Music streaming - how it started and what Taylor Swift left out.
In this post I will try to explore the history and future of media streaming services. I got interested in this topic recently when Taylor Swift took on two major streaming service providers - Spotify and Apple Music. She caused a huge media frenzy when she told the world what she thought about music streaming services. As I read through her comments and peoples reaction to her, I felt there was something missing in the discourse. Her comments felt like she was over simplifying the whole issue and that she was missing something more important. Taylor Swift seemed to think that music streaming is bad for artists because it devalues their product by not charging listeners enough and not paying artist enough. Spotify CEO defended streaming services as the future of music distribution and saying they are paying a lot ($2 Billion) in royalties for the music they stream online and will only get bigger.
This was basically the two main camps in the Taylor Swift vs Music Streaming debate and it felt incomplete to me so I started reading. In order for me to truly understand the kind of impact media streaming has and will have, I needed to find out how and why it started in the first place.
What is media streaming?
Media streaming is the process where a content producer delivers content/media (music, video, text, etc) to an end user without the end user retaining the content. Media streaming requires that there be a content producer and a content consumer where the consumer does not retain the content after it has been consumed. The opposite of this is media downloading - the consumer keeps the media stored in a storage device. I need you to remember this definition as it will play an important role later in the post.
How did media streaming start?
In the 1920's a company called Muzak got a patent for the transmission and distribution of signals over electrical lines. The early stage strategy for the company was to provide music to households straight from their electricity lines instead of the radio. At that time Radio technology was still very new and very expensive. Over time however radio technology became cheaper and Muzak had to switch strategy and focused on commercial applications. Muzak streamed background music in factories, offices, elevators for the purpose of improving worker productivity. Whenever you ride an elevator or go in the washroom of a posh hotel and hear background music playing, that's the legacy of Muzak.
For a long time media streaming remained stuck in these types of application as radio technology got even better. More and more people got a radio set as they became cheaper. Radio antenna's and radio signals became better and radio programs became more varied. In the 1930's FM radio was born and people started hearing music being broadcast and AM radio started broadcasting live sporting events and news programs. As radio technology became more popular more money was spent in improving it while media streamed through electric wires faded away.
The Internet was born
What started as a military program in the 1960's called ARPANET quickly turned into a major technological revolution that shaped the modern world. The biggest development that turned the internet from a military program into something that can be widely adopted came when Vint Cerf and Robert Kahn developed TCP/IP. This standardized how data is transmitted from one network to the other. Without the development of TCP/IP the internet would not have grown into what we now call the world wide web. Tim Berners Lee was the person who moved the internet into mass adoption when he developed the world wide web in the late 1990's. From there everything changed dramatically.
One of the ways the world embraced the internet and the world wide web - and one that is relevant to our topic - is the development of the internet radio. In 1993, just 3 years after the World Wide Web was introduced to the world, Carl Malamud launched "Internet Talk Radio". This was kind of like the AM Radio version of the Internet and it focused mostly on interviewing computer experts. In the same year - June 1993 - the world heard the first live concert over the internet when Severe Tire Damage performed live on the internet with the help of Xerox PARC. Then in September 1995 ESPN SportsZone broadcast the first live sporting event over the internet - Seattle Mariners vs. New York Yankees. Over the next decade more and more companies started launching their own internet radio stations delivering mostly music over the internet.
While internet radio was slowly maturing, the internet and the world wide web continued to grow exponentially and everyone thought there was no end to this growth. The world started seeing dot.com billionaires made over-night and everyone wanted in on the action. Every one with money to invest wanted to invest in the internet and the world wide web. Big telecom companies started covering the world with fibre-optic cables in anticipation for the exponential growth of the internet. The amount of money invested on the internet during the early 2000 helped internet technology mature really fast. Bandwidth improved dramatically allowing for more data to be transferred at a much faster speed. This allowed many internet radio companies to improve the bit rate of their stream greatly improving their sound quality. Despite its success Web radio still had its limitations; broadband internet connection was still not widely available to everyone and it still required the listener to be in-front of a computer tied to a wire. Web radio was also not user driven - the user/ listener cannot decide which music will play. They have some degree of control by searching through a catalog of stations but the user cannot customize the play-lists.
