Where Does All the Money Go? In Music Industry, the Need for Transparency Remains
Where Does All the Money Go? In Music Industry, the Need for Transparency Remains
Where Does All the Money Go? In Music Industry, the Need for Transparency Remains

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    Not long ago, SoundExchange board member and musician David Byrne highlighted a key point that the loudest voices in music policy keep talking around: no one is saying how much money goes where.

    The meatiest part of David Byrne’s piece was about the lack of transparency in the music industry—that in the end, no one knows where all the money goes.

    Oh, sure, people will bring up numbers in isolation—an individual artist will reveal how many individual plays they got, and the check they got for it; Pandora and Spotify will protest at how much money they pay out in total; SoundExchange will talk about how it pays out its splits to labels and to musicians. But pretty much none of these accounts give their numbers in equivalent values. You’ll hear about a per-play value here, an aggregate value there, an average in one place, the pennies or millions of outliers in another.

    To vastly oversimplify, there are typically four stops in a revenue chain. (For more specific details about how particular revenue streams work, see the Future of Music Coalition’s series of charts here.) Consumers pay a service, the service pays labels/publishers, each label/publisher pays its musicians. But each step of this chain is shrouded in some form of obfuscation. Consumers see a sticker price on the service—their $10 or $15 or $20 a month—but revenue also goes into the services from advertising, and services can be cross-subsidized by their parent companies’ other businesses.

    Those services will talk about how much they pay out to rightsholders and musicians in the aggregate, but how much does each rightsholder or each musician get?  How is that money distributed among its recipients? When those payments are down to private negotiations between the digital services and the biggest rightsholders, no one’s telling. And once that money gets to labels and publishers, how does it make its way to the artists? Big labels and publishers have incentives to pay more attention to their biggest stars than to the non-celebrity artists. Even where there are some legal constraints that bar discriminatory payments, all sorts of games can be played with definitions of what constitutes revenue, what counts as a play, and so on.

    And that’s just on the money side of the equation. Who actually owns the rights to different works, who is authorized to license them, and who’s using them can be mystifying as well. Services complain that they don’t know which collective rights organizations license which songs; songwriters often don’t get good accounting of when their songs are played on the radio; and no one wants to share the data they have with anyone else.

    So yes, transparency is sorely needed, and in so many different aspects of the business. It’s one of the few things everyone can agree on. So why is it so lacking?

    The problem is one of incentives. Each intermediary in the process, whether a publisher, label, PRO, radio station, or streaming service, has, or thinks it has, some advantage it can gain from not providing, or not gathering, that data. I suspect sometimes it’s because transparency could make someone look bad, revealing disparate payments that could upset business partners. Other reasons likely include the perception that the data could be monetized somehow, and that others should be paying for that. And some parties might simply balk at the cost of gathering data they’ve never had to gather before.

    Byrne’s piece mentions the Fair Play Fair Pay Act as “cause for hope,” but it’s hard to see why—at least for the transparency problem. The bill does a number of things—in our opinion, some good, some bad—but it doesn’t actually mandate transparency. While it might do lots of other things that could make SoundExchange happy, it doesn’t address the basic failure of people to collect and disclose key information about the market. After all, when we talk about the ideal efficiencies of free markets, we’re making basic assumptions—including level playing fields and, importantly, perfect information. If everyone’s complaining about the lack of transparency and the lack of information, there’s no way anyone can claim we have a healthily functioning market.

    But at least there’s something that the divisive world of music licensing can agree upon—that more information needs to be out there. Next step: seeing who is bold enough to actually propose a transparency plan that applies to themselves as well as their industry frenemies.