Rethinking royalties: alternative payment systems on music streaming platforms

Abstract

Music streaming changed the recorded music industry’s business model from individual product sales to unlimited on-demand access subscriptions. The streaming platforms experienced strong growth during the 2010s and now drive most of the industry’s revenue, up to 90% in the most mature markets. Until recently, the payment system for rights holders had remained unchanged. Many industry stakeholders criticise the system’s alleged unfairness, and artist organisations, independent labels and major labels all propose different ideas to ‘fix’ the music streaming payment system. The current ‘pro-rata’ payment system pools all subscription fees, with each rights holder receiving a payment proportional to their share of the accumulated number of streams. The system does not look to align the individual users’ payments with their actual musical preferences and consumption. Therefore, this paper defines the problem of the current music streaming payment system as its allocation of equal value on all streams. The paper proposes a framework to systematically evaluate alternative payment systems inspired by policy analysis and planning. It additionally contributes with a structured evaluation of six alternative payment systems that rethinks how streams are calculated and remunerated to restore the price discrimination between different listening behaviours. The paper finds that developing a mixture of the alternative systems can likely solve many of the current system’s challenges. Furthermore, the paper analyses and discusses the new payment system changes to be implemented on Deezer and Spotify.