When Spotify, TIDAL Offer Deep Discounts, Who Pays The Creators?
In the race to to sign up paying subscribers Spotify, TIDAL and their competitors are offering extended free trial subscriptions and deep discounts. But how are creators and rightholders being compensated for all of the being music consumed?
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Spotify is currently offering 3 months of premium service which normally costs $29.97 for just 99 cents. Tidal is promoting a 3 months of its premium service worth $29.97 for $9.99. Both music streamers along with Rhapsody also offer 1 month free trials on an ongoing basis. Deezer's trial period is two weeks.
But since Spotify, TIDAL and others are using free or deeply discounted music to attract new subscribers, do they pay songwriters, musicians and record labels for the use of their music?
The answer is, not really. Or at least, not well.
Creators and rights holders are paid a percentage of revenue by on demand streaming music services. All of the money they collect – subscription fees, advertising and other revenue – becomes part of a pool of which about 65-70% is distributed to creators and rightsholders. So when Spotify sells a three month subscription for 99 cents, $28.98 less revenue added to the payment pool than during a normal 3 month subscription. Nothing is paid into the payment pool for all of the music consumed during month long free trials.
Discounts Drive New Subscribers, But…
But there is a substantial upside, argue the music streamers. Those who sign up for a 1 month free or 3 month deeply discounted trial often become paying subscribers and add to the payment pool in the future.
"This is a promotional offer in the US that drives new users to become Premium subscribers after the trial period," a Spotify spokesperson told Hypebot commenting on their current 3 months for 99 cents deal. "We tested this back in December, 2014 and the results were really great in terms of Premium retention; so that is why we are bringing it back now. "
Free goods and introductory discounts do have a proven track record of driving sales. But in other industries, the company giving something away usually created or at least paid for it.
When Amazon offers free introductory Prime shipping to drive paid subscriptions, they still pay UPS for shipping. But music streamers can attract new subscribers while paying almost nothing and sometimes nothing at all.
I’m a little confused. Does it make any difference how much a streaming service adds to the money pool when royalty rates are set by number of listeners? Wouldn’t more subscribers be a good thing regardless of how much they add to the steeaming services money pool?
The pool is divided by the numbers of plays – so a smaller pool with more streams means lower payments.
It is actually a bigger pool. The promo subscription payments are adding to the pool, as are the additional streams from new users that generate more ad plays.
These are plays that would not have happened before. And they all get a bit of revenue. So lower payments per stream: maybe. Number of streams: more for sure. Overall revenue: higher for sure.
It’s funny how music business history repeats itself. We already know that we will quote the voices badmouthing streaming in humoristic ways a few years from now. As always, when a new technology comes along. Has been like that since the shellac era.