Despite the overabundance of ideas on the best way to deliver content via the internet, creators of streamable, downloadable content are seeing less return.
Record companies, advertising firms, film studios, and television networks are all being forced to change the way they think about doing business in the age of the internet.
Evading ads and accessing free content can make illegal downloading an attractive option for audiences and the many approaches that have been taken to combat this — including strict anti-piracy measures, free streaming (with ads), and paid subscriptions to unlimited, ad-free streaming services — haven’t yielded much in the way of results.
Payment Per Stream
The primary model for compensating musicians for streaming their music is to pay them per time their song is streamed. Every time the song is played, the artist gets x amount of money. A problem arises, though, when x is revealed to be a fraction of one cent.
Spotify is one service that has been accused, on many occasions, of providing artists unfair compensation for streaming their music. Taylor Swift pulled her music from the service late last year as a highly-publicized protest of its controversial pay-out rates. Spotify’s website lays out the company’s practices in a seemingly transparent formula:
It all looks nice and fair until you plug in the numbers.
An artist, if signed to a record label, can expect to receive approximately $0.001 (or $0.007 for an unsigned artist) every time their song is streamed.
As data journalist, David McCandless, shows in his infographic How Much Do Artists Earn Online (2015 Remix), artists would need to have their songs streamed over 1,100,000 times to earn the monthly minimum wage in the United States, $1,260.
That’s a lot of streams for minimum wage. And other music streaming services aren’t much better.
Of the services fully included by McCandless, Google Play compensates artists most generously, but it would still take 172,206 streams at $0.007 per stream to reach minimum wage. YouTube, on the other hand, would require 4,200,000 streams at $0.0003 per stream to reach the mark.
TIDAL, the streaming service co-founded by Jay-Z, promised to put more money into the pockets of artists who allow their music to be streamed. Though the number has been disputed by some, TIDAL claims to pay an average of $0.026 per stream.
This would require just over 48,000 streams to meet the monthly minimum wage. TIDAL is the first artist-owned streaming service and due to the absence of a free-listening option can pay artists more, but has proven to be less popular to consumers. Unfortunately, fewer customers means less money to artists, despite higher payment rates.
Plenty of artists make money other ways and don’t see streaming as a major problem, but more and more are becoming disillusioned with the idea. Some say that it’s not curbing online piracy, but accompanying it. Either way, it’s hardly enough to make up for the $7.6 billion dollar drop in album sales between 1999 and 2013.
Notice, though, that we don’t hear similar accusations of services that stream films and television shows. Why aren’t media networks pulling their content from Netflix and Hulu?
A Better Method: License Leasing and Partnerships
For the film and television industry, streaming has not proven to be so difficult. Netflix and Hulu, the two biggest services, both offer much better returns for the creators of their content. This is accomplished through much closer relationships between the hosts and the creators.
Netflix doesn’t pay creators per stream. Nor does it have a complicated pay-out formula. Nor do they pay a flat rate to everybody. So how is it profitable for creators?
Netflix acquires licenses for its titles through a leasing system. This is why we see certain films and series come and go on Netflix.
The rights to the content are more or less rented from the copyright holders for a specific period of time. How much money is spent on a given title as well as the period it will be available for is discussed with each and every distributor. The number of times a title will be streamed is projected and used to decide a fair price.
Since each distributor has a say in how much they will receive for allowing Netflix to host their content, an excellent rapport is established. This gives Netflix a unique upper hand that music streaming services don’t have, and, as a result, they have made enough money to start producing their own exclusive content.
Netflix’s original series include popular titles such as House of Cards, Orange is the New Black, and Bojack Horseman. They have also purchased the rights to produce new Netflix-exclusive seasons of series like Arrested Development and Trailer Park Boys.
Alternatively, Hulu partners with television and film studios and is currently owned almost evenly by Fox, NBC, and Disney. With partial ownership over the streaming service, the media groups have control over not only what is streamable, but how much the service costs to consumers and advertisers alike.
Hulu uses a two-sided business model that functions similar to Spotify. Content watched by “freemium” users is paid for by advertisers. Premium users pay for their own ad-free content. The difference, of course, is that this money goes directly to the studios that make the content. Hulu, too, has gotten into the original, exclusive content game, creating shows like Difficult People, The Awesomes, and Deadbeat.
The effects these practices have on piracy can be seen when looking at frequently pirated television shows. As Variety reports, the top ten most torrented television shows of 2014 were distributed by HBO, NBC, AMC, CBS, CW, USA, and ABC, but none were exclusive Netflix or Hulu content.
The Future Of Streaming
Netflix details their long-term view of what will happen to TV content and what their role is in shaping the future on their website. They predict that linear TV viewing, or traditional television, will be completely replaced by on-demand streaming, citing viewers’ desires to not let television schedules dictate what they watch as the primary reason.
Netflix’s absence of advertisements will also continue attracting more and more subscribers. More subscribers, given Netflix’s unique method of leasing content, means more money going to the creators or owners of the content as well as to the creation of new shows.
While services like Netflix and Hulu are keeping money flowing within the television and film industry, many people in the music industry are beginning to panic, seeing music streaming as an incredible detriment to artists and record companies alike. But perhaps they are looking at streaming in the wrong way. Maybe it’s a missed opportunity that is not too late to go back and reclaim. If a service emerged that was the “Netflix or Hulu of music” the industry could possibly be saved.