Ethical Streaming Royalties: More For Few Or Fewer For More

In an effort to improve the methods by which royalties are calculated, Chris Castle theorized something known as the "ethical pool". Here he takes a deeper dive, taking a look at a new study on the topic and how it compares more conventional royalty calculations.

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Guest post by Chris Castle of Music Tech Solutions

I call my version of “user centric” royalties the “ethical pool”.  Since I posted my short paper on the ethical pool, I’ve been hearing from people who were interested in the method.

If you’re interested in a deeper dive on the topic, our friends at the Finnish Musicians Union sent a link to a study they commissioned comparing the differences between the user centric model and what we call the “Big Pool” or the prorata distribution model.

In the alternative user centric model, the right holder’s compensation is based on the number of listening times of an individual user: how many different tracks the user is listening and how many times. If the user concerned would listen to only one track, would his/her whole monthly fee be paid to the track’s right holders. Therefore, the difference compared to the pro rata model is that it would, in principle, increase the compensation of the right holders of less listened tracks, and, on the other hand, reduce the compensation of the most listened music….

The study was carried out during April–October 2017 by Dr. Pradeep Durgam of Aalto University. The writing of the report and some further analysis was done by Consultant, Dr. Jari Muikku of Digital Media Finland.

Spotify provided the research material, which consisted of premium users’ listening times in March 2016. The user data was completely anonymous and was only given to the researcher Pradeep Durgam. The study concerned only the so-called premium user service, and the researcher did not have information about the compensation paid by the advertisers.

One difference between the Ethical Pool and the Big Pool approach is that while the Big Pool would be the default if a fan did nothing, subscriber revenue for fans electing the Ethical Pool would be removed entirely from the Big Pool at the election of the subscriber and the music available in the Ethical Pool would be selected by the artist.

There is no reason why the artist could not be in both, but with different recordings.  That “extended windowing” could be offered to artists who want to stay in the Big Pool with some tracks but also want to be in the Ethical Pool with other tracks.

So even though the “More for Few” study doesn’t take these wrinkles into account, it is extremely valuable research and statistical analysis on the user-centric model.

You can read the study itself at this link.  A big thank you to Lottaliina Pokkinen who is the Head of Legal Affairs for the Finnish Musicians Union whom I met at the recent AFM/FIM Streaming Economy conference in Los Angeles.  That conference was one of the best I’ve participated in.   It was also the only one I’ve been to that focused on the effect of streaming on performers.  Kudos to Ray Hair of the American Federation of Musicians and John Smith of the International Federation of Musicians for having the over-the-horizon vision to host the two-day event.