A Streaming Business Model for Independent Musicians

Every man (and his dog) has written a blog post about Spotify and the fact that musicians can’t make a living, if reliant on streaming incomes alone.  Here is mine.

Let’s talk about tomatoes.  If I grow tomatoes, there is a guarantee that I will have to buy some land, pay for the upkeep of the land, buy seeds and tomato growing supplies and pay for the labour to grow my tomatoes.  If all I do is grow tomatoes, I have to make a living wage at it, or I must go and do something else.  All of those costs are my cost of production.  They don’t actually depend on how many tomatoes I grow, in the main (though the amount of land and labour I use does scale).  For simplicity’s sake, let’s just say that I know what my fixed and variable costs are.  This lets me set my selling price.

When I sell my tomatoes to a distributor, I price on the basis of my fixed and variable costs.  The distributor, though, probably prices on volume sold.  The retailer, prices my tomatoes on a per tomato basis, usually.  So, as the grower, I sell my tomatoes priced as a consignment.  I ask the distributor to cover my production costs in full, for my whole crop, plus a modest profit, so that I can invest in my tomato growing business and help my business grow, too.

I don’t actually care how many of the tomatoes I have grown the distributor and retailer can shift and they probably price my tomatoes to their customers on the basis of what they think they can really shift, less any unsold, spoiled or rotten ones.  Again, they cover their costs and hope to make some additional upside profit, if they manage to sell them all.  The price of each tomato, times the number they think they can really sell, should give them enough revenue to cover costs and make a profit.

If demand for my tomatoes is high and the whole crop sells out, then next year, I can make a little more profit for my premium, in-demand tomatoes and the distributor and retailer can charge a little more for each tomato as well.  Eventually, a market clearing price is found, where profits for all are maximised and the majority of my tomatoes sell, before they rot.

Spotify is a distributor and a retailer.  It is not for them to dictate to musicians, who grow the music lovingly on their music growing farms, what the price for each unit of music they sell should be.  As the music producer, I don’t care how many streams of my music Spotify can sell to their paying customers.  What I care about is that, when I deliver a consignment of music to Spotify, for them to distribute and sell to retail customers, I have covered my fixed and variable costs of production.  Therefore, I want a fixed amount of money to deliver the music crop at all and I want a slice of the per-unit sales, to cover my per-unit variable costs, plus some margin to invest in future music making.

When making music, most of the cost is fixed cost.  You have to live and eat, plus pay for your recording and production costs.  You also have to send your kids to school and fund your pension.  There are very few variable costs.  If you have to pay a royalty to a songwriter to record their song, that might be one of your few genuinely variable costs.  Your big name record producer might be on a points deal too.  The more you sell, the more you have to pay to the songwriter and producer.  Mostly, though, music production costs are largely fixed costs, these days.

These are the costs of production of your music.  If you are a popular artist, then your music will sell a lot of streams for Spotify and you definitely will want a piece of this action, if you can negotiate it.  If you are a less popular artist, you should only deliver your music to Spotify if they cover your costs.  If they don’t, you should never deliver a single note of your music to them.

Spotify should only buy the music that they think they can sell enough streams of to pay for the consignment.  If Spotify thinks your music will never sell, then they shouldn’t carry it.  Of course, that dilutes their claim to have everything available on their player, but no supermarket can claim to sell every type and variety of tomato available either, can it?  Up market supermarkets, in affluent areas, will carry more varieties, at premium prices and down market supermarkets will stick to the more popular, price-sensitive produce.  Why can’t we have similarly tiered streaming service?

If Spotify wants to sell variety and premium products, then it has to decide whether it has the market numbers to support that and charge for their service accordingly.  If, on the other hand, they think they can only shift hit records in volume, then that’s all they should carry.  If this market happens to be price sensitive, then the only hits they should carry are those that are popular and cheap to make.  They shouldn’t be carrying the expensive to make stuff, no matter how popular it might be, because the slice of their subscription fee which goes to the artist won’t cover the cost of production of this premium product.  I don’t care how many billions of dollars they claim to send to artists, or what percentage of their revenue it represents.  It’s irrelevant.  What matters is whether or not they can afford to carry your consignment of music at all and make a profit for themselves, in so doing.

Musicians don’t have to accept a one-size-fits-all price for a consignment of their music.  Music is not an undifferentiated commodity.  The more unique the artist, the more differentiated the product is and the greater will be the claim to be paid premium, rather than lowest, prices for committing that music to a streaming service for distribution.  Who else’s music are they going to get?  If customers only want to hear Taylor Swift’s music, then Spotify has to carry that, or they lose customers.  To carry it, they have to meet Taylor Swift’s terms of business.  She doesn’t have to meet theirs.

Some music will have niche appeal and those customers that care enough about it will pay for the cost of its production.  There is also nothing that says musicians should accept the lowest price for their consignment of music, because the distributor says that’s the market price.  Take your music to other streaming services, or start one.  Spotify is not a monopoly.  There are, or could be, other markets, with different market prices for your music.  In fact, the obvious opportunity is for some enterprising app developer to create a music player that lets users aggregate music and playlists from multiple streaming services, maintaining subscriptions to each one, as the users’ niche tastes dictate.

The other niche opportunity is for genre-specific streaming services to start up, carrying only heavy metal, or country, or dubstep (or whatever it happens to be), so that they can charge premium prices for their carefully curated selection of the very latest, new music in that particular genre and users don’t have to wade through free U2 albums to get to the music they really love.  Users that want access to everything, because they have extraordinarily eclectic tastes, ought to be willing to pay more for that privilege too.

What musicians, especially independent musicians, absolutely must do is figure out their fixed and variable costs of production, work out the margin they need to make to grow their enterprise and offer consignments of their music, on license, to streaming services at a price they name, not one the streaming service chooses.  If the deal can’t be made, take your crop of music somewhere else, where a deal can be made.  That might mean selling directly to your fan base, or it could be a niche streaming aggregator that streams premium products to highly discerning listeners.

Nobody says you have to release your music through Spotify or YouTube.  You might provide your free samples on those services for a strictly limited time, just as a promotional tool, but the good stuff has to be paid for and has to make enough money for you to keep your music-making enterprise viable.  You don’t have to sell your crop to a company that isn’t willing to pay you what it cost to produce.

Of course, it’s possible that not enough people like your music to cover the cost of making it.  That happens with tomatoes too.  If you grow horrible, tasteless, unpalatable tomatoes, nobody will buy them at any price.  As a producer, you have to make music that has taste and is palatable to enough people, or it’s a hobby, not a business.  You have to reach the quality bar.

As with everything, new music should come at a premium and back catalogue, which has only nostalgia value, should be cheaper.  All media goods are like this.  The longer the tail; the fewer the customers.  There are movies made in the 1970s that are fine movies, but they command very small audiences, compared to when they were first released and the costs of production were covered long ago.  This sort of old content should attract less per-stream revenue for the artists concerned.  As an independent musician, I could license my new music on a consignment basis for the first year and then, having covered my costs, license the second year on back catalogue terms, so that Spotify pays less and perhaps only a per-stream price, for example.  I still make some money on my old catalogue, but not as much as when it was new.  When I release some new music, the price of it goes back to the initial consignment model of pricing, while my back catalogue continues to be licensed on per-stream terms.  Musicians are free to rework and revamp their back catalogue, at intervals, adding new value and content and therefore selling the consignment as new music, or as if it were new music.

The takeaway message of this blog post is that independent musicians, as producers of a scarce and valuable product, which is highly differentiated in the market, should set the price of their consignment to streaming services on a pricing basis that covers their fixed and variable costs of production and provides them with a reasonable margin on the exercise.  If their music is in high demand, they should put their consignment price up.  Streaming services can take it or leave it.  In some cases they will be right to refuse the offer and hence not carry that artist’s work on their streaming service.  In other cases, the musician will be right to take their product elsewhere, to a distributor/retailer where they can make a business of it.  They might have to start their own distribution and direct sales business, but they don’t have to give their valuable music away for a pittance.

Those that make music which finds no audience and doesn’t reach the required quality standard are not going to make their music pay, no matter what they do.  Every other musician shouldn’t be hamstrung to those that make music nobody wants to hear or buy.  They should put their product into the distribution and retail channel on much better terms than that.  If streaming services have a glut of junky, old, weird, unwanted music lying dormant on their servers, that’s their business problem.  Producers of popular, excellent, new music shouldn’t be expected to subsidise that massive, unwanted catalogue of unheard tracks.

While the streaming services dictate the price they will pay for consignments of new music, based on what makes business sense to them to pay for back catalogue (which is mostly what the major record companies provide them with), it’s a case of the tail wagging the dog.  Musicians cannot make new music cheaply enough to compete with music made decades ago, whose cost of production has long since been recouped.  It’s an utter impossibility, even with today’s computer-based tools.  The main costs are the care and feeding of the artists.

Until streaming services are willing to cover the costs of new music production, nobody should distribute their new music through them.  Let them sell infinite back catalogue streams, on the basis of pure listener nostalgia.  Let’s see how they do with that business model.

Musicians, for their part, should be willing to set and negotiate their own prices for their music and be willing to take their music to other distributors, if they can’t cut a satisfactory deal with the major streaming services.  People who care about new music will seek it out and support it, even if it isn’t available on Spotify and YouTube.  In fact, especially if it isn’t.


About tropicaltheartist

You can find out more about me here: https://michaeltopic.wordpress.com/. There aren’t many people that exist in that conjunction of art, design, science and engineering, but this is where I live. I am an artist, a musician, a designer, a creator, a scientist, a technologist, an innovator and an engineer and I have a genuine, deep passion for each field. Most importantly, I am able to see the connections and similarities between each field of intellectual endeavour and apply the lessons I learn in one discipline to my other disciplines. To me, they are all part of the same continuum of creativity. I write about what I know, through my blogs, in the hope that something I write will resonate with a reader and help them enjoy their own creative life more fully. I am, in summary, a highly creative individual, but with the ability to get things done efficiently. Not all of these skills are valued by the world at large, but I am who I am and this is me. The opinions stated here are my own and not necessarily the opinion or position of my employer.
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