Report: Artists Look For a Better Streaming Deals From Labels

Where's All The Money?

While streaming revenue continues to live down to expectations, musicians are starting to cast a more jaundiced eye at how labels are divvying up payments. The WALL STREET JOURNAL reports that record labels have routinely been applying the artists existing royalty rates to streaming, but that some artists have been demanding up to 50% because streaming costs are lower than traditional retail and even online downloads.

While several independent labels have offered a 50-50 split on streaming to all their artists, one indie, BEGGARS GROUP, stopped using that rate because it was too costly.

As the fastest-growing revenue source in the global music industry, subscription music services generated $1.1 billion last year for record companies, up from $734 million the year before, according to the INTERNATIONAL FEDERATION OF THE PHONOGRAPHIC INDUSTRY. Yet some streaming-service executives complain that big record companies demand advances far in excess of what they are likely to earn from actual royalties pegged to usage. While the most successful streaming services can turn down such advances, smaller start-ups are willing to fork over the money to secure rights to music their bigger competitors already have.

The overpayments lead to what's known as "breakage." The industry is shifting toward sharing more of such breakage, which has been amounting to tens of millions of dollars a year -- but no one seems to agree on how that money should be shared. UNIVERSAL MUSIC GROUP used to simply pocket the breakage, but the company's current leadership intends to share breakage more evenly with artists, part of an effort to lure talent. WARNER MUSIC and SONY MUSIC ENTERTAINMENt have typically divvied up breakage among their artists for at least the past five years, though they keep the same slice of each artist's breakage as they do of the artist's record sales.

Meanwhile, testifying in CONGRESS during a music licensing hearing, indie label co-founder DARIUS VAN ARMAN noted that indies were "set to receive $1 million in breakage from two licensing deals. In one deal, he said, the breakage was more than half of what was earned in royalties, and in the second deal, the breakage was almost five times what was earned."

More than 700 independent labels have pledged to share breakage from digital services with their artists through the WORLDWIDE INDEPENDENT NETWORK trade group. The problem is that keeping track of micropayments is complicated, and there is little accountability. Some artists still complain they have never seen digital breakage show up on their income statements -- and when breakage is itemized on income statements, there is no detail about which service supplied the funding.

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