Monday, November 28, 2011

A Pointless Debate

Recently David Touve, an Assistant Professor of Business at Washing & Lee University posted a blog asking “Is a stream on Spotify (or any music service) really worth less than an iTune sale?”

His attempt to show that an iTune sale or a Spotify stream are basically worth the same, in terms of payment to the artist, is arrived at by fuzzy math that assumes a listener will play a song purchased from iTunes 250 times. (Where he gets this number is anyone's guess. A quick look at your iTunes app will show that most songs get played far less.) By prorating the cost of the song by 250 plays, he would have us believe that the price per play is $0.0028, which he believes compares favorably to the urban myth of Spotify's $0.0033 per stream payments.

Spotify has stated many times that it does not pay per play. They don't say what their payments are based on. This allows them to pocket money for themselves and their investment partners (which include the major record labels). TMD has posted several articles on our ITN page about how small labels and Indie artists are pulling their catalogs off of Spotify due to their small payments. Some, like Projekt records, have stated they were being paid much smaller amounts. Projekt stated its payments came out to $0.0013 per stream (they prorated the number themselves, since conveniently, Spotify, doesn't pay by stream).

So Touve's assertion starts with two erroneous numbers: the total number of plays a purchased song will receive, and that Spotify always pays $0.0033 per stream.

When TMD left a comment on Touve's post pointing out these basic errors, he tried to justify his numbers, but claimed he didn't have the information about Spotify's $0.0033 payments handy. Several other comments questioned his assertion that all songs are played 250 times, as most of the these individuals found that number to be highly over stated. In the end Touve tried to side step all of this by stating that in his opinion, regardless of the numbers, his “value debate” of whether a iTunes purchase was equal to a Spotify stream, was a “good debate to be having”.

I couldn’t disagree more.

You can read his post for the details of his argument, but as for his so called “value debate” being a “good debate to be having”, for most musicians this is a arcane and useless debate as any discussion about whether iTunes or Spotify payments are equal ignores the fact that, in truth, both hurt recording artists. Especially Indie musicians. One just takes longer. Furthermore, if, as his twisted numbers attempt to show, the two payments are equal, his argument does less to bolster Spotify than it does to vilify iTunes, bringing it down into the slightly-better-than-pirate muck. As I don't buy Touve's argument I don't believe this is where Apple is. They are slightly better. If they would allow bundled album sales, that would put them near the top of the heap.

Right now physical CDs still outsell digital downloads, and all indicators show that while downloads are growing they are not doing so fast enough to make up for declining CD sales. So for the time being, artists still generate more income from CDs.

Because of this, Indie artists still have to manufacture CDs. Putting aside the costs of producing an album (which are high) let’s just look at the costs of manufacturing the first run of CDs for a new release and the initial marketing that is needed to promote the recording.

As with most products, the more you buy the more you save, and that is true of the cost of manufacturing CDs as well. The first significant price break usually happens when you press at least 2,000 units. Since the cost varies, mostly due to printing, I’ll take the price from my own projects.

Right now I pay $1.50 per disc. This price also includes the six panel 4/4 color booklet, the case wrap and marketing sticker, and the cost, per disc, of shipping the discs to me from the pressing plant.

2,000 CDs $3,000

As we all know, exposure is the name of the game. Streaming sites and online music retailers like to claim they are perfect for that, but the odds of having a listener find your recording out of the millions of songs on these sites is like playing the lottery. The odds are not in your favor. So, as it has been for years, it is still necessary to hire a radio promoter to get your new album heard on the radio. Radio promoters are not cheap.

Radio promoter $4,000

Many people still find new albums through reviews, both print and online, rather than by hearing it. Reviews are also good if some one hears a song and goes to look for reviews before they decide to buy it. Getting your album reviewed is very tough. A PR person is needed to best navigate this obstacle course.

PR person $2,500

Between these two, the artist (or label) will have to “give away” about 500 units of the 2,000 discs that were printed for promotional use. They will be sent to the radio stations and the reviewers your promoters have on their lists. This is money that is not recoupable by selling the CDs, so I’m going to add it to my expenses.

Promotional copies $750

Accompanying these discs will be promotional material. At the very least a Sell Sheet. These have to be professionally printed.

Sell Sheet printing $250

Each of these promo copies will need to be mailed. Postage for each CD runs about $2 and the padded envelope cost about $0.30. I’ll lump these together.

Postage and mailing costs $1,150

So let’s add all this up:
2,000 discs $3,000
Radio promoter $4,000
PR person $2,500
Promotional copies $750
Sell Sheet printing $250
Postage $1,150
TOTAL $11,650

In order to break even, to cover the costs listed above, I would have to sell the following:

1,140 CDs (based on a sale from my website at the net price of $11.20 after disc pressing and mailing costs,)
1,618 CDs (based on sales through a distributor)
19,417 songs downloaded on iTunes (based on $0.60 net)
35,330,303 streams on Spotify (based on the urban myth of $0.0033 per stream)

Remember this does not cover the cost of producing/recording the album, or the costs of supporting yourself while producing the album.

Having been a professional musician for over twenty years, and owning my own small label for over ten, I can say with confidence that selling 1,140 or 1,618 CDs is very doable. Selling 19,417 song downloads on iTunes...well I have not had that pleasure. As for receiving over 35 million streams on Spotify, or any similar streaming site, just to recoup my costs... I don’t need to waste my time thinking about it.

This is why I don’t believe there is any merit to Touve's "value debate" of whether iTunes (individually purchased songs) or Spotify (streams) payments are equal. It is a distraction from the real challenge. The ability of a recording artist to earn a living wage from their music. Neither iTunes or Spotify is going to even begin to generate enough income to recoup the costs of manufacturing a batch of CDs, let alone produce enough income for a Indie artist to live on. Much like thinking about which would take longer, a trip to Saturn or a trip to the farthest star in the neither are even remotely possible, both are just mindless musings.

As a working, Indie, recording artist, I’d rather concern myself with what is possible.


  1. Thanks for disagreeing.

    For what it is worth, I believe the rate—whether for a download or a stream—matters a great deal.

  2. Much like arguing about table scraps when you are starving... Again, neither service will really allow any but the most successful artists to even begin to earn a living wage. Here's my take on it all

  3. I agree with TMD's position, when the amounts are so infinitesimal, the rate that Mr. Touve is arguing so vehemently for is a moot point. And the argument that volume matters is also moot given how low payment is for a download when buyers are dissecting and disemboweling albums and only downloading one song at a time. Artists can not afford to make minimum wage at those rates.

  4. Spotify is a disgrace.
    Sure, if you're a music consumer it's the Holy Grail...
    it amounts to legal piracy...

  5. I totally agree with this assessment. Further proof that its better to go it alone as much as possible is the math you provided: if 500 cd's from the original 2000 are promotional copies, you can't sell enough through a distributor to break even.....