Why would artists favor free streaming?

Abstract

While streaming services are becoming the dominant way to consume recorded music, professional musicians remain divided in their opinion toward streaming, especially toward free (ad-supported) services that generate very low royalties. This paper is one of the first attempts to analyze empirically the drivers of the artists’ opinion on free streaming. Using survey data from more than 1100 French professional musicians, we emphasize that beyond their individual preferences, four main determinants affect the opinion of artists on free streaming: (1) Free streaming stands as a discovery tool that helps consumers to explore the music catalogue beyond stars and already well-known artists; (2) free streaming generates a positive externality on the live music market; (3) the contractual situation of the artist also matters, since the biggest recording companies obtain much more favorable conditions in revenue sharing from streaming services; (4) the opinion of artists is also shaped by the consumption habits of their fans.

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Fig. 1

Notes

  1. 1.

    https://www.riaa.com/wp-content/uploads/2018/09/RIAA-Mid-Year-2018-Revenue-Report.pdf (retrieved November 13, 2018).

  2. 2.

    http://www.snepmusique.com/wp-content/uploads/2018/09/Bilan-march%C3%A9-musique-enregistr%C3%A9e-1er-semestre-2018.pdf (retrieved November 13, 2018).

  3. 3.

    https://www.billboard.com/articles/business/8465986/germany-music-streaming-cds-market-share-bvmi-2018-report (retrieved November 22, 2018).

  4. 4.

    https://www.bpi.co.uk/news-analysis/fastest-growth-in-uk-record-label-income-since-britpop/ (retrieved November 22, 2018).

  5. 5.

    https://www.theguardian.com/music/2014/nov/04/taylor-swift-spotify-streaming-album-sales-snub (retrieved October 25, 2017).

  6. 6.

    https://www.musiciansunion.org.uk/Files/Reports/Campaigns/Report-on-Joint-FIM-AFM-International-Conference-o.aspx.

  7. 7.

    https://www.prsformusic.com/what-we-do/protecting-music/our-perspective-on-streaming.

  8. 8.

    https://www.sec.gov/Archives/edgar/data/1639920/000119312518063434/d494294df1.htmn#rom49429412 (retrieved March 5, 2018).

  9. 9.

    The “safe harbour provisions” is a legislation created to prevent Internet service providers being blamed for copyright infringement undertaken by their users as long as they accept to remove infringing works quickly after being notified of such infringement (Liebowitz 2018).

  10. 10.

    https://musicindustryblog.wordpress.com/2018/08/28/state-of-the-youtube-music-economy-2-0-a-turning-point-for-all-parties/.

  11. 11.

    See Belleflamme (2016) for a progress report.

  12. 12.

    The removal of Warner Music content from YouTube in January 2009, and its restoration in October 2009.

  13. 13.

    In 2009, virtually all official music videos were blocked from YouTube due to a legal dispute. The situation remained largely unchanged until the dedicated platform VEVO entered the market in 2013, making videos of a large number of artists available over night.

  14. 14.

    Free streaming may stimulate piracy and sales for lighter music listeners, while the most intensive music listeners could subscribe to premium streaming and thus give up on piracy and purchases. In that case, free streaming complements sales and piracy at the individual level, but in the aggregate, the decrease in sales and piracy from intensive listeners may outweigh the increase from lighter music listeners.

  15. 15.

    https://www.wired.com/2014/11/one-band-who-loves-spotify/ (retrieved March 5, 2018).

  16. 16.

    https://www.theverge.com/2015/5/19/8621581/sony-music-spotify-contract (retrieved October 25, 2017).

  17. 17.

    Although considered as very low by right holders (see Sect. 1), the revenue per stream yielded from free streaming is probably about ten times larger than the revenue per listener drawn from radio broadcast. In France, in 2017, the average number of listeners per song broadcasted on the radio amounted to 67,057 (source: https://www.cnv.fr/sites/cnv.fr/files/documents/PDF/ Ressource/Obs %20eco/DMR_2017_livret_2.pdf). Furthermore, according to the Adami, an artist earns 100 euros each time her music is broadcasted 14 times on radio (hence, 200 euros for the music label and the artist since revenues from radio are equally shared between both of them). Thus, a back-of-the-envelope calculation shows that 938,805 radio listeners are needed to generate 200 euros for right holders, which amounts to €0.0002 per listening.

  18. 18.

    “The Group has certain arrangements whereby royalty costs are paid in advance or are subject to minimum guaranteed amounts. An accrual is established when actual royalty costs to be incurred during a contractual year fall short of the advance payments or the minimum guaranteed amounts. The Group also has certain royalty arrangements where it would have to make additional payments if the royalty rates were below those paid to other similar licensors (most favoured nation clauses). An accrual is recognised when it is probable that the Group will make additional royalty payments under these terms.”