The Birth of Napster
By the late 1990's people were already enjoying good quality Web Radio. During the same period, a lot of people started exploring different ways to harness the power of the internet. One person, Shawn Fanning, thought about using the power of the internet to tap into everyone's music collection. He wanted to create a platform where people can share their music collection to the whole world - this became the basic idea behind Napster. In 1999, Napster was born and it changed the face of the entire music industry in less than a decade. It allowed millions of people from around the world to access an almost unlimited music library from people all over the world. The birth of Napster also coincided with the growing popularity of portable mp3 players and the iPod. Suddenly people had access to the world's music library and they had a way to customize their playlist. It gave people a sense of control that they never had with radio and its fixed programming. It also freed people from the strangle hold of physical records. People used to have to buy an entire record even if they only love a few tracks in the album. Napster and the iPod radically changed the way people discovered and consumed music. The freedom and power that Napster and the iPod introduced to the world became the same driving force behind the popularity of streaming music as people wanted more access and more control to what they were listening to.
On-Demand vs Internet Radio
The on-demand and personalized playlist culture spawned by Napster and the iPod around music, split the music streaming industry into two - the On-Demand service and the Internet Radio service. Internet Radio users do not have any control on the music they listen to while On-Demand users are able to select which music to listen to and customize their own play-list. Internet Radio is just like your terrestrial radio service (AM/FM) where they have a fixed program and you, the listener, do not have any control over their play-list. This distinction is very important because this also changes the flow of money in the music streaming industry. Generally speaking On-Demand services pay more than Internet radio due to two reasons; i. Internet radio royalty rates are set by a regulatory body (Copy Right Royalty Board) while On-deman rates are negotiated directly between the service provider and the rights holder and ii. On-Demand services give listeners control over the music they listen to, they do not have to listen to ads and they are often able to listen to the music even when not connected to the internet - Internet radio does not offer any of these benefits.
Streaming providers pay for two copy rights for each song streamed; i. the rights to the notes and lyrics which is the Musical composition copy right and ii. the rights to the recorded sound which is the Sound recording copy right. The amount of royalty paid for each person involved in the creation of the song will depend heavily on the Publishing and/or Recording contracts they sign with the publisher and/or record label. This makes the business of music streaming and how money flows through it very muddy and confusing. Essentially any music streaming provider needs to approach two separate groups - the Record labels who own the sound recording copy right and the Publishing company who owns the Musical composition copy right - they are both license holders.
The rate paid to the license holders by the streaming provider depend on whether or not it is On-Demand service or not. For On-demand services like Spotify premium and Apple Music the license holder usually get a per stream rate or a percentage of revenue whichever is greater. Most of the time too, License holders require an up-front payment from the service provider. Keep in mind that the money goes to the Record label or the Publishing company - the amount of money that eventually ends up in the hands of the artists and performers will depend on their individual Recording and Publishing contracts. I will not go into details on what a typical Recording and Publishing contract looks like but if you want to know more about it you can check out this website (Songstuff) which has a good overview of each contract type.
I mentioned earlier that On-demand services command a greater pay out to license holders compared to Internet Radio and similar services. The main reason for this difference is on the distinction between "public performance royalties" and "mechanical royalties". Essentially Internet radio streaming and similar services are considered public performances similar to when you hear a music in a coffeeshop or in a restaurant. During public performance of a music the listener does not retain a physical reproduction of the music product. Mechanical royalties on the other hand is similar to owning a physical reproduction of the music (CD's, Cassettes, etc.) and has now expanded to include digital copies and on-demand streams. Since mechanical royalties involve some sort of ownership of a physical reproduction of the music it commands a higher premium. Internet radio and similar services also pay directly to government regulated bodies like Sound Exchange for the recording copyrights and to non-profit societies/ associations like ASCAP and BMI for the musical composition copyrights. The royalty rate paid to these organizations by Internet radio providers are set by the Copy Right Royalty Board.
It's all about the money
Spotify alone has paid over $2 Billion in royalties and right now 70% of its revenue goes towards royalty payments and this is expected to go up in the coming years. If Spotify alone is paying out $2 Billion dollars, why then do we hear a lot of artists saying music streaming is not paying artists enough? To answer this question we have to look at how money flows in the music industry first.
