Lady Gaga's dress probably cost more than her payout for 1 million plays on Spotify.

When Pandora and Last.fm arrived on the scene and Spotify was still just a twinkle in Daniel Ek’s eye, many independent artists and fans looked to online music streaming as a new beginning. These services promised a more democratic approach to music discovery than traditional radio and offered the chance to wash away the stains of payola and corruption that have marred broadcast industry for decades. Now, even as the RIAA is poised to drive the last stake into terrestrial radio, the future of streaming as a viable revenue source for artists is not looking as bright as it once did.

Spotify, for all the media coverage it receives, is still fairly new. New enough that until about midway through 2009 very few people had any concrete numbers to discuss regarding the artists’ share of royalties. When the checks finally did begin to arrive at least one Swedish artist expressed outrage at the amount, saying that he had “earned as much in six months as a BUSKER could earn in a day.”

Even artists at the top of the international charts are feeling stiffed by their cut. Lady Gaga has sold over 4 million albums and enjoys the fruits of pervasive rotation on radio stations across the world. She is certainly not hurting for cash. Yet, according to TorrentFreak, this is no thanks to Spotify:

Lady Gaga’s track “Poker Face” was one of the most popular tracks during a five month period on Spotify and was played more than a million times. So how much money does she get paid by STIM (the Swedish Performing Rights Society) for this massive achievement?

SEK 1150 – that’s around $167 or roughly 113 Euros.

One-hundred and sixty-seven dollars. Lady Gaga probably couldn’t buy a pair of shoes for that amount. Where is all the money going?

Well, that question assumes that money is being made and right now there isn’t much indication that this is the case. As I’ve written before, Spotify continues to struggle to convert users to premium subscriptions. Spotify’s current model depends on these subscriptions because ads can’t float the platform alone. This concern has led the major labels to the delay Spotify’s US launch (which was scheduled to take place last week.)

Spotify founder Daniel Ek

“We think Spotify is a great service but they’re going to have to convince us they can convert enough people from free to paid subscriptions to make it worth our while,” one label revealed in a recent Finacial Times piece. “As an ad-supported service the economics don’t work at all.”

The labels are able to have this kind of influence over what Spotify can and can’t do in part because the 4 majors own about 18% of the company. Sony BMG bought the largest chunk - 5.8% – for 2,935 Euros, while EMI received the smallest – 1.9% – for the measly sum of 980 Euros. In other words, Spotify sold any hopes for a more indie-friendly alternative for a grand total of 8318 Euros.

The Guardian.uk discussed the labels involvement in Spotify back in August and came to the same conclusion:

On Spotify, it seems, artists are not equal. There are indie labels that, as opposed to the majors and Merlin members, receive no advance, receive no minimum per stream and only get a 50% share of ad revenue on a pro-rata basis (which so far has amounted to next to nothing). Incidentally, when I asked a Spotify rep if they would feature music by unsigned artists the way We7 does, he said no, but that all they would need to do was to sign up to a label and they’d get on the site.

No label, no Spotify. If you are on an indie label you can get on the service but don’t count on seeing any revenue. With Lady Gaga only earning about $1 for every 6,000 plays I can only imagine what the indies are receiving with significantly less favorable deals.

Looks like the independent music community’s hopes that the death of traditional radio and the rise of online streaming would usher in a new era of equality were premature. On a more positive note, the space is still very young and the kinks are being ironed out. Unfortunately, artists not getting paid is a pretty big kink.

What do you think?

UPDATE: Here’s a good article from PaidContent that explains a bit more about the numbers involved in this story, including a response from Spotify:

Spotify told us in a statement that any STIM payment “would only represent a fraction” of the money that goes to rights holders from the service. The company stresses that it pays “not only collecting societies, but also publishers and the record company to play their music.” It also argues that the $167 is from “way before we’d established ourselves as a music service and built up a large user base.”

The article also talks more about how the labels’ get a double piece of the streaming revenue pie, and how that affects the artists’ share.

Also, in response to some comments on Twitter – the royalty payments are obviously only a piece of the puzzle. An artists strategy should be focused on gaining exposure and driving revenue in a variety of ways. Making songs available for streaming could go a long way toward boosting that exposure. No doubt Lady Gaga’s 1 million plays influenced her 20 million downloads and that shouldn’t be forgotten.

However, the point of this post is that online streaming has the potential to do things differently than traditional radio. Yet based on early evidence it looks like it is already falling into the same old practices, with the labels finding ways to ensure that they receive more than their fair share.

