What's the Real Value of Streaming Services?

Maybe it goes beyond artist royalties

Lisa Occhino is the founder of the songwriting collaboration website SongwriterLink and the managing editor for Sonicbids. She won first place in the BMI Foundation’s 2012 John Lennon Scholarship, and earned her bachelor’s degree from Berklee in music business/management. Visit lisaocchino.com.

Eavesdrop on a group of musicians talking about streaming, and you’ll probably find that the conversation is primarily about money—specifcally, the paltry sums they’re paid by streaming services (if they’re getting paid at all). It certainly makes sense that this is the crux of the discussion as musicians everywhere try to pick up the pieces of a broken record-business model and build something better. Part of the process, though, is to reexamine the value of streaming services for artists in more comprehensive terms that stretch beyond dollars—or, rather, fractions of pennies as often seems to be the case. Major streaming services like Spotify and Pandora have great potential to help artists turn casual listeners into paying superfans, and they’re finally starting to roll out new platforms and features to make it happen.

Before we dive in, though, it’s important to clarify the difference between noninteractive and interactive streaming services. According to SoundExchange (an independent digital collective management organization), a noninteractive service means that the “user experience mimics a radio broadcast.” In other words, the listener has no control over the specific tracks or artists he or she hears, and the service provides a “pre-programmed or semi-random combination of tracks, the specific selection and order of which remain unknown to the listener (i.e., no pre-published playlist).” This enables services like Pandora and iHeartRadio to avoid direct negotiation of licenses with rights holders in the United States. Since they’re non-interactive services, they can legally operate under a statutory license.

Interactive services, on the other hand, are exactly what they sound like: Users can interact with the service and choose the songs or artists that they want to listen to whenever they want to hear them. Services like Spotify and Apple Music fall into this category. Let’s take a deeper look at the three most discussed players in the streaming game today.

The Major Players

Spotify. With more than 75 million active users—20 million of which are paying subscribers—Spotify is currently the undisputed leader of the interactive streaming pack. Boasting a catalog of 30 million-plus songs, more than 1.5 billion playlists, and availability in 58 markets, the Swedish company has acted as one of the major catalysts for the widespread adoption of streaming as the new standard for music consumption.

cBut being one of the most powerful streaming giants also makes Spotify the easiest target for criticism of the model. Music creators and owners claim that the company doesn’t compensate fairly for their work. Celebrities such as Taylor Swift and Thom Yorke are just two among many who have spoken out against Spotify. In a 2013 interview, Yorke went so far as to call Spotify “the last desperate fart of a dying corpse.”

Apple Music. With digital downloads already going the way of the CD, it was only a matter of time before Apple launched its own streaming service. After its $3 billion acquisition of Beats, it was widely assumed that Apple wanted to use its streaming platform as the foundation for a run at Spotify, according to an Esquire article. With Apple having shuttered the doors of Beats Music in November 2015, it’s clear that the tech company is now fully betting on Apple Music—which has already garnered more than 15 million users—to bring Spotify to its knees.

Between the hundreds of millions of credit cards that Apple has on file for iTunes customers and the fact that all iPhone users automatically got the Apple Music app with the iOS 8.4 upgrade, it would seem that Apple is entering the streaming game with a huge competitive advantage. But as the Esquire article notes, “Android controls over 80 percent of the smartphone market, which is basically the same thing as the music-player market these days, and Apple doesn’t have any ability there to push their new product in the same way.”

Pandora. Launched 16 years ago, Pandora has had ample time to amass its 80 million users. Powered by the Music Genome Project to make listening recommendations, Pandora is arguably the best-known music discovery service—at least in the United States, Australia, and New Zealand. Pandora is currently available only in these three countries.

After acquiring both live events company Ticketfy and a bankrupt Rdio in rapid succession, it’s clear that Pandora is making moves to offer more value to artists and advertisers alike while keeping the competition on their toes.

Streaming: Helping or Hurting the Industry?

For every person who argues that streaming, if done right, will save the music industry, someone else is shouting that streaming will be the death of it. There’s no denying that it’s a game-changer in the best way for music consumers, but is streaming ultimately helping or hurting the people who create the music?

“Streaming certainly doesn’t seem fair, but that’s because it’s only a tiny sliver of the complicated economics of the music industry,” explains writer Kelsey McKinney in an article for Vox. com. “[Taylor] Swift and other artists frame streaming as a horrible thing for musicians and artists, but by doing so, they frame the argument in a way that ignores the enormous monetary potential streaming holds for artists—and the role labels play in the whole mess.”

Spotify founder Daniel Ek echoed this sentiment in his response to Taylor Swift, who famously pulled her catalog from the service: “When I hear stories about artists and songwriters who say they’ve seen little or no money from streaming and are naturally angry and frustrated, I’m really frustrated too,” he says. “The music industry is changing—and we’re proud of our part in that change—but lots of problems that have plagued the industry since its inception continue to exist. As I said, we’ve already paid more than $2 billion in royalties to the music industry and if that money is not flowing to the creative community in a timely and transparent way, that’s a big problem.”

Even though companies like Spotify pay out about 70 percent of their total revenue to rights holders, that money has to trickle down through labels, publishers, and distributors before artists get the tiny piece of the pie that remains. Complicating things further, payouts are based on a percentage of total revenue rather than a fixed “per play” rate. (Spotify cites a number of moving variables such as country, percentage of paid users, and artists’ royalty rates as the reasoning behind its royalty formula. It also views per-stream metrics as a “highly flawed indication of our value to artists.”)