Whenever a piece of music is streamed on Spotify the royalty paid will be split into two major chunks - royalty for the sound recording and royalty for the musical composition. Royalty for the sound recording goes to the Record Labels while royalties for the musical composition goes to the Publishing companies. Majority of the money that goes to Record labels stays with the record label with very little to nothing going to the artist/ performer. One of the reasons this happens is due to a long standing legacy of Record label contracts called recoupment. The way it works is that even before a record gets produced, the record label gives the artist an advance. This is basically a lump sum payment that the artist can use to record an album. How the artist spends this is up to the artist as long as he produces an album after a set deadline. If there is money left from the advance after the album is produced the artist keeps the money. Sounds like a good set-up right? The catch is that the lump sum payment needs to be recouped by the record label. The kicker is in how the Record label recoups this money. Say an artists contract with a Record label says the artist gets about 10-15% of the total royalties collected while the rest goes to the Record label. At first glance this sounds like a fair split because it is the Record label who spent the money to produce the music, market it and distribute it until you find out that the Record label has the right to recoup the advance from the artist's 10-15% split. The Record label feels it is not enough that they get up to 90% of the royalty payments they still have to ask the artist to pay for the advance from the artist's own share of the royalty and since it is part of their contract as a recoupment, the artist has no choice. A lot of times an artist will get close to nothing in royalties because most of it is eaten by the recoupment. Keep in mind recoupment is only one aspect by which Record labels get the lions share of the money, there are a lot of other ways they are able to keep the money for themselves. If you want to read more on how the music industry is inherently unfair to artists go to this website (Rethink Music). Keep in mind that this practice of advances and recoupment has been in place since the beginning and has been a considered the main reason why most musicians do not earn enough even during a time when streaming music was not that popular..
I also mentioned earlier that Record labels sometimes get up-front payments from streaming service providers as part of their licensing agreement. Take the case of Spotify and Sony where part of their contract required Spotify to pay Sony $42 Million up front just to allow Spotify to have access to Sony's catalogue. The part that infuriates people about this is that Sony does not have to share this money with its artists.
Records labels also own equity shares in streaming music services like Spotify where Sony, Universal, Warner, EMI and Merlin own a combined 17% of the company. With Spotify valued close to $8 Billion, this equity stake is another great source of income for the record labels and they do not have to share this with artists. This also creates a conflict of interest where Spotify might be influenced to keep the royalty payment structure favourable to the record labels and not the artists.
Whenever an artist complains that streaming music does not pay them enough, I feel like they are barking at the wrong tree. Taylor Swift and people who attack streaming music should focus their attention and effort at calling for reforms within the Record labels themselves. If money is their biggest gripe then they should talk to the people who get the lions share of the streaming revenue. They have to remember that majority of the revenue earned by streaming services go towards royalty payments - instead of asking Streaming services to pay them more, they should ask their Record labels and Publishers where their money is.
Today the future of music streaming is hanging in the balance and it is mostly due to the issue of money. Yes money is important to the artists, record labels and publishers however the problem is in how these parties cannot agree on how to split the money amongst themselves. The heart of the problem really is in how royalty payments should be equitably distributed between the artist, performers, record labels, and publishers. Attacking the music streaming industry will not solve this problem because music streaming is just a distribution platform. Destroying music streaming will not dismantle the unfair mechanisms running the recording industry in favour of the labels - it will just preserve it to exploit another distribution platform. If Taylor Swift is really concerned about her fellow artists then she should use her influence and media power to force meaningful reforms in how Record labels and Publishing companies distribute royalty payments to the artists.
Streaming providers pay for two copy rights for each song streamed; i. the rights to the notes and lyrics which is the Musical composition copy right and ii. the rights to the recorded sound which is the Sound recording copy right. The amount of royalty paid for each person involved in the creation of the song will depend heavily on the Publishing and/or Recording contracts they sign with the publisher and/or record label. This makes the business of music streaming and how money flows through it very muddy and confusing. Essentially any music streaming provider needs to approach two separate groups - the Record labels who own the sound recording copy right and the Publishing company who owns the Musical composition copy right - they are both license holders.
The rate paid to the license holders by the streaming provider depend on whether or not it is On-Demand service or not. For On-demand services like Spotify premium and Apple Music the license holder usually get a per stream rate or a percentage of revenue whichever is greater. Most of the time too, License holders require an up-front payment from the service provider. Keep in mind that the money goes to the Record label or the Publishing company - the amount of money that eventually ends up in the hands of the artists and performers will depend on their individual Recording and Publishing contracts. I will not go into details on what a typical Recording and Publishing contract looks like but if you want to know more about it you can check out this website (Songstuff) which has a good overview of each contract type.
