This NY Times has an article up today which suggests that music streaming services are going to drive musicians with small fanbases or niche styles out of the business because of the low rates that they pay.
Sorry, but the Times has that all wrong. Niche musicians are never going to be able to make a living based on music sales alone, doesn't matter where those sales are coming from, album sales, digital downloads or streaming services. Niche is niche because there isn't a huge audience. No audience = no sales, it really isn't rocket science.
The artist used to demonstrate the claim is an 'Avant Cellist' called Zoe Keating. Like me today is probably the first time you've heard the words avant and cellist used in the same sentence. Doesn't sound like a huge market does it? Zoe had 131,000 plays on Spotify this year - a reasonable number and if it translated into that many album purchases then the $0.5k she got paid by Spotify looks a little light. Thing is though, these streams don't equate to a music purchase in any way.
Here's my view of the streaming service, from an artist revenue point of view. A large percentage of tracks I stream on Spotify are ones I already own - either as CDs or purchased MP3s. They get dropped into playlists as the mood takes me. The next largest group of songs are from artists whose work I have already sampled on a small scale and I'm broadening my experience of their music to see whether I like their style or not. Perhaps one in ten of these actually end being the case. Finally there are artists whose work I have never listened to and am trying for the first time because of a recommendation - often from Spotify or Last.fm - and around a one in twenty success rate applies here. These three groups probably break down to 40%, 40% and 20% of my listening on Spotify.
So from an artist's sales point of view absent the streaming service, 40% of the total streams can be discarded as being for music I already own, whilst the other 60% relates to music that I mostly wouldn't have bothered with without being able to try as a streaming file first. The real cost of sales to the artist then is actually the 5% of music I might have found through radio plays or other means and then gone on to buy.
In Ms. Keating's example this would amount around 6.5k additional track purchases - at around $0.07 per track (the artists royalty rate on track sales) - about $455, not a million miles away from what she got paid by Spotify.
What's really interesting is what happens when you multiply the number of streaming listeners by a factor of one hundred - the minimum likely growth pattern for these services over the next few years. Assuming that Ms. Keatings streams keep pace with this growth she could expect to garner a tidy $50k from Spotify streaming alone - not too shabby for a niche musician.
Streaming music is a real cash cow for artists, if they don't kill the golden goose with short-sightedness. Getting paid everytime someone listens to one of your tracks, for as long as the copyright exists is going to net significantly more money than a one time sale that lasts into perpetuity.
Its as easy as that.
Streaming Shakes Up Music Industry’s Model for Royalties - NYTimes.com: