David Lowery Might Be Right About Some Things, But He’s Wrong About Streaming, Money, and Artists

Guest post by Eliot Van Buskirk of Evolver.fm.

Emily White, a summer intern at NPR’s All Songs Considered, didn’t know what she was getting into when she wrote her now-infamous screed about how, despite being a hardcore music fan and college radio station manager with 11,000 songs on her computer, she has only ever paid for 15 CDs-worth of recorded music with actual money.

Her essay caught the attention of David Lowery, former lead singer for Camper Van Beethoven and Cracker, whose widely-circulated, biting retort accused White of belonging to an entitled generation that pays extra for “fair trade” coffee and shiny technology while refusing to shell out for music, leading to the destitution or even death of musicians.

If you’re reading this, you’ve probably read both pieces. Everybody has been talking about them, all week long. As Digital Music News puts it, we’ve seen reverberations in “The New York Times, NPR, Los Angeles Times, Techdirt, Hypebot, Lefsetz, [and] the Huffington Post. Thousands of words, hundreds of comments, dozens of emails, several proposed guest posts; I’m not sure I’ve experienced anything quite like this.”

It’s true. Lowery’s post went incredibly viral — like, “rabies” viral. It has already inspired lots of soul-searching about what the digital music revolution means for music and culture in general (speaking of which, you can read our take on streaming and culture in Time).

All that commentary appears to have missed something that jumped out at me the first time I read Lowery’s inspired piece. He suggests that instead of ripping CDs from the college radio station or letting friends copy gigabytes of music onto their iPods, Emily White and the rest of her delusional generation should pay for the unlimited, on-demand music service MOG (among other choices) because it’s “legitimate” (more on that below). A few paragraphs earlier, he rips into a similar service, Spotify, because “the internet is full of stories from artists detailing just how little they receive from Spotify.”

David Lowery might be right about some things, but he is wrong there, for a few reasons. We know this not only because we obtained a confidential report detailing how much Spotify pays to labels, but also because we just sat down with Charles Caldas, the CEO of Merlin, which represents over 10,000 independent labels and helps them negotiate better deals from these services than they would get on their own.

He told us about Spotify’s payouts to artists firsthand, so we don’t have to rely on “stories from the internet.”

The reality: Merlin’s thousands of independent labels, and by extension their artists, are pretty happy with what Spotify is paying them — and happier still about big increases in those payouts. Those increases should be good news for the record industry, because Emily White says she wants ”one massive Spotify-like catalog of music that will sync to my phone and various home entertainment devices.” Eventually, she would consider paying for that, as would, presumably, other members of Generation Entitled.

Lowery’s post received an insane amount of attention, which is why we want to clear up the ways in which he is wrong about Spotify’s payouts in particular — and in general about the viability of streaming services where artists are concerned — even the ones that let people stream music for free. (The short story: It’s not really his fault that he’s wrong.)

Here’s the deal.

Big Growth

Spotify’s payouts to Merlin’s 10,000-plus indie labels rose 250 percent from the year ending March 2011 to the year ending March 2012. More importantly, the revenue per user (RPU) “has grown significantly alongside the overall revenue growth and is currently the highest it has been since the launch of the service,” said Caldas. “We see consistent, ongoing growth on revenue per user, revenue per stream, and the total revenue the service brings.”

So, why doesn’t David Lowery know about that?

Music Services Don’t Pay Artists — They Pay Labels. Also, There’s Major Lag.

“The thing about ‘Spotify doesn’t pay artists enough’ — Spotify doesn’t pay artists,” clarified Caldas. “They pay labels.”

Label deals vary to a huge degree. In some cases, more of that money is absorbed by labels than in others. Artists have always complained about labels not paying what they owe, which is why they sometimes sue for the right to audit the books. The same thing could be happening with streaming services in some cases (which is another reason music needs one big database, but that’s another story).

But even if labels broke their contracts and passed along every cent from Spotify to artists, for some crazy reason, the picture for artists would still look far, far worse than it actually is. The issue is lag — up to a year of it, and an important year at that.

“Chances are, you [the artist] are getting reporting quarterly, or six-monthly, on sales that happened six months ago, so what you’re seeing in your royalty statements could be a year old,” said Caldas. “You’re not seeing the service the way it looks today.”

Considering that a year ago Spotify hadn’t even launched in the U.S. — the world’s biggest music market — this distorts reality quite a bit.

What about all those “stories on the internet,” like the one about Lady Gaga only making $167 for one million streams?

