation benefit that is easy to calculate for public companies like Spotify that has made CEO Daniel Ek a multibillionaire while paying scraps of scraps to artists.]

This week, SoundCloud announced it’s making a major change to the way artists on the platform get paid in an effort to help smaller acts make more money from their music. If you’re not someone who follows the jargony, complicated world of music streaming closely, the new system, which SoundCloud dubbed “fan-powered royalties,” might seem confusing. Allow us to break it down for you. 

When you pay for a subscription to a streaming service like Spotify, Apple Music, or SoundCloud, your money goes into a big pot, along with the money the streamer earns from every other subscriber and from advertising. A chunk of money from that pot goes to the company itself. Then, it divvies up the rest among artists, based on each artist’s share of total streams every month. The bigger slice of overall streams an artist gets, the more money they get from the pot.

All the major streaming services use that system, known as a “pro rata” royalty model—but there are problems with it, which musicians have been complaining about for years

Read the post on Vice