Tag Archives: streaming

Why a $1.6B billion law suit for non-payment of royalties is not likely to affect Spotify’s March IPO

Spotify recently filed confidential plans for an initial public offering to take place on March 31 on the New York Stock Exchange were thrown a curve when it was sued by Wixen Music Publishing for damages of at least $1.6 billion and injunctive relief. 

Wixen accused the Swedish company of streaming thousands of its their artists songs without compensation. Wixen’s 2,000 members include Tom Petty, Neil Young, the Doors and the Beachboys, which Variety says represent between 1% and 5% of music streamed.

Spotify has an estimated valuation of about $19 billion and $3 billion in annual revenues. As of fall 2017, the leading streaming platform had accumulated 140 million regular users, including 60 million paid subscribers. Initially, its shares will trade privately, allowing some early investors to cash out.

It would be the first major company to carry out a direct listing, an unconventional way to pursue an IPO. Spotify plans to simply list its shares on the NYSE and let them trade, and, for now at least, will not raise additional capital.

Silver Lining?

Horacio Gutierrez, Spotify’s General Counsel, was recruited from Microsoft in 2016 where he learned the licensing business under the stewardship of Marshall Phelps, an IP licensing pioneer. Before establishing MS’s leading patent licensing program, Phelps helped generate more than $1billion in annual royalties for IBM.

My money is on Gutierrez to settle this suit in a timely manner and for Spotify to move on, uniquely positioned for success.

“Forcing Spotify to step up and enter into an agreement with a major publisher that is fairer to its artists may expose the streaming site to similar deals, but it will also solidify its reputation as the content leader amid streaming services,” an industry observer told IP CloseUp. “It will likely set a precedent for others industry deals of this nature and make it more difficult for Pandora, YouTube, and others to continue paying token royalties.”

Wixen’s lawsuit, reports Rolling Stone, follows several other lawsuits that have focused on Spotify’s alleged failure to pay [appropriate] royalties on a song’s musical composition. Recorded songs have two separate copyrights: The sound recording, which is typically owned by the record label, and the musical composition (also known as the “mechanical license”), which is owned by the songwriter and publisher.

In 2017, Spotify settled a class action brought by Cracker front-man and artists rights activist, David Lowery and another artist, for $43 million.

Proposed Changes

In the meantime, the Music Modernization Act, a bill introduced in the United States House of Representatives on December 21, would impact copyright holders suing over mechanical reproduction after Jan. 1, 2018, which helps explain the New Year’s Eve lawsuit filing.

“We are very disappointed that these services will retroactively get a free pass for actions that were previously illegal unless we actually file suit before Jan. 1, 2018,” said Wixen president Randall Wixen in a statement to The Hollywood Reporter. “Neither we nor our clients are interested in becoming litigants, but we have been faced with a choice of forfeiting rights and damages, or taking action at this time.”

Image source: slashergear.com; wikipedia.org

Royalty rates paid musicians decline for some streaming services

When it comes to getting paid, the bigger streaming service is not necessarily better for most musicians and song writers.

While the revenue and market share have grown for the leading streaming services, some significantly, the royalties paid to artists have been declining.

According to a recent article in The Trichordist, a publication dedicated to the protection of artists rights in the digital age, streaming royalties paid to artists declined in 2017.

The blog took snapshots from a major indie portfolio for 2017, 2016 and 2013. It found that “when streaming numbers grow, the per stream rate will drop.”

This data set is isolated to the calendar year 2016 and represents a label with an approximately 150 album catalog generating over 115 million streams, a fairly good sample size. All rates are gross before distribution fees.

Spotify was paying .00521 back in 2014, two years later the aggregate net average per play rate dropped to .00437 in 2016, a reduction of 16%, reports the Trichordist. The current effective per stream rate at Spotify has now dropped to 0.00397, a reduction of 9% since last year. This a cumulative reduction of 24% since 2014, which is an average decrease of 8% a year of the per stream rate.

Business Model Questions

“If the music business could set a per stream rate that allowed revenue growth, proportionate to consumption growth that would be a much better model,” said David Lowery, editor of The Trichordist and leader of the band Cracker and Camper Van Beethoven. Lowery teaches in the Music Business Certificate Program at Terry College of Business, University of Georgia.