“That Lady Gaga thing was about publishing, not recording rights, and it was a single territory,” said Caldas. “It was refuted at some point, but that story’s had way too much air, and it’s just ridiculous.”

Streaming Can Make More Money Than CDs… If the Music Is Good

Lowery laments the decline of the CD, but artists can actually make more money from a single fan who streams an album over the course of their lifetime than they would from the same fan if he or she had purchased the album — an effect that will become more pronounced over time. Every time Emily White listens to a stream, an artist gets paid — but if she breaks out any of her 15 CDs, they’ve already gotten everything they’re going to get.

“Let’s say there are a thousand spins over that person’s lifetime,” said Caldas. “For whatever the wholesale price of that purchase was, it’s getting to the point where it would be better if that person subscribed to a music service for the rest of their life and played the songs the same amount of times. It would actually generate more money for the artist over that period of time. The challenge at the moment is that you sell the $8.99 album today, and you get your royalty check next month or next quarter, so that income is immediate. The challenge, as you say, is in building long-term artists… The more times someone plays a purchased download, the less money you get per play.”

Yes, for music that has real staying power, CDs and downloads are the real ripoffs — a fact that may have been obscured by all of those physical format shifts from vinyl to 8-tracks to cassettes to CDs, but a fact nonetheless. Every play gets paid for on streaming services, even the ones that happen 50 years after a song is released.

Reality Is All Around Us. Also, Kids Get Old.

Lowery isn’t the first to wish that everyone else would behave as if the world around them hadn’t changed, and he won’t be the last. But the reality is that we live in reality, and it is all around us, so we might as well live there instead of bemoaning the fact that people don’t always pay for stuff when they don’t have to. There are Emily Whites all over the place. But they will age.

“If there is an entitled generation that wants things immediately and free, now you have a Spotify free tier [on mobile], which at least brings them into a legitimate environment where every time they play or stream that song, the artist is getting a payment, and they’re building a relationship with that service,” said Caldas. “When they [get older] and get a job, there might be a bit more disposable income and less time to sit there dragging music from The Pirate Bay, and [they will] want that level of immediacy and convenience, and be willing to pay for it.”

We made the same point here, but it’s nice to hear someone else say it.

Some “Free” Services Value Independent Music

David Lowery didn’t go after Emily White because he wanted mainstream popstars like Christina Aguilera to afford another Belair home. He wants artists like Mark Linkous and Vic Chestnutt not to die of poverty and/or depression, and we’re with him on that front. We asked Caldas how Spotify, which Lowery accuses of ripping off artists, treats indie labels relative to the majors. Do they get as much as the major labels, with their Aguileras and Spearses?

“We wouldn’t have a deal with Spotify if we didn’t feel they recognized the value of what they [the indie labels] do,” explained Caldas. “I don’t think it’s any coincidence that the successful services in the marketplace — iTunes on the download side and Spotify on the streaming side — have understood that fundamental thing, that if you want a consumer to come to your site and pay money, you have to give them the music that they want. You have to make everything available, because there is a generation of people out there who are incredibly impatient and will jump from one place to another, and they have no real loyalty… if a service has Green Day but not Vampire Weekend, or Nirvana but not Arcade Fire.

“We won’t do a deal with any platform that doesn’t properly recognize the value of our repertoire, so we’re in business with Spotify and Rdio. We’re not in business with MOG [which Lowery recommends].”

This “Free” Music Isn’t Really Free

Lowery is correct that streaming services including Spotify allow users to stream stuff for free — in part to lure them away from bit torrent, and for that matter, YouTube. However, the labels who represent artists’ financial interest (don’t laugh — it’s true when it comes to harvesting money from distributors) take those free streams into account when negotiating with the streaming services. As such…

“There are no streams on Spotify where the rightsholder doesn’t get paid,” said Caldas. “It’s free to the consumer, but it’s not free to Spotify. It’s not rocket science. 100 percent of the revenue gets paid to Spotify. They pay the publishers and they pay their local taxes. There’s a percentage of the revenue that then gets paid to the master rights holder [typically the label]… And then on the free tier, you just have to make a judgement.”

That judgement is about the overall value of a service like Spotify in the marketplace, given the free and paid tiers. One relevant number is the ratio of paying to non-paying users — and Caldas hinted that Spotify has might have significantly more subscribers than three million, its last official count. That’s more good news for the commercial viability of a service Emily White admits she wants.

Sorry, David Lowery. You make some fine points in your piece, and we appreciate the issues you’ve raised this week. I even bought at least three of your CDs back in the day. But you’re missing some pieces of the puzzle here.