As an addendum to the Last.fm story today, what are the actual royalty rates we’re talking here? They’re not much – precisely the reason musicians will have to get broadcast-style play counts to ever see anything worth counting. For instance, Last.fm makes the comparison with the BBC in the Wired story. The BBC has more hegemony than even a giant US ClearChannel radio station, and I suspect it’d be virtually impossible for an unsigned artist to see that number of plays.

How little? Try $0.0005 per play, as Steve of sighup writes in comments. (I think that’s just radio plays; assuming you get both radio and on-demand plays, you should do a little better – but, still, you might be better off with your CD sales out of your guitar case.) Keep in mind, that’s on top of other revenue, like performance royalties from ASCAP, BMI, and such, but it’s still not much.

Low as that may sound, it’s in the same ballpark as traditional webcasting rates. Prior to the big shake-up over Copyright Royalty Board rates here in the US, its rate was US$0.0008. And that’s only in the US, whereas Last.fm is international – and some of that goes to SoundExchange, and some goes to your label, and … you get the picture.

The CRB and record industry did successfully pass higher rates, up to $0.001 (okay, still not putting your kids through college). Those rates caused an uproar from webcasters, but they were also initially associated with punishing minimum fees, which depending on the definition of what a “channel” is could have driven millions of dollars in fees for some webcasters. Those requirements, not the relatively tiny per-song rate, were what concerned artists and writers, because the new rules threatened to take away important channels for getting their music out there and driving sales to more lucrative enterprises like CD and concert sales.

As it happens, that debate continues as we speak. In the June 5 RAINcast (Radio and Internet Newsletter), Paul Maloney points to reports that Pandora’s chief executive is personally lobbying against these rules, because they’d suck up 70% of that services revenue, for a total US$18 million in royalties. You can do the math: that’s enough to bury Pandora, but not enough so that you’d ever see any of the change. Everyone loses. RAIN also notes that SoundExchange hasn’t actually been enforcing its new rates, so we haven’t yet seen what happens to Internet broadcasting with the new rules – even though they were ratified last summer.

So, Last.fm’s rates, while small, go straight to the artist, they’re transparent, and they’re in the ballpark of webcasting fees in the past. Since they’re set by Last.fm, we can assume CBS isn’t destroying its own business, either. And keeping things in perspective, this is really about Last.fm, not the entire universe of music. That’s the good news. The bad news is, they’re so impossibly small that for most people, it won’t really matter. And, yes, if Last.fm’s main business model is advertising, you have to wonder if artists won’t be more successful directly selling ads. Even Google AdSense could wind up being better for the artist, partly because it’s unclear how much ad exposure Last.fm can cram into its service. In the long run, my guess is you’ll see all of these – given the amount of ad inventory out there, and the rising consumption of music, and new ways of consuming music, I don’t think this is a zero sum game.

But the bottom line: cool as the Last.fm announcement is, even I’ll quickly admit that royalty rates in general are unlikely to make or break most artists’ lives. The real business is elsewhere, at least for now. If Last.fm can massively expand the number of listens, though, the whole game could change – and that means even that fraction of a penny could wind up being an important precedent. Stay tuned.

  • http://www.sighup.ca Steve

    Thanks for the extra info, Peter. Interesting, and certainly something to think about further.

  • http://alonetone.com sudara

    Thanks for the good set of articles, Peter.

    At $0.0005 per play and a $10 minimum before payout, an artist would have to reach 20,000 plays before they see a cent.

    One would have to be pretty darn popular to get a monthly twelve-pack of beer out of the deal. Not exactly livable – even if this was the standard across all music sites and you had a nicely sized fan base.

    All that this announcement does for me is highlight and solidify the (lack of) value that industry places on a piece of music. $0.0005 to the artist is pretty darn close to nothing. Even sending the actual mp3 file over the intertubes (for example, with Amazon s3) generally costs more than this. It is a novelty amount of money. It seems to exist solely so that they can claim they are 'paying independent artists' when in fact they will rake in big advertising dollars on their long-tail artists and at worst will pay out a bit of small change to the small group of artists who manage to make it over the minimum of 20,000 plays.

  • http://www.createdigitalmusic.com Peter Kirn

    Yeah, that's true, I agree — but the flipside is, the revenue from advertising in an audio stream is likewise limited, because we don't have audio ads, we have banner ads alongside a feed. So the majority of ad revenue doesn't necessarily even come from the music. For instance, I use last.fm all the time, but spend relatively little time using it to listen to music; I'll click through for artist info. They're not playing the music at all in that case, so it's not necessarily a predatory situation (though if I were the artist, I'd want an incentive for people to come to my site instead).

    So I don't know that it's necessarily that CBS and Last.fm think the music lacks value. On the contrary, I think they'd really *love* it if you listened to a stream and went and bought the album through them — hence the prominent links to Amazon, iTunes. They're going to make more money that way. So in the ideal world, you figure artists and sites like this actually have some common interested in better monetizing it.

    But I agree — this royalty business is nowhere near the scale yet where it's going to matter to artists. Now, if streaming does explode in size, on the other hand, to the point where 20,000 plays is *small*, then the game changes.

  • http://www.myspace.com/ohtravioso Oh Travioso

    I'm taking a short business course, and Tim from Pandora came to speak and talked about the royalty rates destroying the Pandora business model. They seem to have a pretty vocal following, so I hope they're able to successfully lobby a change.

  • http://evolvingmusic.wordpress.com Gavroche

    Sudara — I agree with you that the industry doesn't place a lot of value on music, especially streamed digi music. But this isn't really a big surprise to me. IMO, artists should not expect to make money from their songs streaming online; this is the easiest way to expose your music to millions of people and it is probably the best/quickest/easiest promo method you can do. Then, when somebody wants to download your song, they pay for it. Thats where the $ comes in, I think. But, we're experiencing a time when people aren't paying to download, for whatever reason. So I think the music model needs to be rethought so that certain value adds give the consumer a reason to buy the song.

    doesn't You can do the math: that’s enough to bury Pandora, but not enough so that you’d ever see any of the change. Everyone loses.

  • http://evolvingmusic.wordpress.com Gavroche

    Oops, clicked submit too soon.

    The math is correct — Pandora shouldn't be charged these crazy rates as this would kill their business, as well as most music discovery startups. Music discovery sites are KEY to revitalizing the music industry and are a big way that people discover new music. They are doing a great public service, and so royalties that cripple their operations should't be imposed. This would go AGAINST the purpose of copyright law to promote the creation and distribution of arts for the public. Especially since the artists aren't really making anything from these digi royalties.

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  • pinche mike

    The industry will tend to value music according to how much… value it has. Internet ads tend to follow Google's model and be pay-per-click – I don't know if this is how Last.fm does it, but if so, recognize that there are only probabilities associated with how much revenue, for example, 20,000 plays will generate for Last.fm. Per 20,000 plays, Last.fm is paying $10 to the artist.

    Unfortunately (I am an artist trying to generate interest on Last.fm), this is probably what the music is worth in this form; I don't believe it is being undervalued, and if it is, over time the rate will be bid up.

    Please search for Didactic on Last.fm and give my electronic music a listen.

  • http://www.girlsgoindian.com Ameatabh Bachan

    The problem with last.fm is that they do not report royalties earned. Their site will say 100k plays for an artist, but the royalties often will still read zero. I hear this complaint from A LOT of artists. They are not actually paying anything out – it's sad. They may have fine print for which plays count and which don't. Last.fm should be shut down.

  • Just Thinking

    Going fwd if one can always stream the song (from Last.fm or Pandora or …), why would one ever download/buy it ?

    In that case how do Musicians survive ?