How Can We Fix the Music Distribution System?

Despite the development of technologies that allow businesses to operate more efficiently and transparently, it remains difficult for an outsider to see and understand the way in which the music industry pays its artists. The cash flow is becoming more convoluted with an increased diversity of options for consuming music, making it more difficult for artists—even those in the industry—to track how their royalties are calculated.

In a report called “Fair Music: Transparency and Payment Flows in the Music Industry,” Rethink Music, an initiative of Berklee’s Institute for Creative Entrepreneurship, outlined the basic payment structure for the industry. This report highlights the public performance licenses paid to performing rights organizations and mechanical licenses paid to labels. The report explains that “once record labels receive their monies from streaming services, they pay out artists based on recording contracts that usually have low royalty rates and multiple deductions, followed by recoupment costs. The net result: little or no royalties land in the artist’s hand.” Some companies, such as Spotify, pay the same percentage of revenue to the copyright owner as an iTunes download – 73%.

A detailed breakdown of different payout rates is presented in the report, showing that the average artist payout in Spotify subscription services is $.006 per stream; in its ad-supported service, it’s $.001. Given this paltry payout, artists such as Talib Kweli, Imogen Heap, and Radiohead have eschewed traditional labels and released their music themselves, essentially cutting out the middleman. Taylor Swift pulled her music from Spotify and Apple Music all together. But less well-known artists may not have as much hope working outside the current structure.

Doug Howard, Professor of Music Business/Management at Berklee College of Music, has written on this subject, exploring the idea of using blockchain technology to streamline the payment structure straight from consumer to artist. He claims that “given the unethical foundation upon which the industry was built, and its many infamous shortcomings, nothing short of a wholesale reinvention will ever lead to real change.” Blockchain has been employed by the digital currency Bitcoin to create a public ledger of transactions. Financial institutions throughout the world have used it, and it could be used by the music industry to uniquely identify individual digital songs while tracking the payment to the artist.

 Elon Musk

Elon Musk

Many industries besides music are interested in streamlining the product-to-customer transaction. Elon Musk, speaking at a 2013 Tesla shareholders meeting about the National Automotive Dealers Association’s (NADA) attempt to restrict the sales of his cars, explained Tesla’s viewpoint as such: 

Tesla’s philosophy, with respect to service, is not to make a profit on service. I think it’s terrible to make a profit on service…. If you look at the opinion polls anywhere, in any context, as to whether people want direct sales, the answer is overwhelmingly ‘yes.’

The music industry can provide important services to artists, such as marketing and promotion, but Musk’s notion that people seek direct sales should be relevant within a conversation about music consumption. The major labels in the music industry are intentionally keeping the general public and content creators in the dark as to how money flows between the consumer and artist.

Musk also believes that, “if democracy was working properly and the legislators were implementing the will of the people… there would not be legislation trying to artificially restrict direct sales.” The music industry is in similar waters as the automotive industry (without the legislative walls to climb) and the will of the people has the power to change the broken structure. Kobalt is one example of a publisher and tech company working towards resolving this problem. It provides a transparent collection platform that offers 20-30% higher revenues for artists than Spotify, iTunes, or YouTube.

The disagreement between Tesla and NADA is ongoing, and many alternatives to Spotify and Apple Music are entering the market of streaming services. This conversation needs to be made public to raise consumer awareness. Paul Simon and Dick Cavett discussed it forty years ago on The Dick Cavett Show. Simon noted that the industry operates for artists such that, “if you’re lucky, you pick people who are good and who are honest. If you’re unlucky, you don’t, and you lose some money.” Luck need not be a factor with the digital formats by which music is now consumed.


Elon Musk image by Heisenberg Media, licensed under Creative Commons.

Banner image by Create Digital Media, licensed under Creative Commons.