Hope and Social

Rich Huxley is a member of the gloriously independent Hope and Social, a founder of Alamo Music – the UK’s first fan-owned record label, and a record producer.

The case for independence:

One of the questions I like to ask when I meet people through music is: “How many artists do you know personally who have a record deal that they’re happy with?” The answer is almost exclusively “None“, very occasionally “one or two”. Most go onto agree that the happiest artists we know are those who directly connect with their musical world; with their fans, venues, promoters. I also like to ask emerging artists: “Outside of the creation of music, who has done the most to further your musical career?” Honestly, most people say a manager, a friendly promoter, a good friend who helps with web stuff, videos, photography. Though often ignored, the answer should most often include “Me!”. This is not to ignore the impact of the great people who help you; however You are your (or your band’s) greatest asset. The people who help you, absolutely, they’re vital and need more thanks than we can probably ever give back, but they want to help You. That’s what Independence is about.

For Hope and Social, we realised that pretty much all the good that had come to us had not originated from pluggers, press companies and PRs. In fact, with the notable exceptions of the sadly no-longer active Fistral, they hoovered our bank accounts dry and when there was no money left for them, the phone calls stopped, their enthusiasm it seems was only on a paid for basis and despite their failure to follow through on promises, the cord was cut. We realised that the good things had been things we’d generated ourselves and the things that were generated by our close friends and fans. So, in 2005, at the start of “DIY”, the members of “Hope and Social” quietly asked the 20 or so people who through the years had pledged “if I ever win the lottery, we’ll look after you guys”. Between us we proudly founded Alamo Music the UK’s first fan-funded, fan owned record label. Why “Alamo”?
“I shall have to fight the enemy on his own terms.” William Barret Travis, Texan commander – The Battle of the Alamo

What’s working for us?

Connecting directly with fans
Through our Website, Facebook, WordPress Blogs, and Twitter (@thehuxcapacitor, @socialsimon, @edhombre), through YouTube, Flickr. As an independent artist, the most cost effective means to connect with fans are the free ones. Through following, and meaningfully connecting with the likes of Steve Lawson, Andrew Dubber, Ben Denison and your own Refe Tuma, we’re discovering new means of connecting with fans, new ideas about how to release, tools to save us time, and have been introduced to new ways of making our work pay.

A band, a fan, and a kazoo.

Videos
For a 50th of their estimated worth we continue to make videos with the fantastic Mark Wordsworth; videos which garnered MTV and VH1/2 rotation. We paid for film and not a lot more, involved people who love us and our music and got people to work and perform for free. Nobody got paid, they just got fed and watered people and to be part of a something exciting, to make art with us. Looking For Answers features friends and fans (if there’s one thing fans like to see on your site, on TV, in the press even more than they want to see their favourite artist, it’s themselves) and they pass it on, they are the new PR, the buzz and the way to new people. Likewise for the Four Day Hombre videos, particularly the 1 shot “1,000 Bulbs” video and The First Word is the Hardest, shot for next to nothing, on 35MM film. Mark went on to make videos for Embrace, was nominated in Cannes for his James Morrison video and has recently moved to New Zealand to seek further film work. What’s more, our band supported Embrace on a national UK tour through this connection, playing shows to thousands of new fans.

Blogging
Both personally, and for the band. The reality of making your way in music is, for many people, more interesting than the rock star dream. My advice, write about it, be interesting, create content as often and as best you can. Eventually (I’m told) it becomes natural and effortless.

Pay What You Want
There’s plenty of talk of the Free Model and the Pay What you Want (PWYW) models, and quite a kick back against it too. I can’t recommend it enough. We’ve averaged £7 per unit here in the UK, £3 more than Radiohead and £6 more than with major label record deals. The key is, connect with people, then give them something to, and a reason to buy. We’ve had people swap a CD for £50, some people take 3 for £5, you can download from our bandcamp for nothing, all we ask (and even this isn’t compulsory) is that you value music.

Special Events
We try to make all shows special, we give out kazoos to the audience for one of our songs brass lines (1,500 kazoos at Glastonbury this year!), we do House Concerts (or as we call them in the north of England, “Living Room Gigs“), we relish audience participation, we ask people to shows in our studio, we wear blue jackets (we know we’re not cool, so at least we’re recognisable) and we’re nice to talk with afterwards, in fact, better than that, we’re great fun. It’s almost like fun is the thing we offer.

