Economics of music streaming Contents

Annex 2: Music streaming service models

1)This annex will provide a broad overview of different ways to categorise streaming services to complement the discussions in Chapters 2 and 5.

Consumer pricing strategy

2)The majority of music streaming is accessible in one of two ways: through premium services, whereby users pay a (typically) monthly subscription, or through free services, which are funded by third-party advertising that is targeted to users by processing their personal data.662 Basic premium services, such as Spotify, Apple Music, YouTube Music, Tidal Premium, Deezer Premium and SoundCloud Go+, typically cost £9.99, with student and family plans for £4.99 and £14.99 respectively (though Spotify has recently raised its student, duo and family plan prices to £5.99, £13.99 and £16.99 respectively).663 Some services offer more granular premium tier structures with certain service restrictions (such as limits on track skipping, device registration and catalogue access for cheaper tiers) or extras (like high fidelity sound for more expensive tiers) to supplement the baseline premium offering.664 Free services are typically more basic, with additional frictions for consumers such as audio and display adverts, usage-limits and online-only playback. Moreover, some services, like Spotify, Amazon, SoundCloud and YouTube, offer a ‘freemium’ pricing strategy, providing a hybrid service that incorporates both a basic streaming service (with the frictions described above) free of charge alongside one or more premium services offering additional or enhanced functionality.665

3)Whilst the free, premium and freemium pricing strategies are the most prevalent, some services are innovating either to leverage other services or differentiate themselves from their competitors. Amazon bundle a basic streaming service called Amazon Music Prime with their broader Amazon Prime subscription, which gives users on-demand ad-free music streaming of a limited catalogue of two million songs alongside shopping benefits and a video streaming offering.666 Other platforms offer alternatives to the subscription model altogether. Resonate, a co-operatively run British music streaming service, has developed what it calls a ‘stream2own’ model, where users add credits to their account and pay a fee (starting at 0.002 cents), which doubles for every subsequent stream to a total of nine streams, after which a user will have paid approximately the same price as an Apple download (€1.022) and can then listen for no additional charge.667 A Stoke-based start-up called Sonstream similarly charges micropayments every time a user listens to a song, which means that some users might pay significantly more or less than £9.99 depending on their usage.668 Finally, the BBC, which is currently funded by the licence fee and the commercial income it generates through its subsidiaries BBC Studios, BBC Global News and BBC Studioworks, has also pivoted its own audio-only content to respond to the challenges of music streaming, offering both live and on-demand music, podcasts and speech through its BBC Sounds app.669

Consumer access

4)Most services considered in this Report, such as Spotify, Apple Music, Amazon Music, SoundCloud and Tidal, specialise in offering music consumption, be it through music streaming only or alongside a digital downloads store (as, for instance, in the case of Apple’s integrated iTunes Store). YouTube (and YouTube Premium) exists as an outlier, as music streaming is largely incidental to its broader video-hosting service, despite the fact that it both dominates the music streaming market and offers its own bespoke music streaming service in YouTube Music. However, these services are all similar in that they offer all-you-can-eat streaming services to music consumers in some capacity (either for free or at a premium or both).670 This means that consumers have access to a service’s entire catalogue with little-to-no content restrictions or consumption limits placed upon them.

5)However, after over a decade of music streaming being available, alternatives to the all-you-can-eat model are beginning to emerge. Music streaming services are, for example, complimented by community-oriented services that allow users to consume the creative output of specific creators. Tech companies like Patreon and Bandcamp have allowed artists to create fan communities and monetise this fanbase independently of corporate partners by offering exclusive or early access to creative content, merchandise, and other benefits.671 American artist Cardi B, for example, announced in August 2020 that she would be releasing behind-the-scenes content from her single ‘WAP’ on subscription service OnlyFans.672 Finally, tech companies that offer social media services have also started exploring how they can offer digital music services as well. Major licensing agreements have been reached with social media services like Facebook, Instagram and Snapchat,673 whilst Twitch, a video streaming platform owned by Amazon, and TikTok, the short-form video-sharing app, are reportedly also developing music content strategies.674

Content hosting

6)Most streaming platforms host recorded music that is commercially created and officially licensed from the music industry itself,675 whether this is via record labels, aggregators and distributors or collecting societies (which represent rightsholders when they license music collectively to third parties). However, some platforms permit users to upload content themselves. This user-uploaded content (UUC) can either be user-generated content (UGC), which can be entirely original or incorporate commercially created audio and/or video (where this is permitted),676 or otherwise straightforwardly a copy of commercially created content.677 The distinction between the two models of content hosting is important. Sites that host UUC are exempted from legal liability for copyright infringement (among other things) unless and until they obtain “actual knowledge” of infringing activity, after which they must act expeditiously to remove or to disable access to the information.678 In the European Union, these companies, along with social media companies like Facebook and Twitch where music streaming is incidental to their overall service, will acquire new obligations under the European Union’s Directive on Copyright in the Digital Single Market679 as services that “store and give the public access to a large amount of copyright-protected works or other protected subject matter uploaded by its users, which it organises and promotes for profit-making purposes”;680 the UK Government has stated its intention not to implement the Directive in the near future.681