It’s clear that some sort of disruption is needed in which the industry as a whole will reexamine how to value music in the 21st century, and how to fairly divide the money among artists, labels, publishers, performing rights organizations, distributors, and everyone else who needs to get paid. But, as McKinney points out, this kind of music industry overhaul “could take years and would require at least some governmental intervention.”

Streaming Services' Real Value for Artists

Artists may not be able to make a living wage directly from streaming services as a primary and reliable source of revenue anytime soon, but there’s one huge benefit of tech companies running the music industry that most artists don’t appear to be acknowledging: They’re REALLY good at data.

“Whereas Pandora may not be able to offer as much to artists in pure dollar terms, what it can do is value-in-kind, which is data,” says Mark Mulligan, co-founder of MiDiA Research, in an interview for an NPR online article.

The robust analytics that some of the major streaming services have started to offer could be invaluable for strategizing on other revenue streams, such as where to tour, which bands to play shows with, who your audience is, how to distribute your music most effectively, and more.

Spotify Fan Insights

One of the first to offer fan analytics was Spotify. In late 2013, Spotify teamed up with Next Big Sound to “allow artists and managers to view enormous amounts of Spotify’s data relating to their music,” according to a blog post written by the Spotify Artist Services team. Not only can artists track listening activity on Spotify to inform their touring and promotional decisions, but, as Billboard points out, “The real value comes from the contextual insight of crossing listening patterns with the other sources of data Next Big Sound has to offer, which includes analytics from Facebook, Twitter, Wikipedia traffic, and a whole slew of other data streams.”

In another effort to show that it wants to help artists (and, of course, to benefit the company itself), Spotify acquired music intelligence and data platform the Echo Nest in March 2014, further strengthening the power and capabilities of its fan analytics. In addition to Spotify, the Echo Nest counts Vevo, Twitter, MTV, EMI, and more among its customers.

In November 2015, Spotify rolled out a limited beta of Fan Insights, a dashboard that intends to help artists better understand their fan demographics, how their audience is growing and evolving over time, fan listening habits and preferences, and the level of fan engagement and passion. With this move, it seems that Spotify is targeting up-and-coming musicians that have limited data on their fans and are looking to expand their careers. Whereas superstars like Taylor Swift can do just fine without analytics from Spotify, emerging artists and bands looking to book their frst tours, for instance, would be much more likely to depend on the free Spotify Fan Insights to make important business decisions. With so many data points and such an engaged user base, Spotify is poised to beat the competition from sites like SoundCloud and YouTube, which also offer analytics.

Pandora AMP

Presumably as a response to the launch of Spotify Artists, Pandora unveiled its Artist Marketing Platform (AMP, for short) in October 2014 to provide artists with the insights, tools, and resources they need to grow their careers.

“With AMP, we hope to make the day in and day out easier for artists by eliminating the guesswork,” explains founder Tim Westergren in a blog post announcing the new platform. “From fnding out what songs are performing well to inform singles or set lists, to mapping where an artist’s fan base is to inform tour schedules, our ultimate goal is to help artists across the spectrum build and maintain their careers.”

According to Pandora’s press release, more than 80 percent of its artists don’t receive any terrestrial radio airplay, so gaining insights on Pandora’s large audience “has important implications not only for established acts but also for the tens of thousands of working musicians who have never enjoyed the support of broadcast radio.”

Less than a year after the launch of AMP, Pandora made an even bigger jab at Spotify when it acquired Next Big Sound in an effort to “complement AMP and provide additional analysis on the listening activities and feedback—the Pandora thumbs—of 80 million monthly active users,” as explained by Glenn Peoples in his Billboard coverage of the acquisition.

“Pandora also plans to use Next Big Sound to help brands choose artists with which to partner and analyze the results,” says Peoples.

As of this writing, Apple Music has not yet provided a platform for artists to access fan analytics. But Apple acquired U.K.- based music analytics frm Musicmetric (along with its parent company, Semetric) in January 2015, and while Apple, per usual, declined to comment on the acquisition, it seems likely that it’s laying the foundation for integrating a fan insights platform with Apple Music sooner or later. At this rate, it will have to if it wants to keep up with the competition.

Are Fan Analytics Enough?

While providing analytics is a great start, the general consensus seems to be that if streaming services truly want to get in the good graces of artists, they will need to do more than just make their data available. Specifically, they will need to play a bigger role in helping artists turn casual fans into superfans, as well as monetize their work through other avenues. They could offer links to artists’ websites for direct music and merch sales, or encourage listeners to buy tickets to an upcoming performance in their city.

“[AMP is] not suddenly going to transform Pandora into a darling of artists and songwriters,” Mulligan warns. However, with its acquisition of Ticketfy, Pandora seems to be at least working towards that path of forming deeper connections between musicians and their fans.

“I hope [Pandora AMP] is part one,” says Mike King, an instructor at Berklee Online and author of Music Marketing: Press, Promotion, Distribution, and Retail, in an interview with NPR. “I really hope there’s part two, where [Pandora says] ‘Let’s monetize this, or let’s give these fans the option to optin to your e-mail list,’ which is something a bit deeper.”

Ultimately, it’s important to keep in mind that it doesn’t matter how rich the fan analytics are unless the artists actually understand the value of this data , and how to transform it into actionable information that can help grow their careers. While no one should hold his breath for the streaming royalty mess to get resolved anytime soon, what artists can do right now is fully explore the increasingly powerful tools and resources available to make more informed career decisions