How do we survive? Making Music Pay.

Hope and Social at a recent gig.

The band is one of the many things we do to earn. It is by no means the thing that pays our mortgage, however, it enables us to do things that pay us, which in turn enables us make the music we want to make. Ed’s photography has led to a career in photography, his production work with our band brings in more production work with other bands. Simon’s artistic output includes paintings/drawings, great experimental theatre, web design and all the artwork for Hope and Social. Our websites and band artwork act as a portfolio for his design work, and each fanbase feeds the others. Me, I record, mix and produce bands, talk about how to make your musical career work for you, deliver rock schools for young people (and residential “Real Band” experiences for the corporate market), guest blog, present at events, colleges, universities, mentor and coach bands. We are all founders and owners of our independent record label. Hope and Social acts as a hub for all the good, grand and great things we do which pay our rent or mortgage.

Roundup

It’s important to think of independence as a choice rather than a last resort. As a band, we kicked back against of a couple of years of searching for the deal of all record deals (full control of what we record, where and with whom, decent percentage split, a commitment to promote our work, control over what’s spent on the band [and therefore recoupable""], control over publishing [we didn’t want to be featured on a McDonald’s ad, that’s for sure]). Long story short, this deal did not present itself, or perhaps doesn’t exist. While we had plenty of interest from labels and some very good people at labels, our efforts however would have been (and now are being) better spent not seeking outside help, but by seeking new fans and better and more exciting ways of connecting with fans.

By choosing this route, you’re not discounting that there may come a time when licensing your music, or working with labels, promoters, agents, PR’s makes sense; rather you’re strengthening your bargaining position should you choose to outsource. The busier you get as an artist, the longer it takes to manage all of your networks, to book your shows, to account. As of now, Hope and Social remain independent, and today are enjoying our careers more than at any time when we were chasing a record deal, licensing, radio or TV. The music industry is not only the “old record industry”, PR’s, the NME, BBC Radio 1. The music industry is the sum of all musical output of humankind that is for public consumption, it’s the bloggers, the people running conventions, the startup bands, the proactive tweeters. If you’re making music, writing about music, sharing your love of music, you are part of the music industry; you keep the wheels turning.

What will work for you?

The above may not work for you or your band, it’s about finding the personality in what you do, and exuding it from every tweet, blog, photo, conversation. Be interesting, evangelise, create great music, create great art, use beautiful images, create amazing artwork, give people choice about how to consume your music and how to connect with you, use the sites and networks that your potential fans are already using, work in and around music, sharing your knowledge, record and work with other bands, collaborate, share other’s interesting content. Work harder, and smarter than everyone else. Oh, and you should connect with me.

Rich Huxley

Rich Huxley is an independent musician, member of Hope and Social (nee Four Day Hombre), a blogger, a music industry consultant, a mentor and coach, a prolific proponent of social media, a recording engineer, an enthusiast for the “honesty box”/pay what you want model, a guitarist for hire, a mix engineer, a founder of Alamo Music – the UK’s first fan-owned record label, a producer and a generally over-excitable English chap.

I just wanted to take a moment to say how much I appreciate you, the readers of Creative Deconstruction. It’s encouraging to see so many artists, fans and music pros recognizing the unprecedented opportunities we have in the music business today.

When I started this site a few months ago it was my goal to create a place where new ideas could be discussed and independent music could be celebrated. There are still quite a few features and services that are yet to be implemented, and I am always looking for feedback on what you would like to see more (or less) of. So please – make use of the comments section at the bottom of each article. Share your ideas and voice your questions and concerns. I try my best to respond to each comment. I won’t have all the answers of course, but there’s likely someone out there who does.

There are also several other ways to connect with me and the rest of the budding Creative Deconstruction community so that we can all get to know each other better. You can find me on Twitter as @refeup where I’ll point you to many other people and services that you’re likely be interested in, and join our new Facebook community where you can post comments, music, videos, etc. You can also subscribe to our RSS feed or via Email to stay up to date with new articles as they are published.

Please feel free to send me an email using the form on the Contacts page. I like emails. Submit interesting stories or tell me about creative or unique business strategies you have implemented - especially if you got the idea here. I’m always looking for good case studies, whether they resulted in success or failure.

Thanks again for reading and for your comments. I look forward to seeing the Creative Deconstruction community grow and getting the chance to get to know each of you better in the coming months.

- refe