Sharkey Laguana: Is Streaming Music Ripping You Off? [INTERVIEW]

1Here the people at the Future Of Music Coalition speak with Sharky Laguana of the band Creeper Lagoon about his recent piece entitled "Streaming Music is Ripping You Off" in which he criticizes streaming services for their use of the "Big Pool" method of royalty distribution.

Guest Post by Kevin Erickson on the Future Of Music Coalition

If you’ve seen friends changing their social icons to a red volume knob turned all the way down, and you’re an avid user of any music streaming service, then read on — because you need to know who Sharky Laguana is. (Yes, that’s his real name.) Laguana has been part of one punk community or another since the late 1980’s, eventually making a name for himself in the 90’s with San Francisco band Creeper Lagoon. After they broke up, he’s stayed deeply involved with the music community, operating a musician-centered van rental service, Bandago, which has been used by the likes of Dinosaur Jr., and Ke$ha.

More recently, he’s become a prominent critic of aspects of the leading on-demand streaming services and the way they calculate and distribute royalties. One recently-penned piece, “Streaming Music is Ripping You Off”, has been gaining some serious traction on the net. In it, Laguana explains the current ‘Big Pool’ method of royalty distribution used by services like Spotify and Apple Music and why he thinks a “subscriber share” method of accounting would be preferable. He also offers up a suggestion: a silent protest (streaming music 24/7 with the volume turned down) during the month of September, one that he hopes might convince these services to consider alternatives. 

Sharky will be discussing these issues at the Future of Music Policy Summit on October 26-27, alongside Darius Van Arman of Secretly Group (Secretly Canadian, Jagjaguwar, Numero), Simon Wheeler of Beggars Group (XL, 4AD, Matador), and Melvin Gibbs, bassist, and president of Content Creators CoalitionDick Huey, CEO of digital marketing agency Toolshed (and FMC board president!), will serve as moderator.  Regardless of whether you think Sharky’s criticism hits the mark, it’s bound to be a dynamic conversation. Register today!

In advance of that discussion, FMC’s Policy Intern Kelsey Butterworth and Communications Associate Kevin Erickson had a few questions for Sharky; he kindly obliges below:

Q: How many people have read your latest essay?

A: 142,998 at the moment. The piece has been out for exactly one month. Not sure how many read the whole thing (it’s a long piece), but you get the gist of it in the first couple paragraphs. 

Q: What’s been the most surprising reaction?

A: The most surprising reaction is the overall level of interest in the topic. I never would have guessed in my wildest dreams that so many people would be interested in reading about how streaming royalties are distributed!

Another surprising reaction has been the job offers. It’s deeply flattering, and I’m honored by them, but have declined them all. I just want to see a healthy music business for no other reason than I love music, and I love creators. I hope I’m helping! 

Q:. What do you think the strongest, most substantial criticism of your point of view on streaming?

A: I find the procedural objections to be the most substantial: the labels won’t change out of sheer inertia and fear of the unknown. I think that’s fair, as persuading big institutions to make fundamental changes is a big task. In terms of the argument itself, I mostly get a lot of support, and have only seen a small handful of rebuttals from people who have more than a passing knowledge on the subject. I have not found their arguments very persuasive yet (I summarize them as fairly as I can in the FAQ) but I continue to listen and engage with everyone who has a counterpoint to make. I’m open to the idea I am wrong, so I’m constantly looking for evidence that I am. 

When you dig beneath the surface most of the more substantial arguments boil down to two core concepts:

1. Prior research (Elberse, Mcphee et al) has shown that heavy usage consumers are more likely to be diverse, so the counter-argument is that if we don’t keep heavy usage consumers in control, niche artists will suffer. I don’t find this argument compelling for several reasons:

A) I can see with my own eyes evidence that a non-zero percentage of extremely heavy usage subscribers are not individuals at all and do not remotely have diverse listening habits (for example the gym I go to plays streaming EDM exclusively 16 hours a day without any sort of special license and I find it impossible to believe that this is unique),

B) the research cited does not contemplate the impact of click fraud on Pro Rata royalty payouts, which I think will continue to be a growing problem.

C) Perhaps most importantly, I suspect streaming usage will follow an 80/20 rule (80% of the clicks are made by 20% of the users) that you see all over the place in marketplace consumption, particularly when it’s digital consumption. If so then you are effectively saying that if an artist’s music does not result in a substantial number of clicks from the top 20% they effectively don’t matter. I find it hard to believe that an emerging band with a grass roots following will naturally acquire a large number of clicks from these elite subscribers. It seems more likely that they would get more clicks from normal people in their vicinity who come to their shows. Indeed an academic paper written on this subject (by Rex Pedersen) showed quite definitively that local artists do substantially better under the subscriber share model. 

2. 2 We should pay artists by the click, because it seems *SO WEIRD* that Artist A could get more clicks, but still get less money than Artist B who got less clicks. Of course listeners aren’t paying by the click, so it seems even weirder to me that we should pay artists by the click. Subscriber share is paying artists for fans not clicks, and that aligns much better with the overall goals of everyone in the music industry. We want more people to subscribe, listen, enjoy, and go to shows! Clicks are just an artifact and do not generate any revenue in and of themselves. The Pro Rata approach strikes me as an old-school radio mentality, and I think everyone would be better off with newer models that do a better job of rewarding artists for bringing actual fans to the table.