I mentioned earlier that On-demand services command a greater pay out to license holders compared to Internet Radio and similar services. The main reason for this difference is on the distinction between "public performance royalties" and "mechanical royalties". Essentially Internet radio streaming and similar services are considered public performances similar to when you hear a music in a coffeeshop or in a restaurant. During public performance of a music the listener does not retain a physical reproduction of the music product. Mechanical royalties on the other hand is similar to owning a physical reproduction of the music (CD's, Cassettes, etc.) and has now expanded to include digital copies and on-demand streams. Since mechanical royalties involve some sort of ownership of a physical reproduction of the music it commands a higher premium. Internet radio and similar services also pay directly to government regulated bodies like Sound Exchange for the recording copyrights and to non-profit societies/ associations like ASCAP and BMI for the musical composition copyrights. The royalty rate paid to these organizations by Internet radio providers are set by the Copy Right Royalty Board.
It's all about the money
Spotify alone has paid over $2 Billion in royalties and right now 70% of its revenue goes towards royalty payments and this is expected to go up in the coming years. If Spotify alone is paying out $2 Billion dollars, why then do we hear a lot of artists saying music streaming is not paying artists enough? To answer this question we have to look at how money flows in the music industry first.
Whenever a piece of music is streamed on Spotify the royalty paid will be split into two major chunks - royalty for the sound recording and royalty for the musical composition. Royalty for the sound recording goes to the Record Labels while royalties for the musical composition goes to the Publishing companies. Majority of the money that goes to Record labels stays with the record label with very little to nothing going to the artist/ performer. One of the reasons this happens is due to a long standing legacy of Record label contracts called recoupment. The way it works is that even before a record gets produced, the record label gives the artist an advance. This is basically a lump sum payment that the artist can use to record an album. How the artist spends this is up to the artist as long as he produces an album after a set deadline. If there is money left from the advance after the album is produced the artist keeps the money. Sounds like a good set-up right? The catch is that the lump sum payment needs to be recouped by the record label. The kicker is in how the Record label recoups this money. Say an artists contract with a Record label says the artist gets about 10-15% of the total royalties collected while the rest goes to the Record label. At first glance this sounds like a fair split because it is the Record label who spent the money to produce the music, market it and distribute it until you find out that the Record label has the right to recoup the advance from the artist's 10-15% split. The Record label feels it is not enough that they get up to 90% of the royalty payments they still have to ask the artist to pay for the advance from the artist's own share of the royalty and since it is part of their contract as a recoupment, the artist has no choice. A lot of times an artist will get close to nothing in royalties because most of it is eaten by the recoupment. Keep in mind recoupment is only one aspect by which Record labels get the lions share of the money, there are a lot of other ways they are able to keep the money for themselves. If you want to read more on how the music industry is inherently unfair to artists go to this website (Rethink Music). Keep in mind that this practice of advances and recoupment has been in place since the beginning and has been a considered the main reason why most musicians do not earn enough even during a time when streaming music was not that popular..
I also mentioned earlier that Record labels sometimes get up-front payments from streaming service providers as part of their licensing agreement. Take the case of Spotify and Sony where part of their contract required Spotify to pay Sony $42 Million up front just to allow Spotify to have access to Sony's catalogue. The part that infuriates people about this is that Sony does not have to share this money with its artists.
Records labels also own equity shares in streaming music services like Spotify where Sony, Universal, Warner, EMI and Merlin own a combined 17% of the company. With Spotify valued close to $8 Billion, this equity stake is another great source of income for the record labels and they do not have to share this with artists. This also creates a conflict of interest where Spotify might be influenced to keep the royalty payment structure favourable to the record labels and not the artists.
Whenever an artist complains that streaming music does not pay them enough, I feel like they are barking at the wrong tree. Taylor Swift and people who attack streaming music should focus their attention and effort at calling for reforms within the Record labels themselves. If money is their biggest gripe then they should talk to the people who get the lions share of the streaming revenue. They have to remember that majority of the revenue earned by streaming services go towards royalty payments - instead of asking Streaming services to pay them more, they should ask their Record labels and Publishers where their money is.
Today the future of music streaming is hanging in the balance and it is mostly due to the issue of money. Yes money is important to the artists, record labels and publishers however the problem is in how these parties cannot agree on how to split the money amongst themselves. The heart of the problem really is in how royalty payments should be equitably distributed between the artist, performers, record labels, and publishers. Attacking the music streaming industry will not solve this problem because music streaming is just a distribution platform. Destroying music streaming will not dismantle the unfair mechanisms running the recording industry in favour of the labels - it will just preserve it to exploit another distribution platform. If Taylor Swift is really concerned about her fellow artists then she should use her influence and media power to force meaningful reforms in how Record labels and Publishing companies distribute royalty payments to the artists.
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