You've probably heard that the music industry is undergoing yet another digital upheaval.
Consumers are gaining access to all types of services from ad-supported Internet radio to on-demand subscriptions.
Some prominent artists, on the other hand, are still clinging to traditional models to sell their music. Jay-Z, Coldplay, the Black Keys, and a slew of indie artists and labels have publicly resisted the digital age dominated by the likes of Spotify.
And even the digital music startups themselves are scrapping over important details in their business models. Recently, SoundExchange president Michael Huppe and Pandora's Tim Westergren were duking it out over royalty rates. Spotify and Rdio have said their responsibility ends after making payment to the labels—never mind what the artists are actually pulling down. MOG product lead Anu Kirk has acknowledged that it's a bad time for artists. "It sucks," he recently said. "It sucks right now that artists are getting paid so little money by subscription services, but it sucks that artists are getting paid so little money by everyone."
As part of the ongoing conversation, Fast Company caught up with Slacker radio CEO Jim Cady to discuss where his company fits in. Slacker offers its users a blended model, a mix of ad-supported and subscription content that can either be streamed or cached depending on how much you're willing to pay. The real crux of our conversation centered around whether Slacker and other similar streaming services had sustainable business models for the artists who supply these startups with content. Our challenge to you: Read on and see if you can find a simple "yes" or "no" answer.
FAST COMPANY: If an artist is making less than a penny per stream, is that a sustainable business model?
JIM CADY: Well, I think it really depends on who that artist is. I think it's going to be different for each one of them depending on how popular they are, how many albums they can actually sell, or depending on live performances. In today's world, a significant portion of the money an artist earns is from live performances. It's not necessarily as much from recorded content as it used to be. I think it's going to have to be a give and take in terms of what makes sense. We try to be sensitive to what the artist requirements are: We have some artists that end up only on the [Internet] radio tier, and some that don't end up using on-demand. While I don't think that's necessarily satisfying the consumer, that may be what that artist wants to promote themselves. And we're cool with that.
I do think that these types of services will actually—and it's been proven already—have more music consumed overall. Then it becomes a question of how we shake out the model so it works.
Based on figures from MOG's Anu Kirk, it's estimated that Spotify has roughly a $0.004-per-play payout rate, and that Pandora pays just $0.001 per play. If you were an artist, would that be a sustainable model?
I guess it depends on how many plays you get. I don't know. It's different in each artist's case. It's about how much airtime they get. If they're only played on terrestrial radio, they don't get paid at all. It's hard to pin down. I know that's what you are trying to do, which is great, but it's really hard to pin down how that works so early in the process of trying to figure out the economics should work. One thing to look at it: In general, as we migrate away from terrestrial radio to other forms of personal radio, we're moving from a totally free model to a model to where they get paid something.
Based on the figures we just cited, it would take a million plays on a streaming Internet radio service for an artist to earn $1,000. Is that sustainable?
But again, you have to look at it with everything else involved.
Outside of merchandize, concerts, and 360 deals then. Just in terms of selling music, is that a sustainable model?
I don't know. You can't look at it independently. You'd have to look at it as a full 360 deal.
Perhaps it makes sense for major record labels and artists, which have the benefit of big promotion budgets and expensive 360 deals and large-scale concert tours. But what about indie artists who depend on selling their music to make a living? Is it sustainable?
Well, they have a choice. They can take it down.
In the case of indie artists then, is it not sustainable?
Again, I don't think you can look at it in a vacuum on a per-play basis. I just don't think that's how it works. A lot of independent artists, who are concerned with the rate structure, have never been heard of before. Because they would've never been accessible before. They never would've gotten spin time on the radio. They never would've gotten other options to be heard.
I think it's one of these things where you have a variety of pillars of how you can make money as an artist. I think if you were being completely dependent on one type of revenue stream, I think that's problematic. I mean, we don't build our business based on one revenue stream.
There has to be a multifaceted approach, and not just, "Hey, I'm on this service, and I don't get paid enough."
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