The people who have really studied the issue in depth (and by that I mean academics like Arnt Maaso and Rex Pedersen who have actually taken a long hard look at real data over a significant period of time) have stated publicly that they agree with the broad strokes of my position, so I have taken a lot of encouragement from them. I also take encouragement from the fact that I have only encountered one working artist of any note who has stated a preference for Pro Rata, and I think a lot of that preference may lie in the fact that the artist is employed by a streaming service! I have spoken with countless working artists and from what I have seen they almost unaminously support the idea, which of course is the biggest opportunity for the labels in all of this: artists are generally not supportive of streaming services. They are all standing on soapboxes speaking to significant-sized audiences and saying streaming music is a rip off. The cumulative impact of their repeated negative PR is NOT helping [subscription] sales. If you can get broad buy-in from artists both large and small, that could really help a lot in increasing the number of people subscribing to music!

Q: So why don’t streaming services use the subscriber share method if it ends up being better for them (and everyone) financially? How is a healthier bottom line not incentive enough?

A: It’s not up to the streaming services. I’ve spoken with leaders and key influencers at several of the services over the past year. Occasionally you hear rumblings from people further down the chain about the cost and/or expense of changing the accounting system but that’s not a real argument. Changing an accounting system is a one-time fixed cost, and if the change delivers real benefits it pays for itself very quickly.

The main obstacle seems to be major labels worried about knocking over the apple carts of a couple key management companies and artists who quite frankly bring in most of the profits. I think that concern is understandable. This is a hit driven business after all. So I think the majors need to be sold on the idea that this is going to drive subscription streaming growth over the long term, and will ultimately be well worth the effort. I think they will come around eventually.

In the meantime I’m simply trying to accelerate the process a little bit by keeping the idea in everyone’s minds, and maybe even apply a little pressure by making it a little more expensive for them to maintain the status quo. 

Q: Does the per-stream royalty rate fluctuate based on how many streams there are? How often is that fluctuation calculated?

A: Yes. Price per stream is calculated on a monthly basis using just two variables: the number of streams (i.e. clicks), and how much money was collected. You divide the money by the streams, and you get your price per stream, which goes up or down every month. The general trend for a while now has been downwards. So if you are an artist, and you are getting the same amount of interest every month, you will get progressively less and less money.

1We can speculate a couple reasons as to why this may be. One obvious reason is that Spotify has a 30 day free trial, and they have been adding a lot of subscribers, so that will increase the number of streams without increasing the revenue. Another possibility is that there are behavior changes at a macro level that are leading people to use it more often. Anecdotally I’ve seen an increase in people using it in public and semi-public areas like offices, gyms, hair salons, etc, licensing requirements be damned, but it’s also possible I’m just noticing it more. Finally, as I mentioned in my article, there’s definitely a fraud and manipulation side to this as well, whether it’s for chart position, or just plain old cash. 

Q:  A challenge I see is that “subscriber share” still uses play count as a proxy for value, so it doesn’t fundamentally address the issue of how different kinds of music aren’t necessarily made for lots of repeat listening. If I purchase a record like Matana Roberts’ Coin Coin Chapter Three, I might listen to it only 5 times over the course of a year. Those will be very deep, engaged listens, but they’re still only going to add up to a small fraction of my overall listening and a small fraction of the overall playcount volume.  So as a fan, buying a download or an LP is going to be exponentially more renumerative than streaming, whether it’s pro rata or subscriber share.

It’s sort of like how I’ve seen Wet Hot American Summer thirty times, and Babette’s Feast twice. But that doesn’t mean that Babette’s Feast is less valuable a work of art to me as a consumer.

Are there are other tweaks to the model that could make things work better for music that’s unlikely to generate huge play counts?

A: I agree with you, and my engagement on this topic started with me thinking about this very problem. For me the artist I adore but don’t listen to very much is Meredith Monk. The short answer is that Subscriber Share is just a step in the right direction, and isn’t going to fix everything about streaming. But there are some details to Subscriber Share that do help ameliorate this a bit.

I don’t talk about about this much because I don’t want to overwhelm everyone, but one detail of subscriber share is that I think the “share” should be calculated by the second. If we pay everything as we do now (anything over 30 seconds triggers a payment) than longer pieces are disadvantaged: there’s only so many times in a day you can play “A Love Supreme” where the shortest song is 7 minutes and 22 seconds, and the longest is 17 minutes and 53 seconds. But if we measure every second someone spends listening to an artist after a certain threshold has been met (say 30 seconds) than we wind up leveling the playing field, and there’s room again in the market for music that commands longer attention spans. 

Ultimately I think it’s going to be hard to turn a subjective value judgement into a an objective royalty statement. Probably the best we are going to be able to do is measure how you choose to spend your time and distribute royalties based on that. But if you have esoteric taste and spend any time at all on artists like Matana Roberts or Meredith Monk, these artists will unquestionably do better than they do under the Pro Rata method where we assign them royalties based on their share of overall streams. But who knows, maybe someone like yourself will come up with something that does take all of this into account. I think that would be great!

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