On music streaming, all streams have traditionally been worth the same, but how can we rethink how streams are calculated and remunerated, so we reward the music experiences that we value the most as a consumer? I propose a series of steps to study the other options and evaluate six different alternative payment systems.
Music streaming has grown to become the largest revenue source for the recorded music industry. While the focus has been on growth, the payment system for rights holders has remained unchanged. Under the original ‘pro-rata’ payment system, the streaming service pools all subscription fees for every country every month and remunerates each song proportional to its share of the accumulated number of streams. In other words, all streams are worth the same, but it also means that highly active users are indirectly using less active users’ subscription fees to pay the artists they listen to. Within recent years, a growing number of industry stakeholders have criticised the system’s alleged unfairness, but consensus has not been reached on what the actual problem is, and how we best to solve it.
In my paper, published in the Journal of Cultural Economics, I propose a series of steps to systematically evaluate the industry’s alternatives. Many modern, complex problems have no correct answers or solutions. The challenges we see in the music streaming payment system have both technical, financial, computational, and political dimensions. Inspired by policy analysis and planning, I propose first reaching an agreement on what the root problem is, and afterwards evaluating the alternatives based on four categories of criteria, where stakeholders can have legitimate opinion differences. When evaluating alternatives, I suggest considering:
(1) To what degree does the proposed action accomplish the objectives set forth?
(2) What is the expected financial impact of the payment system?
(3) Can the payment system be acceptable to the relevant decision-makers?
(4) What level of administrative complexity does the payment system require?
Considering these four criteria, we can reach a nuanced understanding of each alternative and, for the first time, directly compare the alternatives. I evaluate six different alternatives based on the evaluation criteria above and discuss their ability to solve the defined problem. Common for them all is their ability to nuance stream calculations, but they use different theories to better align the users’ value extraction and the artists’ payments.
The User-Centric Payment System propose distributing each subscriber’s monthly fee only among the streams the user streams. By factoring the listening length of a stream, the system can address the value imbalance between long-form music content that currently receives the same remuneration as short-form content. By factoring the listening contexts, the system can address the difference in value that the consumer experiences between listening to their favourite artists and an algorithmic recommendation they may not like. The system can also exclude the user’s first stream of a song from payment. If the user chooses to listen again, it shows the consumer values the product, and payment is therefore activated. The UK has discussed implementing the Artist Growth Model which proposes to re-distribute a share of the top earners’ revenue to the middle-layer artists, who are starting to establish themselves. Lastly, a minimum threshold system could be implemented to improve the conditions for middle-layer musicians with a proven audience base.
The analysis finds that all system alternatives bring new challenges together with their benefits. Therefore, it will be beneficial to explore mixtures of the systems to accommodate several challenges at once. The systems do not exclude each other’s implementation, and we can imagine almost infinite ways to pair the alternatives. It may also be that different platforms have unique consumer segments, making it possible for the platforms to build mixtures that best suit them.
In the fall of 2023, both Deezer and Spotify announced changes to their payment system.
Deezer’s will from now on factor in the listening context and give double value to streams not coming from algorithmic recommendations. A minimum threshold is furthermore implemented, that gives double value to streams by artists with more than 1000 monthly streams. Spotify has chosen not to devalue algorithmic recommendations but has introduced a minimum threshold of 1000 yearly streams on songs to qualify for payment. It is positive to see changes coming to the payment systems, but it appears that the new systems will only have a minimal impact on redistributing revenue. Deezer themselves have announced that the new implementations will redistribute 1-2% of revenue. According to Spotify, 99.5% of all streams are of tracks that have at least 1,000 annual streams, which means their threshold is redistributing 0.5% of the total value across the other 99.5%. It is fair to consider that a low impact on the streaming pool distribution.
There are opportunities to implement more dramatic system changes in the years to come. I believe my paper can help the industry to make increasingly informed decisions, but there are still unknowns to be studied. Solving the payment system’s challenges now does not mean that they will not return in different forms. Unpredictable events in the industry, such as changing listening behaviour, will likely force the industry to continually modify the payment system to accommodate the evolving realities. Hopefully, the ongoing adjustments will happen at a faster pace than we have seen in the first 15 years of music streaming. Therefore, academic contributions to the debate will continue to be relevant for many years to come.
About this article
Jensen, F.J. Rethinking royalties: alternative payment systems on music streaming platforms. J Cult Econ (2024). https://doi.org/10.1007/s10824-024-09507-z
About the author
Frederik Juul Jensen is a PhD student in Music Streaming Economics at Université Sorbonne Paris Nord
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