Digital Audio Insider -- the economics of music and other digital content

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Digital Audio Insider is David Harrell's blog about the economics of music and other digital content. I write from the perspective of a musican who has self-released four albums with the indie rock band the Layaways.

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March 30, 2006

Adding It Up: Royalties for Song Streams
by David Harrell
Adding It Up: Royalties for Song Streams
A reader comment to this post on the Yahoo Music Blog asked "to what extent are we supporting the labels/artists when we listen to music via subscription services? For example, if I listen to an album 200 times ... is the label/artist getting more or less money from me than if I bought the physical CD in the stores?"

If someone actually streamed an entire disc 200 times, the answer is a big "YES."

Here are the current the payout rates that my own band receives for digital streams (via distribution by CD Baby) from the various subscription services. It's possible that some major labels have negotiated higher rates, but from what I've read, I think these rates are fairly standard:
Per Song Payments for Streaming
AOL MusicNow: 2 cents
Music Match: 1 cent
MusicNet: 2 cents (up from .2 cents!)
Napster: .8 cents AND 2.1 cents
Rhapsody: 1 cent
The recent royalty increase from MusicNet (which supplies digital content to Yahoo, Tower, Virgin, and AOL) is huge -- a 10-fold increase over the .2 cents per stream rate that we used to receive, bringing it line with the other services. I'm a bit confused by the Napster payouts -- not sure why there are two rates. In our most recent batch of Napster sales we're receiving both rates for the same songs. My best guess is that the two rates are somehow related to Napster's basic service and the "Napster to Go" option that allows you to transfer the songs to a portable device. Maybe Napster pays a higher rate for the latter.

If a label sells discs to distributors for $6 a unit, it would take about 300 song streams at the 2-cent rate to generate an equivalent dollar amount for the label. Or, for a 12 song album, around 25 listens to the entire album. You'd have to double all of those numbers for a Rhapsody customer or for the lower of the two Napster rates. (However, what I don't know is how the streaming income is paid back to artists on major labels. There's a chance the artist royalty for streams is a smaller percentage than the standard CD royalty rate. Our own records are basically self released, so we see all of the income, minus a 9% cut to the distributor.)

Of course, for artists at any level, any amount of streaming income is better than nothing, so it's not necessarily a question of "do you make more or less with streams than with actual CD sale?" I'd venture that for many artists the streaming income represents an addition to regular CD sales. And in some cases CD sales are lost to streams. On the other hand, I'm sure there are music fans discovering new bands via a subscription service that end up buying the CD as well.

One final thought: It's not inconceivable that a customer might eventually "spend" more on a particular release via streams than by purchasing the physical CD. I used the quotation marks because subscribers to the streaming services don't actually pay for each song, they pay a flat rate each month for unlimited listening. But if someone faithfully listens to a favorite album via a streaming service (as in the hypothetical example from the Yahoo Music Blog comment), the net result could easily be more income to the label and artist.


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