Making Cents

Damon Krukowski of Galaxie 500 and Damon & Naomi breaks down the meager royalties currently being paid out to bands by streaming services and explains what the music business' headlong quest for capital means for artists today.
By Damon Krukowski, November 14, 2012
Pitchfork 

I'm sure each generation of musicians feels they've lived through a time of tremendous change, but the shifts I've witnessed in my relatively short music career-- from morphing formats to dissolving business models-- do seem extraordinary. The first album I made was originally released on LP only, in 1988-- and my next will likely only be pressed on LP again. But in between, the music industry seems to have done everything it could to screw up that simple model of exchange; today it is no longer possible for most of us to earn even a modest wage through our recordings.

Not that I am naively nostalgic for the old days-- we weren't paid for that first album, either. (The record label we were signed to at the time, Rough Trade, declared bankruptcy before cutting us even one royalty check.) But the ways in which musicians are screwed have changed qualitatively, from individualized swindles to systemic ones. And with those changes, a potential end-run around the industry's problems seems less and less possible, even for bands who have managed to hold on to 100% of their rights and royalties, as we have.

"Galaxie 500's 'Tugboat' was played 7,800 times on Pandora in the first quarter of 2012, for which its three songwriters were paid a collective total of 21 cents, or seven cents each."

Consider Pandora and Spotify, the streaming music services that are becoming ever more integrated into our daily listening habits. My BMI royalty check arrived recently, reporting songwriting earnings from the first quarter of 2012, and I was glad to see that our music is being listened to via these services. Galaxie 500's "Tugboat", for example, was played 7,800 times on Pandora that quarter, for which its three songwriters were paid a collective total of 21 cents, or seven cents each. Spotify pays better: For the 5,960 times "Tugboat" was played there, Galaxie 500's songwriters went collectively into triple digits: $1.05 (35 cents each).

To put this into perspective: Since we own our own recordings, by my calculation it would take songwriting royalties for roughly 312,000 plays on Pandora to earn us the profit of one-- one-- LP sale. (On Spotify, one LP is equivalent to 47,680 plays.) 

Or to put it in historical perspective: The "Tugboat" 7" single, Galaxie 500's very first release, cost us $980.22 for 1,000 copies-- including shipping! (Naomi kept the receipts)-- or 98 cents each. I no longer remember what we sold them for, but obviously it was easy to turn at least a couple bucks' profit on each. Which means we earned more from every one of those 7"s we sold than from the song's recent 13,760 plays on Pandora and Spotify. Here's yet another way to look at it: Pressing 1,000 singles in 1988 gave us the earning potential of more than 13 million streams in 2012. (And people say the internet is a bonanza for young bands...)

To be fair, because we are singer-songwriters, and because we own all of our rights, these streaming services end up paying us a second royalty, each for a different reason and each through a different channel. Pandora is considered "non-terrestrial radio," and consequently must pay the musicians who play on the recordings it streams, as well as the songwriters. These musicians' royalties are collected by SoundExchange, a non-profit created by the government when satellite radio came into existence. SoundExchange doesn't break our earnings down by service per song, but it does tell us that last quarter, Pandora paid a total of $64.17 for use of the entire Galaxie 500 catalogue. We have 64 Galaxie 500 recordings registered with them, so that averages neatly to one dollar per track, or another 33 cents for each member of the trio.

"When I started making records, the model of economic exchange was simple; now, it seems closer to financial speculation."

Pandora in fact considers this additional musicians' royalty an extraordinary financial burden, and they are aggressively lobbying for a new law-- it's now a bill before the U.S. Congress-- designed to relieve them of it. You can read all about it in a series of helpful blog posts by Ben Sisario of The New York Times, or if you prefer your propaganda unmediated, you can listen to Pandora founder Tim Westergren's own explanation of the Orwellian Internet Radio Fairness Act.

As for Spotify, since it is not considered radio, either of this world or any other, they have a different additional royalty to pay. Like any non-broadcast use of recordings, they require a license from the rightsholder. They negotiate this individually with each record label, at terms not made public. I'm happy to make ours public, however: It is the going "indie" rate of .005 cents per play. (Actually, when I do the math, that rate seems to truly pay out at .004611 cents-- I hope someone got a bonus for saving the company four ten-thousandths of a cent on each stream!) We didn't negotiate this, exactly; for a band-owned label like ours, it's take it or leave it. We took it, which means for 5,960 plays of "Tugboat", Spotify theoretically owes our record label $29.80.

I say theoretically, because in practice Spotify's .004611 cent rate turns out to have a lot of small, invisible print attached to it. It seems this rate is adjusted for each stream, according to an algorithm (not shared by Spotify, at least not with us) that factors in variables such as frequency of play, the outlet that channeled the play to Spotify, the type of subscription held by the user, and so on. What's more, try as I might through the documents available to us, I cannot get the number of plays Spotify reports to our record label to equal the number of plays reported by the BMI. Bottom line: The payments actually received by our label from Spotify for streams of "Tugboat" in that same quarter, as best I can figure: $9.18.

"Well, that's still not bad," you might say. (I'm not sure who would really say that, but let's presume someone might.) After all, these are immaterial goods-- it costs us nothing to have our music on these services: no pressing, no printing, no shipping, no file space to save a paper receipt for 25 years. All true. But immaterial goods turn out to generate equally immaterial income.

Which gets to the heart of the problem. When I started making records, the model of economic exchange was exceedingly simple: make something, price it for more than it costs to manufacture, and sell it if you can. It was industrial capitalism, on a 7" scale. The model now seems closer to financial speculation. Pandora and Spotify are not selling goods; they are selling access, a piece of the action. Sign on, and we'll all benefit. (I'm struck by the way that even crowd-sourcing mimics this "investment" model of contemporary capitalism: You buy in to what doesn't yet exist.)

But here's the rub: Pandora and Spotify are not earning any income from their services, either. In the first quarter of 2012, Pandora-- the same company that paid Galaxie 500 a total of $1.21 for their use of "Tugboat"-- reported a net loss of more than $20 million dollars. As for Spotify, their latest annual report revealed a loss in 2011 of $56 million.

Leaving aside why these companies are bothering to chisel 10,000ths of a cent from already ridiculously low "royalties," or paying lobbyists to work a bill through Congress that would lower those rates even further-- let's instead ask a question they themselves might consider relevant: Why are they in business at all? 

"Pandora and Spotify are doing nothing for the business of music-- except undermining the simple cottage industry of pressing ideas onto vinyl, and selling them for more than they cost to manufacture."

The answer is capital, which is what Pandora and Spotify have and what they generate. These aren't record companies-- they don't make records, or anything else; apparently not even income. They exist to attract speculative capital. And for those who have a claim to ownership of that capital, they are earning millions-- in 2012, Pandora's executives sold $63 million of personal stock in the company. Or as Spotify's CEO Daniel Ek has put it, "The question of when we'll be profitable actually feels irrelevant. Our focus is all on growth. That is priority one, two, three, four and five."

Growth of the music business? I think not. Daniel Ek means growth of his company, i.e., its capitalization. Which is the closest I can come to understanding the fundamental change I've witnessed in the music industry, from my first LP in 1988 to the one I am working on now. In between, the sale of recorded music has become irrelevant to the dominant business models I have to contend with as a working musician. Indeed, music itself seems to be irrelevant to these businesses-- it is just another form of information, the same as any other that might entice us to click a link or a buy button on a stock exchange.

As businesses, Pandora and Spotify are divorced from music. To me, it's a short logical step to observe that they are doing nothing for the business of music-- except undermining the simple cottage industry of pressing ideas onto vinyl, and selling them for more than they cost to manufacture. I am no Luddite-- I am not smashing iPhones or sabotaging software. In fact, I subscribe to Spotify for $9.99 a month (the equivalent of 680,462 annual plays of "Tugboat") because I love music, and the access it gives me to music of all kinds is incredible.

But I have simply stopped looking to these business models to do anything for me financially as a musician. As for sharing our music without a business model of any kind, that's exactly how I got into this-- we called it punk rock. Which is why we are streaming all of our recordings, completely free, on the Bandcamp sites we set up for Galaxie 500 and Damon & Naomi. Enjoy.

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And it's why Spiderlegs music has always been free to download. Getting your music into more people's hands, hearts and minds is worth more than a few cents for 1000 plays.--jef