Thoughts on the Living Wage For Musicians Act

Thank you for writing a bill for me and my substack, specifically

PREFACE: I am so allergic to publishing that I’ve had this thing fully drafted for over a month and keep forgetting to hit send. At this point I just need to rid myself of the thing, so what follows is more or less my thoughts circa March 7th, with basically zero research after that point. A cursory google news skim shows no obvious major developments about this in the month since, but who knows, maybe this is all out of date by now lol. But also, I doubt many readers are weird streaming economics freaks, so non-zero chance this is still new-or-new-ish information. Also whatever, it’s a free substack.

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A new bill was just announced last month!! The “Living Wage For Musicians Act”, which was brought up by Rashida Tlaib and Jamaal Bowman. And it throws some big wrenches in the way that streaming royalties work, which, it turns out, is a subject I’m interested in!!!!

How it works

My understanding of the bill’s mechanics is as follows:

• It will charge streaming services a tax of 10% of their non-subscription revenue (like their ad revenue, etc)

• As well as charge streaming subscribers a 50% tax on the price of their subscriptions (which the services will be responsible for collecting)

• The subscriber tax has to be at least $4 and no more than $10

• The services will distribute those taxes to a new fund

• The fund will allow “featured recording artists” to register themselves and their songs with the fund administrator

• And every quarter the fund will distribute 90% of the money raised by those taxes (or other sources; it can get money from anywhere else like other taxes, donations, etc) to those featured artists

• And the remaining 10% of the taxes will go to non-featured artists (specifically examples being like session musicians or backing vocalists) to be distributed via other performing rights organizations like SAG

• Within both buckets (the 90% for featured artists and 10% for non-featured) the money will be split up by the percentage of streams within the quarter that each artist performed on

• But there’s a maximum cap of 1,000,000 streams per artist

• This money will go directly to the registered performing artists, not to labels, rights holders, or songwriters

So! Thoughts!!!! Positives first!

Positives

The bill itself does seem to actually reckon with the most meaningful aspect of getting more money to artists, which is that customers need to pay way more than they do today. I personally don’t see the current problem with streaming royalties being “greedy streamers are taking up too much money,” in that they’re generally doing a 30/70 revenue split with rights holders, and I dunno, 30% seems within the realm of reasonable for, you know, making the app, handling distribution to customers, etc.

Also, the fact that most streamers operate a loss already means practically you can’t get a meaningful amount of additional money out of the streamers without forcing them to either raise prices on customers anyway or go out of business. So the biggest part of this bill being a significant price hike to customers does suggest that like, people are thinking seriously about reality!

I also like the idea of this price hike being a tax! Generally speaking if the government wants to do redistribution I’m more amenable to the idea of that happening via a tax than via an attempt to enforce particular business models or particular ways of contracting between businesses.

I also appreciate the redistributive honesty of imposing a million-stream cap when doing distributions from the new fund. As mentioned in the previous post, I think it’s totally valid to decide that you want explicit redistribution of money away from popular artists and towards smaller artists, and this is a reasonable-seeming way to do that. Particularly because without the stream cap, the this fund would exactly replicate the concerns that people have with the existing pro-rata model: if every stream is worth the same amount and that couples with the fact that popular artists are extraordinarily more popular than the long tail of all other artists, that means that popular artists make way way way more money than everyone else. Having the million stream cap means now that every stream up to a million is worth the same, and every stream above that is worth nothing, leveling the playing field.¹

Neutrals

I don’t have a strong opinion on the idea that this money is earmarked exclusively for recording artists and not for songwriters. I suppose there’s a pro in that this offers a way for performing musicians to get extra money, and maybe performing artists comprise a greater percentage of “working class” musicians², but also a little bit of a bummer that songwriters don’t benefit from this. 

Also, I’m curious where the million-stream cap number comes from? It reads as arbitrary, but who knows, maybe this is based on some analysis that makes it an effective redistribution level. 

Negatives

The vast majority of my negatives are around the messaging and the framing I’ve seen so far. First I saw various posts claiming that this is instituting a new royalty rate of 1 penny per stream which…………. It isn’t? Like that’s just very clearly not how this bill works, unless I’m completely misreading it?????? My assumption is people are saying there’s a penny-per-stream rate because the math works out that if you did it today it would probably end up that the fund would average around a 1¢/stream. But like…. What about next quarter? That entirely depends on how many people subscribe, how much streaming services charge, how much people listen and to who, etc etc. 