Types of content

7)Similarly, most music streaming services tend to be audio-only or audio and video. By contrast, companies that primarily offer social media services tend to allow video because music streaming is incidental to their broader service offering. By design, SoundCloud offers audio-only music streaming, whilst Spotify and Apple Music allow users to stream both audio-only tracks and official music videos where available. YouTube’s basic service, by contrast, is video-only (and mobile users can only listen/watch with the app open), though its YouTube Premium service and YouTube Music premium tier allow for background/audio-only playback. This Report predominantly considers the economics of recorded music and music video. However, social media services like Twitch, YouTube and Facebook allow users to ‘livestream’ music performances, where media content is simultaneously recorded and broadcast in real-time. Livestreaming has become increasingly popular in response to the absence of live music due to social distancing and lockdown measures throughout the pandemic, with some artists hosting virtual gigs funded via off-platform ‘ticket’ sales.682 Livestreaming may prompt another long-term change in music consumption as it becomes increasingly accessible and popular.683

Payment model

8)The dominant payment distribution model in the music streaming market is the ‘pro-rata’ system. Will Page, former chief economist at Spotify, explains that the pro-rata system “aggregates all consumption and spend from a country’s subscriber population and distributes royalties to rights holders ‘pro-rata’ to their streams”. Therefore, if one artist’s tracks accounted for a specific share of all subscription streams in that country in that month, that artist would receive that share of all the streaming service’s net distributable revenue from that country.684 Page himself argues that whilst the system “is inherently fair insofar as it produces an efficient and transparent outcome where every stream is worth the same to the rights holder, and the model is relatively cost-efficient to manage”, it does not account for the fact that “no two consumers necessarily value their streams equally—so those who stream more would effectively be subsidised by those who stream less”.685

9)One alternative to this approach is the ‘user-centric’ payments system. Under a user-centric payment system, the revenue generated by each individual user is distributed to rightsholders on the basis of share of that user’s own individual music consumption.686 Artists, songwriters and industry professionals have all expressed support for user-centric payments, or at least expressed an interest in undertaking further research.687 However, record labels provided a more nuanced perspective on user-centric payments. Sony Music described it as “a very difficult conversation” because they have “different artists that favour the two different options” and as such “would be favouring one subset of artists over another”.688 Independent labels, meanwhile, ranged from broad opposition to caveated support: Yvette Griffith of Jazz Re:freshed posited that “user-centric not going to work for the indie sector”, whilst Rupert Skellett of Beggars Group mused that “feels fairer to us philosophically” but was “not sure user-centric is a panacea”.689 During our inquiry, SoundCloud announced that it would introduce a user-centric payments system, albeit limited to independent and emerging artists.690 French streaming service Deezer has previously expressed an interest in similarly introducing user-centric payments across its catalogue.691 The Resonate Co-operative’s ‘stream2own’ model and Sonstream’s pay-per-stream model similarly function on a user-centric basis, as users pay based on their own usage.692

10)Another alternative is the ‘artist growth’ model proposed by the Association of Independent Music. This model values a track’s streams in tiers on a log scale, where the first streams are the most valuable and subsequent streams are tiered as therefore paid incrementally less.693 They argue that this would encourage labels to take greater risks on emerging creators, rather than consolidate around historically successful tracks.

11)Finally, jazz saxophonist, MC and composer Soweto Kinch discussed the potential for artist-centric models of music streaming, whereby artists “could offer something that is more bespoke to a listener, […] some higher-level broadcast quality, WAV files or some other level of interaction” as currently “there is no ability to set your own prices as an artist on streaming platforms”.694 Given the emergence of fan-based communities discussed above, we would be interested to see whether the market could produce and support a viable artist-centric service in future.

662 Dr Nicola Searle (EMS0041); Dr Gary Sinclair (EMS0019); DIUO (EMS0074)

663Spotify to increase prices for families and students”, The Telegraph (27 April 2021)

664 Allison Noble (EMS0115); BBC (EMS0227)

665 Artistas Intérpretes o Ejecutantes, Entidad de Gestión de Derechos de Propiedad Intelectual (AIE) (EMS0133); Incorporated Society of Musicians (EMS0223)

666 Amazon, What is Amazon Music Prime?, accessed 26 March 2021

667 Resonate Co-operative (Resonate (Beyond Streaming) Ltd) (EMS0169)

668 Sonstream Ltd (EMS0154); Q27

669 Music Managers’ Forum and Featured Artists’ Coalition (EMS0128); BBC (EMS0227)

670 DIUO (EMS0074)

671 MIDiA Research (EMS0073); DIUO (EMS0074); Patreon, Inc. (EMS0110)

672 MIDiA Research (EMS0073)

673 Music Managers Forum and Featured Artists Coalition (EMS0128)

674 Will Page (EMS0166)

675 BPI (EMS0208)

677 BPI (EMS0208)

678 SCRIPT (EMS0205)

680 CREATe: UK Copyright and Creative Economy Centre, University of Glasgow (EMS0189)

681 Qq750–2

682 YouTube (EMS0144)

683 MIDiA Research (EMS0073)

684 MIDiA Research (EMS0073)

685 MIDiA Research (EMS0073)

686 Professor David Hesmondhalgh (EMS0143); All Party Parliamentary Jazz Appreciation Group (EMS0161)

687 Qq54–9 [Tom Gray], 161 [Maria Forte], 195 [Fiona Bevan], 535 [Raoul Chatterjee], 590 [Horacio Gutierrez]; All Party Parliamentary Jazz Appreciation Group (EMS0161); Creators’ Rights Alliance (EMS0187); The Ivors Academy of Music Creators (EMS0197); BMG (EMS0207)

688 Q277 [Jason Iley]

689 Qq352–5

692 Sonstream Ltd (EMS0154); Resonate Co-operative (Resonate (Beyond Streaming) Ltd) (EMS0169)

693 Association of Independent Music (EMS0271)

694 Q199

Published: 15 July 2021 Site information    Accessibility statement