January 31, 2023

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Music Spending Hits New Highs, DSPs Need to Catch Up (Guest Post)

5 min read

Milna Lewis is the co-founder and CEO of distribution and payment platform Stem.

Just before the holidays, a favorite complaint of multinational media companies resurfaced: 30% App Store adoption is too high. It’s interesting to see multi-billion-dollar companies cast themselves as underdogs in the fight against the almighty Apple, but if DSPs want to complain about platform fees, they need to look in the mirror. They charge a cut of over 30% to rights holders who stream content on their platform. Just as Apple’s fees hit DSPs’ bottom lines, DSPs’ cuts hit the bottom line for artists, songwriters, producers and collaborators.

We are all in this business together. If the music industry is going to thrive in the long term, we need to look out for each other, end this endless loop of finger-pointing, and do something to make our ecosystem better for everyone.

As I reflect on the past year, I am hopeful that the time is right for change. DSPs can take a small percentage of streaming revenue and share a larger piece of the pie with artists. The best course of action for DSPs for artists is to increase their fees to subscribers, which some have. But not by a small symbolic amount – by a percentage that will meaningfully affect artists’ ability to turn their music into a sustainable business.

This is not only an ethical matter: it is also a sustainable business strategy. I founded Stem because I wanted to give artists what they needed to realize their own worth. So far, the fight for artists has been a winning bet. As a distribution and payment platform, we’ve always had success helping content creators get paid. Today, there is a lot of evidence that listeners want To open their wallets to support artists.

The industry is in a very different place than it was when Napster and Limeware profits crashed. A former senior Apple executive told me a story that illustrates how things were different back then. Maybe it wasn’t exactly like this, but he told me that when the iTunes Store first launched, labels offered an impossibly complicated structure for pricing songs. Steve Jobs wanted simplicity. He shrugged, “99 cents per song sounds about right,” and with Apple’s market leverage, it was done.

But the music business is no longer clutching at straws like we were when Jobs pulled that number out of thin air. We have a lot of data that shows fans are willing to connect with the artists they love and spend money on music.

Let’s take a look at some of the biggest stories of the past two years. In 2021, fans paid more than $86 million for music NFTs, showing that they are willing to take risks for completely new (and unproven) music products. The first half of 2022 was record-breakingly profitable for live music. The average total of live events, average tickets sold per show and average ticket price are all above where they were in 2019, where they were last year before the pandemic. Vinyl sales up 22% in first half of 2022

Not everyone is benefiting equally from these trends, but it’s still clear that we’re not in 2003, 2008 or 2013: the challenge now is to ensure that profits from music actually reach artists. But that’s hard to do when DSPs act like fans who primarily consume music – refusing to pay to listen to recorded music. It’s as if auto industry experts advised Ford, “You have to make your money selling Ford-brand trucker hats, because you can only charge the materials for the truck.”

The cut that DSPs take from rights holders and labels from artists is the worst. I’m all for fair compensation, but that’s not possible when the charges are so opaque. Each DSP deducts promotion, fees and customer acquisition costs from the money it pays artists through licensing fees; They tell us there is no other way streaming works. But streaming should be a reliable way for artists to earn a living, which cannot be the case if streaming income is eaten up by fees.

The time is right for artists to experiment with ways to get more money. Several services have raised subscription prices, including Apple Music and Deezer, and Spotify is said to be “considering” it. As the world’s largest paid music-subscription service, a Spotify price increase would not only be a bold statement, it would send the message that artists deserve a better living from music.

The music industry needs to embrace optimism: Streaming revenue may be down, but it won’t stop growing in the near future. We need to stop thinking, “Can music be profitable?” And start asking, “How do we manage these gains?” DSPs pushing back on Apple’s 30% cut means we’re ready to ask these questions.

At Stem, we have first-hand experience with the barriers that are preventing artists and labels from asking DSPs for better deals. Managing revenue is more difficult than in any other digital industry, making it difficult for artists to know their own worth. On November 14, we introduced a new royalty platform and made it available to everyone — even to labels that don’t distribute with us. This platform will put artists and labels on the same page, clearly understanding the value they bring to the table, so they can speak up for themselves and claim what they’re worth.

When the music business faces its next industry-disrupting moment, my guess is it won’t be anything like a repeat of the revenue crunch. I think it will come from a completely different direction: the artists. Labels are fighting for opportunities to work with talent, while artists are finding they have more options than ever before. Artists are already working with multiple labels and distributors and are shopping for partners every time they have a new project. They are going to weigh the offers against each other to secure the best financial support and marketing commitments.

When artists and labels are able to easily access the data that proves their value, they will be in the same strategic position that DSPs are in now. They won’t have to accept bad deals because they will be armed with financial information that puts them in a stronger negotiating position.

Eight years ago, I started a new company because I believe in fans wanted To support artists and music professionals who support them. Today, I don’t just believe it – I have the facts to prove it. And now, artists and labels may have the data to prove it. DSPs will have to respond to the rising cost of music by raising fees for subscribers and allowing more artists to turn their music into their business.

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