Also though, if 1¢/stream were true, that would also mean given the million-stream cap, the absolute maximum payout you could get a musician from this new thing is…. $10,000 a quarter. Which, an extra $40,000 a year is certainly nothing to sneeze at! But you’re not getting rich off that. Also, if the current average per-stream payout is around 0.3¢, then presumably this would mean (if the 1¢/stream thing where true) you would make 4x³⁴ what you make currently (up to that $40k/year max.) Again, I guess this mostly goes to show that the most impactful thing in getting more money to artists, by a huge margin, is just getting customers to pay more money.

Additionally, it infuriates me to see commentators and bill sponsors brushing off this as a small fee for customers. It certainly is small in dollar amounts, and it’s for a discretionary good rather than like, gas or bread, but it’s a 50% price increase!!!!! In what other world do you see something get 50% more expensive and think “oh that’s nothing, who cares”??

I also get a little salty when people say things like “It is unconscionable that in order to buy a cup of coffee, an artist needs someone to stream their song over a thousand times”, or that it’s terrible that a single stream is only worth a fraction of a penny. And I dunno! Things are worth whatever we think they’re worth! How much should one listen of a song be worth?? I don’t think it’s so clearly obvious that 1¢ is the correct amount you should pay per listen and .3¢ isn’t!⁵

Outside of framing though, the other big negative is that consumption taxes generally lead to some level of disincentivizing the activity being taxed. This is a good thing in a lot of cases, like tobacco or alcohol or congestion taxes! But one assumes if this passes there will definitely be at least some people on the margins who used to subscribe at the current prices and cancel when the prices increase by 50%. If this goes well, that churn will be:

1. small enough to not devastate the streaming services or the labels/songwriters who are getting paid under the current system, and

2. be offset for performers by the increased money that goes into this new fund.

The worst case scenario is that this miscalculates, and either causes enough of a decrease in subscriptions to be a net negative for everyone, or enough pricing pressure on streaming services that they need to cut prices aggressively or renegotiate their current revenue splits such that it still ends up a net negative for artists.

And related to the “It’s unconscionable that in order to buy a cup of coffee…” bit, this is what I’m most worried about with any of these new schemes around distributing streaming royalties: is there a fundamental mismatch in what people are willing to pay for music, vs what musicians need to make, vs how music consumption is distributed between artists in the world of the internet? Thinking analogously to local news, it sure seems like people like local news to exist, but aren’t willing to pay enough money to fund it at a level beyond relatively small newsrooms and collectives.⁶ I don’t know if this is the case, but it doesn’t seem implausible that, like with local news, the sum total of all the money that people are willing to pay for music is structurally less than the amount needed to support all the people that want to and “are good enough” to be musicians. Or even that it would be enough to support some number of musicians (making up a number, let’s say 100,000) if everyone agreed we would only listen to those 100,000, but because the internet enables anyone to publish and anyone to listen to anyone who publishes, we’re spreading money for 100,000 musicians across (again making up a number) 2,000,000.

I have no idea if any of those nightmare versions are true! But I sure hope someone smart does!

Questions

EDITOR’S NOTE: in theory I could’ve spent the last month while this was in drafts looking up answers to these questions. But, nope! So here they are same as they were back in March!

My read based on the text is that the 10% tax on non-subscription revenue applies only to non-subscription music streaming revenue, which then would mean that say for Spotify revenue from audiobook sales or podcast ads wouldn’t be counted. Is that correct? I kinda have to assume it is, in that if you think about Youtube, there’s no world in which it could be acceptable for Youtube to have to pay out 10% of all Youtube advertising revenue to musicians, so there must be some mechanism to split music revenue vs non-music revenue?⁷

Related, does Spotify’s marketing revenue from charging music labels for placements or marketing insights or whatever count? I’d imagine it would?

Also, it calls out that the subscription tax applies for bundles as well; how? Is it that there’s an additional 50% charge on the total bundle price, or the computed revenue of just the streamer’s portion of the bundle? Does it change based on whether it’s a bundle between multiple companies (ex: Disney+ and Spotify) or within a company (ex: Apple One, which bundles Apple Music with Apple TV+, iCloud, etc)?

Finally, does the 50% apply to the subscription fee on any particular time period, or is it per whatever the billing period is? For instance, if it’s per billing period and has the $10 maximum cap, you could imagine that leading Spotify etc to aggressively incentivize annual subscriptions, in that:

• Say normally it’s $10 a month and $100 a year

• $10/month + 50% per bill capped at $10 = $10 + $5 = $15/month = $180/year

• Vs $100/year + 50% per bill capped at $10 = $100 + $10 = $110/year

So if you’re Spotify and worried about customers churning from the price increase, you’d really really strongly push them to subscribe annually (which would drastically reduce how much goes into the fund, $60 vs $10 in the example above)

The text seems to suggest this is allowed? It only says there’s an additional charge of 50% of the subscription fee, so nothing seems to prevent this at least?

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Stepping out from the specifics of the bill though, all of this makes me think there is an interesting alternate future one could imagine.

Today when a customer pays for a streaming service, they’re paying for both:

• the service and everything that goes along with it (desktop and mobile apps, discovery algorithms, curation, ability to make playlists and share stuff, etc etc) and

• access to the underlying music.

Today that works by paying the streamer for everything, and then it’s on the streamer to pass the majority (70%) of that back to the music rights holders.

In the world of this bill, even though it’s one transaction, the bill does require splitting out the additional Living Wage Fee as a separate customer line item. It is sort of like you are now:

• paying the streamer for:

  • use of the service and

  • access to the work of songwriters and labels, and

• paying the artists (via the government) for:

  • access to the work of performers.

Not exactly, it still goes through the streamer, but sort of.

And that makes me curious about a world where you truly did pay for those things separately to separate providers. What would the world look like if instead of music rights being a cost that Spotify pays, instead you paid Spotify for the app and rights organizations directly for the music?

There are some precedents for this: I use a third-party app called “MultiViewer” as a way to watch Formula 1, and that requires I log in with my paid F1TV subscription. In that world, I’m paying⁸ the app developer for the app, and the rights holder for access to the content. And in fact in music streaming, I believe there are even third-party Apple Music apps you can download and pay for! Now in both of those cases the “access to content” subscription does still include paying for the service that serves the content (F1TV, Apple Music apps), even if I’m not accessing the content via that service.

But still, it’s not completely out of the realm of possibility for there to be a world where Spotify is truly an app company rather than being mostly a music rights company with an app in front of it. Honestly, if I was Spotify, I’d probably love that, in that it takes the largest cost (70% of all revenue!) right off the balance sheet, it frees it up to be a genuinely high-margin infinitely-repeatable software company, and it removes it as the bad guy in questions of whether artists are underpaid. 

On what seems to me the quite slim chance this bill passes, there’s maybe a world where the Spotifys of the world should be arguing for it to go farther: if the government or a rights organization it nominates is already going to take some of the burden of charging for access to the work of musicians, why not see if it can go all the way?

1. This is separate from whether or not redistribution is the goal you actually want or support; my guess is Taylor Swift probably does not want that.

2. Which my read on the framing from Tlaib and Bowman is that’s part of the goal, though it’s totally just a hunch on my end that more of the “working class” would be performers vs songwriters

3. Adding the 1¢/stream to the current 0.3¢/stream, so 1.3¢/stream being ~4x the current

4. Although here’s another reason the 1¢/stream thing is bad and confusing, is the claim that you will get an additional 1¢/stream from the fund, or that the combination of the fund and your existing royalty payouts will total to 1¢/stream? If the latter, then change the math to 3x I guess.

5. Also, again on the 1¢/stream thing, to buy a $3 cup of coffee, oh now you’d need to be streamed 300 times, that’s sooooooooo much fairer than 1000, yay we’ve solved it 🙄

6. Even the partially hopeful stories like NYC local news blog Hell Gate paint a dire picture, in that a great site dedicated to local news for the most important city in the country (if not world) is able to make enough money for….seven reporters 😬

7. Youtube maybe a bad example since they do have some distinctions between Youtube vs Youtube Music

8. Slightly bad example, the app is free with donations, so I’m “paying” not a fee but more like a tip to the developer