Music 4.5 – The Economics of Streaming
Reed Smith Offices, New York
599 Lexington Ave, New York, NY 10022, USA
The Economics of Streaming…and the ‘value gap’
Consumption of streaming music, media and entertainment is exploding around the world. Free, ad-supported music services are reaching millions of users who want to listen to what they want, when they want. Since the creation of the first paid subscription services 15 years ago, the labels have considered on-demand access to be consumption - not promotion - eventually competing with and replacing the lucrative sales model their businesses were built on.
Today the largest music service in the world is YouTube, with 1billion monthly active users. Over 58% of Internet users in the U.S. have a YouTube account. Facebook has 1.71bn monthly active users (with more than 1bn daily active users on mobile); Twitter has 320mm, and Spotify has 100mm. Contrast these user numbers withthe paying subscriber numbers of Apple Music, now at over 20 million subscribers, and Spotify with 40 million paying subscribers.
YouTube stars are garnering vast audiences and enviable revenue, while music artists and the music industry are increasingly frustrated that they are not receiving comparable value for the use of their music and compositions. They argue that YouTube isn’t a revenue generator commensurate with its user base. New consumption patterns and a specific video and YouTube culture have emerged, which in conjunction with the existing Safe Harbor legislation, is changing the relationship between fan, star and revenue-generation
Siding with the record industry over the amount of money YouTube pays to artists and labels Andrus Ansip, VP for the Digital Single Market at the European Commission, estimates that YouTube now contributes $679m a year to music rights-holders, despite its billion-plus monthly audience, while Spotify alone delivers $1.8bn.
Meanwhile, in the last twelve months, YouTube has paid out over $1 billion to the music industry from advertising alone. Unlike the audio streaming services, YouTube won’t commit to pay minimum guarantees based on users and usage, but it will share ad income with music rights owners, meaning that income to the music industry goes up as more ads are sold, not more videos streamed.
What are the economics of streaming – for the service providers, the rightsholders, the artists and the users?
If ad-supported and subscription services are increasingly competing head-on, should free services be paying the same percentage of their income to rights holders as paid subscription services? What is the impact of the DMCA Safe Harbor provision on revenue for rights holders?
What changes in legislation, licensing and contracts will guarantee a marketplace where the two different business models - free, ad-supported and paid-for subscription - can be made to work “fairly” with increased revenues returned to artists and rightsholders?
Music 4.5 The Economics of Streaming will examine the economics and business models of streaming, the latest developments around music licensing, the implications of digital service providers different business models, legislative reform, as well as the impact of the ad-market dynamics on per-stream rates for artists, record labels, publishers, and collective rights management organizations.
We will cover questions such as:
How can the ‘free model’ be made to work better and more fairly for artists?
Will the review of safe harbor legislation deliver a level playing field between ad-supported and subscription-based service providers, e.g. Spotify and YouTube?
Will ‘take down’ also mean ‘stay down’? What are the issues with ‘stay down?’ How accurate is YouTube’s Content ID?
How to grow the pie by opening up for additional royalties collection? What are the additional but currently neglected and untapped revenue streams, e.g. performance royalties for terrestrial radio?
Everyone mentions YouTube, but how about the other big platform and social networks, like Facebook and Twitter, which are increasingly focused on video content delivery? Will they also rely on the DMCA Safe Harbor for user-uploaded content, or will they negotiate agreements with labels and publishers? What is the potential impact for artists and the music business?
How do artists, rightsholders, and users navigate multi-territory licensing?
Is it the government’s role to legislate rates to guarantee a competitive marketplace?
If consumption is free, what is the value of promotion?
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