  19. 19.

    https://www.musicbusinessworldwide.com/global-market-shares-2016-sony-and-warner-gain-on-universal-as-indies-rule/ (retrieved October 25, 2017).

  20. 20.

    We checked that our sample is representative of the whole populations of musicians belonging to the Adami. We also checked that the way the questionnaire has been answered (paper vs. online) has no impact on our results.

  21. 21.

    The negative impact of the length of the career on the opinion on free streaming might also pertain to a strategic effect. Incumbents, and in particular star artists, could view newcomers as potential competition. They thus may have a negative opinion on free streaming, because streaming allows newcomers to improve their notoriety and increase their audience. Unfortunately, we do not have any variable in our data set that would allow us to test for the existence of this strategic effect. It could be partially captured, though, with the variables NOCONTRACT and MUSREV. They indeed allow to distinguish incumbents (who have a contract with a record company or who make their living from music) from low-audience artists that could benefit from new promotion tools such as free streaming.

  22. 22.

    Using simultaneously the age and the length of the career generates a collinearity issue. We, however, checked that using the former instead of the latter does not change our results. We checked that there are no other collinearity issues among our interest variables (VIFs never exceed 2.00).

  23. 23.

    We also test a configuration in which we split the variable CAREER in four dummies: “10 years or less,” “11 to 20 years,” “21 to 30 years” and “more than 30 years.” Only the two last categories turn out to be significantly different from the first one (taken as the reference). This highlights that the negative impact of the length of the career on free streaming is driven by the artists who already spent more than 20 years in the music business. (The estimation results are available upon request from the authors.)

  24. 24.

    The variable STAGE is only weakly significant at 10% in the simple probit model (p = 0.107).

  25. 25.

    We could expect this effect to be less salient for artists under contract with a major label, since those artists are supposed to already benefit from large promotional efforts (including marketing expenses, radio airplay, etc.). This hypothesis can be tested through the inclusion of an interaction term: MAJOR*STAGE. However, our data do not allow us to give support to this conjecture since this interaction term turns out to be insignificant.

  26. 26.

    The positive and significant coefficients for NOCONTRACT give also support to hypothesis 1. Artists not under contract are also supposed to look for an audience expansion and worry less on recorded music revenues.

  27. 27.

    An alternative explanation could be that musicians on major labels are not unfavorable to free streaming merely because their revenues are already “secured.” Although our data set does not make it possible to test for this conjecture, we would expect the artists under contract with a major label to be rather indifferent to free streaming rather than strongly favorable. Yet, 15% of artists from majors declare to be “very favorable” to free streaming, while this is the case for only 6% of the artists under contract with an independent label and for only 9% of the artists who do not hold any contract.

  28. 28.

    Distinguishing electro-musicians from urban music artists with two dummies instead of one shows that the positive impact on the opinion on free streaming does exist for both categories with a similar magnitude.

  29. 29.

    For each combination, the latent variable, y*, is calculated from the coefficients of regression (2) shown in Table 5. If y* ≤ cut1, then y = 0 (very unfavorable), if cut1 < y* ≤ cut2, then y = 1 (rather unfavorable), if cut2 < y* ≤ cut3, then y = 2 (rather favorable), and finally, if y* > cut3, then y = 3 (very favorable).

  30. 30.

    The growth of the revenues generated by live music performances is estimated from the revenues generated by the tax of 3.5% collected on each live music performance organized in France. See: https://www.cnv.fr/.

  31. 31.

    An alternative would be to rerun our basic regression with only those individuals whose opinion toward pay streaming is positive (which is the case for 70% of the artists). The results, available upon request, show that there is no significant difference with the results obtained on the whole sample.

  32. 32.

    We also test a configuration in which AVAILABLE includes the presence on YouTube. The results remain unchanged.

  33. 33.

    Of course, a strong underlying assumption in these counterfactual scenarios is that the opinion of an artist in N years will be the same than an artist who is currently N years more advanced in her career.

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Funding

This study was funded by Labex ICCA and by the French National Agency for Research (# ANR-09-CORD-018).

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Correspondence to Francois Moreau.

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Appendix

Appendix

See Tables 7, 8, 9 and 10.

Table 10 Definition of the three counterfactual scenarios

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Aly-Tovar, R., Bacache-Beauvallet, M., Bourreau, M. et al. Why would artists favor free streaming?. J Cult Econ 44, 255–280 (2020). https://doi.org/10.1007/s10824-019-09358-z

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Keywords

  • Streaming
  • Recorded music industry
  • Digitization