25
Feb
15

Who Benefits from Spotify & Co.?

The recently published Ernst & Young study that was commissioned by the French music industry body SNEP highlights the revenue split of a premium subscription of EUR 9.99 Spotify, Deezer and other comparable music streaming services. The study’s results confirm the conclusions drawn in the blog series “Is Streaming the Next Big Thing?” that – beside the music consumers – the (major) record labels are the main beneficiaries of the current boom of music streaming. In contrast, the musicians get just a small piece of the streaming pie and the streaming services for their part have severe problems to establish a sustainable business model. In the following, I would like to highlight and to comment on the main results of the study.

 

 

Who Benefits from Spotify & Co.?

Early in February 2015, Ernst & Young and the French music industry body SNEP presented the core results of a study on the revenue split of a monthly premium music streaming subscription of EUR 9.99 in France among the streaming services, the record labels and artists. Despite the few data that were disseminated to the media, the main conclusions of the study are impressive.

If a French music fan pays EUR 9.99 to Spotify or Deezer for a monthly premium music streaming subscription, EUR 2.08 (20.8 percent) remain for the streaming portal. EUR 1.67 (16.7 percent) go to the tax authority as VAT. The rest of EUR 6.24 (62.5 percent) are channelled to the rights holders. The lion’s share of this amount – 73.1 percent or EUR 4.56 per subscriber every month – is cashed in by the record labels that additionally pay out EUR 0.68 (10.9 percent) to the interpreters. The remaining EUR 1.00 is transferred to the collecting societies to pay the composers and authors as well as the music publishers.

 

Figure 1: The split of a monthly premium subscription of EUR 9.99 of a music streaming service in France

Revenue streams of music streaming subscription

Source: After Music Business Worldwide (http://www.musicbusinessworldwide.com/artists-get-7-of-streaming-cash-labels-take-46/)

 

The above calculation highlights that the labels and especially the major labels with their vast back catalogues are the main beneficiaries of the music streaming business. The interpreters, however, get the smallest slice of the streaming pie, as long as they do not control the master rights of their recordings. The creators (composers & authors) also have to be comfortable with modest payouts that have to be shared with the publishers.

 

If we take 15 million paying subscribers for granted (see a blog post by Mark Mulligan), then the monthly revenue from a premium subscription accounts for US $68,4m for the record labels. We can assume that the three majors cash in 80-90 percent of this amount. According to this calculation, Spotify earns US $31,2m per month and the tax authorities collect US $25.1m as taxes. The numerous composers & authors have to share US $ 15.0m with their publishers and the even more interpreters have to split up US $10.2m among them.

 

Figure 2: The distribution of a monthly Spotify premium subscription of US $9.99 by assuming 15m premium subscribers

Monthly overall revenue split from premium subscription

Source: After Music Business Worldwide (http://www.musicbusinessworldwide.com/artists-get-7-of-streaming-cash-labels-take-46/)

 

The annual revenue in the case of 15m premium subscribers for:

Labels                                                 US $821m

Streaming services                              US $374m

Tax authority                                      US $301m

Composers & authors, publishers      US $180m

Interpreters                                         US $122m

 

These figures can be interpreted as an upper limit of monthly and annual payouts since it is unlikely that all 15m Spotify or Deezer subscribers have a premium account for 9.99 per month – a considerably high number of Spotify and Deezer users may pay less for a monthly subscription. Nevertheless, the calculations highlight the proportions record labels, streaming services and artist benefit from the music streaming revenue.

 

The study also estimates the net profit after tax from a monthly premium subscription for the involved parties. Applying a profit margin of 5 percent, Spotify & Co. earn EUR 0.10 and the record labels EUR 0.26 per month from a premium subscriber. It is, however, highly questionable if the streaming services can generate a 5 percent margin. In any case, the figure explains why even the most successful streaming services such as Spotify and Deezer have problems to gain a profit. The EUR 0.26 for the labels, however, seem to be too low. Such a small profit margin is only plausible for a new release with corresponding production and marketing costs. Since most of the songs streamed are catalogue titles, the marginal costs for the labels are almost zero. Therefore, we can assume a significantly higher profit margin for the (major) record labels.

 

To sum up, the record labels and especially the major companies with their vast catalogues are the main beneficiaries of the expanding music streaming market, whereas the musicians (interpreters as well as composers & authors) hardly benefit from Spotify & Co. The music streaming services for their part are challenged by an unfavourable cost structure that hinders to operate sustainably profitable. However, the true winners of music streaming boom are the music consumers who can select from a seemingly endless ocean of music. They can listen to their preferred music anytime and anywhere, as long as they have access to the Internet. Thus, the music consumers are the biggest beneficiaries of music streaming and, therefore, no way leads back to the “good old times” of CD sales and music downloads

 

 


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s


February 2015
M T W T F S S
« Jan   Mar »
 1
2345678
9101112131415
16171819202122
232425262728  

Archive

Facebook

Twitter

Categories

RSS Music Business Worldwide

Blog Stats

  • 338,298 hits

%d bloggers like this: