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AIM publishes insights on the artist growth model for streaming royalty distribution

By | Published on Tuesday 6 July 2021


The UK’s Association Of Independent Music has published the findings of research it commissioned exploring the so called artist growth model for the distribution of streaming royalties.

AIM first proposed the model in a submission to the UK Parliament’s inquiry into the economics of streaming, which has focused a great deal on the various aspects of the digital pie debate. Which is to say, the debate over how monies generated by streaming subscriptions each month should be shared out between all the stakeholders in the music community, including artists, musicians, songwriters, record labels, music publishers and the streaming services themselves.

With streaming services of the Spotify variety, there are three stages via which artists are paid their digital royalties.

First of all, track allocation. All the money a streaming service makes through selling subscriptions (or advertising) each month needs to be allocated to the music that has been streamed. That is currently done on a pro rata model for each subscription type. So, if your track accounts for 0.1% of all listening by UK premium subscribers in any one month, your track is allocated 0.1% of all the subscription monies paid by UK premium subscribers in that month.

Second, revenue share. The money allocated to each track needs to be shared out between whoever controls the recording rights (either a label or a distributor), whoever controls the separate song rights (either a music publisher or a collecting society), and the streaming service itself. Revenue share arrangements are different in every individual licensing deal, but 50-55% is usually paid through to the recording rights and 10-15% to the song rights, with the service retaining 30-35%.

And third, artist royalty. Of the monies paid though to the recording rights – ie to a label or distributor – a cut of that income is passed on to the main artist who appears on the track. What cut the artist gets is entirely dependent on the deal they agreed with the label or distributor. It could be anywhere between a few percent and 100% of what the label or distributor receives.

There are debates about what happens at each stage in this process.

At stage three, there are debates over what is a fair share for the artist, especially if the artist signed a record deal in the pre-digital age so that their contract doesn’t actually set out a specific rate for streams. There are also issues around the label being able to make additional deductions; artists still paying off advances and other recoupable costs the label incurred; and the lack of transparency around how an artist’s royalty is being calculated.

Some argue that a solution to those issues would be for artists to receive at least some of their cut of the streaming money through the collective licensing system as ‘performer equitable remuneration’. Then there could be industry standard rates and specific contract terms would be irrelevant.

At stage two, the big debate is whether the current revenue share splits are fine, and in particular whether it is fair that a significantly bigger share is allocated to the recording rights compared to the song rights. Most songwriters argue it is not.

And then, at stage one, there is the debate over whether the track allocation process should actually be done across each subscription type, given that that system means that some of the money put in by subscribers who listen to less music each month is being allocated to tracks played by subscribers who listen to more music.

The most commonly proposed alternative would see the allocation process done for each individual subscriber – aka a user-centric approach – even though that would mean the average per-play allocation would be different for high level streamers versus low-level streamers.

The artist growth model would also change what happens at the track allocation stage. Basically, monies would still be allocated to tracks based on what percentage of overall listening they accounted for, however, an extra metric would be applied.

The result would be that those tracks with the highest percentages would make slightly less per stream, while those with lower percentages would make slightly more.

One of the arguments in favour of user-centric royalty distribution is that it would result in top level artists making slightly less and middle level artists making slightly more. However – while that would probably be a general trend of user-centric – that outcome is not guaranteed. The artist growth model by definition redistributes money from the most played artists down to the less played artists.

AIM commissioned former Spotify and PRS economist Will Page and collective licensing expert David Safir to model what might happen if the artist growth model was applied, and last week they presented their findings as part of a panel discussion organised by the trade body. Those findings can now be downloaded from AIM’s website alongside a recording of last week’s event.

Commenting on the model, AIM says: “With 80% of streaming revenues going to just the top one percent under current ‘pro-rata’ streaming distribution models, the artist growth model seeks to counter this ‘winner takes all’ situation, distributing earnings more evenly in the market and enabling an increased number of credible niche and emerging artists to make a sustainable living from streaming”.

It also notes Page’s comparison between the artist growth model and the taxation system, in which you “tax the very rich to help the less rich, and leave everyone else unchanged”.

Page and Safir applied one specific version of the artist growth model – which is to say a specific set of rules regarding what is taken off the top and how that is redistributed – to real world streaming data for a set time period in the UK. In that time period, with that set of rules, the indie sector at large and Universal Music would have seen an increase in payments had the artist growth model been in force, whereas Sony Music and Warner Music would have seen a dip.

The artist growth model wouldn’t change the way revenue is shared at stage two nor what royalties artists receive at stage three, and it could also co-exist with a user-centric approach at stage one. Though advocates of the model argue that if it successfully provided a boost to middle-level artists, it might lessen the need for the some of the other proposed reforms.

You can access last week’s discussion, and download the findings of Page and Safir’s research, on the AIM website here.

This story is discussed on this episode of our Setlist podcast