The Economics of Music: Streaming vs. CD Sales—A Deeper Look

In recent years, a narrative has emerged pitting streaming services against traditional music sales, particularly CDs and vinyl. Social media posts often circulate claiming that a single CD sale is worth hundreds of hours of streaming for an artist. While these comparisons can be eye-catching, they often oversimplify a complex ecosystem and misdirect artists' frustrations. This article aims to unpack the intricacies of music royalties, challenging common misconceptions and highlighting the real issues at play.

The Streaming Royalty Conundrum

At first glance, streaming royalties can seem paltry. According to a 2021 report by the UK Intellectual Property Office, Spotify pays between $0.003 and $0.005 per stream on average. Apple Music pays about $0.01 per stream. These figures appear to support the narrative that streaming undervalues music. However, this perspective fails to account for the full picture of how royalties are distributed.

Streaming services don’t pay artists directly. Instead, they pay rights holders, which include record labels, publishers, and collecting societies. These entities then distribute the royalties to artists based on their contracts and the prevailing royalty systems.

The Role of Collecting Societies

Collecting societies, also known as Performance Rights Organisations (PROs), play a crucial role in the music industry. They collect and distribute royalties for public performances of music, including radio play, live performances, and now, streaming. Major PROs include ASCAP and BMI in the United States, PRS for Music in the UK, and GEMA in Germany.

These organisations serve an important function, but they’re not without criticism. A 2021 study by the Music Managers Forum found that collecting societies typically distribute only 60–80% of the royalties they collect. The remainder is used for operating costs, with the interest earned on held funds often covering a significant portion of these expenses.

This system creates several issues:

1. Delayed payments: Royalties can take months or even years to reach artists.
2. Lack of transparency: The complex web of rights and royalty calculations is often opaque to artists.
3. Inaccurate distribution: Many PROs use sampling methods based on radio and TV play to estimate royalty distribution, which can favour established artists and misrepresent actual streaming data.

The “CD Sales vs. Streaming” Fallacy

The viral posts comparing CD sales to streaming often ignore several crucial factors:

1. Direct sales vs. rights management: When an artist sells a CD directly, they often bypass the complex rights management system, potentially keeping a larger share of the revenue. This isn’t an apples-to-apples comparison with streaming, where all rights must be accounted for and paid.
2. Long-term value: A CD sale is a one-time transaction, while a popular song can generate streaming revenue for years.
3. Global reach: Streaming services provide access to a global audience that physical sales could never match.
4. Lower barriers to entry: Streaming platforms have dramatically reduced the cost and difficulty of distributing music, allowing more artists to reach audiences without needing label support.

According to a 2020 report by the National Bureau of Economic Research, the shift to streaming has led to a 5% increase in the number of new artists entering the market each year.

Streaming Services: Potential Allies, Not Enemies

Contrary to their portrayal as exploitative entities, streaming services have expressed interest in more direct and transparent royalty systems. Spotify, for instance, launched its “Loud&Clear” initiative in 2021 to provide more transparency about its royalty system.

Streaming services possess highly accurate play data, which could revolutionise royalty distribution if implemented directly. However, legal constraints and the entrenched power of PROs prevent this more efficient system from being realised.

A 2022 study by Midia Research found that if Spotify were to pay artists directly based on individual user listening, it could increase payouts to smaller artists by up to 25% while reducing payments to top artists by a similar margin.

The Real Bottleneck: Outdated Rights Management

The current rights management system, dominated by PROs and major labels, is a relic of the pre-digital era. It’s built on estimations and sampling methods that made sense for radio and physical sales but are ill-suited to the precision of digital streaming./ 

Key issues include:

1. Inefficient distribution: A 2019 study by the Berkeley Center for Law & Technology found that up to 25% of royalty payments are “black box” money—unattributed funds that often end up distributed based on market share rather than actual plays.
2. Lack of innovation: PROs have been slow to adopt new technologies that could improve accuracy and speed of payments.
3. Conflicting Interests: PROs often represent both publishers and songwriters, leading to potential conflicts in how royalties are distributed.
4. Global fragmentation: Different countries have different collecting societies, complicating international royalty collection and distribution.

The Promise of Direct Licensing and Blockchain

Emerging technologies and business models offer potential solutions:

1. Direct licensing: Some artists and labels are bypassing traditional PROs to license their music directly to streaming services. This can lead to faster payments and more transparent accounting.
2. Blockchain technology: Several startups are exploring blockchain-based rights management systems that could provide real-time, transparent royalty calculations and distributions.

A 2021 report by Deloitte suggested that blockchain could reduce rights management costs in the music industry by up to 50% and increase the speed of royalty payments by orders of magnitude.

The Way Forward 

To create a fairer, more efficient music ecosystem, several changes are necessary:

1. Modernise PROs: Pressure PROs to adopt more accurate, technology-driven distribution methods based on actual play data rather than estimations.
2. Increase transparency: Demand greater transparency from all parties involved in royalty collection and distribution.
3. Explore direct licensing: Support initiatives that allow for more direct relationships between artists and platforms.
4. Invest in new technologies: Encourage the development and adoption of blockchain and other technologies that can streamline rights management.
5. Educate artists: Promote better understanding among artists about how the royalty system works and where the real inefficiencies lie.
6. Regulatory reform: Push for updates to copyright law and regulations that reflect the realities of the digital music ecosystem.

Conclusion

The narrative that pits streaming services against artists is oversimplified and potentially harmful. While it’s true that many artists struggle to make a living from their music, the root causes are more complex than simply low per-stream rates.

The real challenge lies in modernising an outdated rights management system that was never designed for the digital age. Streaming services, with their precise play data and global reach, could potentially be powerful allies in creating a more equitable music industry.

Instead of sharing misleading comparisons between CD sales and streaming, the music community would be better served by focusing on the systemic issues within rights management and pushing for meaningful reform. This includes demanding more transparency from PROs, supporting innovative technologies like blockchain for rights management, and advocating for regulatory changes that reflect the realities of modern music consumption.

By addressing these core issues, we can work towards a music industry that fairly compensates artists while embracing the global reach and accessibility that streaming provides. The future of music lies not in returning to old models, but in reimagining how we value and compensate creativity in the digital age.

I am continuing to gather data on this topic. If you’re an artist and you would be willing to share your information on royalties for streaming and physical media, please send it to dom[at]id3as.co.uk

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