A notable change from last year is that Pandora replaces YouTube with the greatest value gap of streams at 21.56% volume with only 7.86% of revenue. YouTube drops to 8.38% of volume with only 1.70% of revenue.

Indie Label Sample: 115 Million Streams

Top Players

Apple appears to be the lone streaming service that is growing both in market share and revenue, and is paying relatively high royalties. It accounts for 22.29% of the revenue on 10.48% of the streams, and pays approximately six-times the per-stream royalty rate of Pandora. (Apple’s iTunes is a direct purchase model, while Pandora offers a more radio-like format, which precludes on demand listener selection.)

More than 95% of the streams and 98% of the revenue were concentrated in the top ten companies. The top three, Spotify, Apple iTunes and Pandora, comprise about 80% of the streams for this representative catalogue and 82% of the total streaming revenue.

For The Trichordist‘s 2017 streaming sample, go here; 2016, here; and 2013 here.

Image source: thetrichordist.com

 

Apple is seeking to cut license royalties paid to record labels

While the share of revenue from streaming paid to record labels and recording artists is rising, Apple Inc., among the fairest licensees in on-line music, is now seeking to reduce record labels’ share of revenue from streaming.

Bloomberg reports that the record labels’ deal with Apple were expected to expire at the end of June, though they are likely to be extended if the parties can’t agree on new terms, according to the people who asked not to be identified.

“Part of negotiations is to revise the iPhone maker’s overall relationship with the music industry.”

The negotiations would bring number two Apple closer to the rate industry streaming leader Spotify Ltd. pays labels, and allow both sides to adjust to the new realities of the music industry. Streaming services have been a source of renewed hope following a decade of decline in the digital age.

Patent holders may believe there is an element of deja vu taking place in music content. Once rock solid copyrights are now subject to renegotiation and diminished revenue because of lost leverage due to lower valuations and easier access. A key will be finding what will make copyrights more relevant again, and creating more competition among streaming services for content.

More Optimistic

Record labels are now more optimistic about the future health of their industry, which grew 5.9 percent last year worldwide thanks to paid streaming services Spotify and Apple Music. They recently negotiated a new deal with Spotify further lowering their take from the service, provided Spotify’s growth continues.

“Apple initially overpaid to placate the labels,” says Bloomberg, “who were concerned Apple Music would cripple or cannibalize iTunes, a major source of revenue.”

For the full Bloomberg article, go here.

Sales vs. Streams 

Though online sales of music have plummeted over the past few years, they still account for 24 percent of sales in the U.S., according to the Recording Industry Association of America. Vinyl record sales also are up but they are still limited to a specialty audience, while CD sale are way down.

According to Billboard, streaming led the U.S. music industry to its first back-to-back yearly growth this millennium and in the first half of 2016 was the single ­highest source of revenue in the U.S. recorded-music industry, ­bringing in $1.61 billion. All three major labels — Universal, Sony and Warner — posted streaming-driven double-digit percent boosts in earnings throughout the year.

The Trichordist, a publication devoted to “Artists for an Ethical and Sustainable Internet,” reports that Spotify was paying .00521 back in 2014, two years later the aggregate net average per play has dropped to .00437 a reduction of 16%.

                     Apple Music generates 7% of all streams and 13% of revenue

YouTube now has their licensed, subscription service (formerly YouTube Red) represented in these numbers as opposed to the Artist Channel and Content ID numbers we used last time. Just looking at the new YouTube subscription service numbers isolated here, they generate over 21% of all licensed audio streams, but less than 4% of revenue! By comparison Apple Music generates 7% of all streams and 13% of revenue.

Apple sits in the sweet spot, generating the second largest amount of streaming revenue with a per stream rate .00735, nearly double what Spotify is paying. But, Spotify has a near monopoly on streaming market share dominating 63% of all streams and 69% of all streaming revenue.

The top 10 streamers account for 99% of all streaming revenue.

New Technology, New Values

IP rights holders, including those with patents and trademarks, need to think through where they fit in the current digital scheme of things, and how much should be expected in a world that finds not paying for others’ intellectual property increasingly acceptable.

For patent holders, the streaming/copyright battle could be the proverbial canary in the mine.

Image source: fortune.com


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