It’s About Damn Time: Music Spending Is Hitting New Highs and DSPs Need To Catch Up (Guest Post)

Milana Rabkin Lewis
Patrick Strattner for Stem

Milana Lewis is the co-founder and CEO of the distribution and payments platform Stem.

Just before the holidays, multinational media companies’ favorite complaint resurfaced: The App Store’s 30% take is too high. It’s interesting to see multi-billion-dollar companies cast themselves as underdogs in a fight against all-powerful Apple, but if the DSPs want to complain about platform fees, they need to look in the mirror. They charge more than a 30% cut to the rights holders who stream content on their platforms. Just like Apple’s fee hurts the DSPs’ bottom line, the DSPs’ cut hurts the bottom line for artists, songwriters, producers, and collaborators.

We’re all in this business together. If the music industry is going to thrive long-term, we need to look out for one another, put an end to this endless loop of pointing fingers, and actually do something to make our ecosystem better for all.

As I reflect on last year, I feel optimistic that the time is right for change. DSPs can take a smaller percentage of streaming revenue and share a bigger piece of the pie with artists. The best way for DSPs to look out for artists is to raise subscriber fees, which some have. But not by a small symbolic amount — by a percentage that will meaningfully impact artists’ ability to turn their music into a sustainable business.

This isn’t just the ethical thing to do: It’s also a sustainable business strategy. I founded Stem because I wanted to give artists what they need to understand their own true value. So far, fighting for artists has been a winning bet. As a platform for distribution and payments, we’ve always found success by helping content creators get paid. Today, there’s a lot of evidence that listeners want to open their wallets to support artists.

The industry is in a very different place than it was when Napster and Limewire crashed profits. A former senior Apple executive told me a story that illustrates how different things were back then. Maybe it wasn’t exactly like this, but he told me that when the iTunes store first launched, labels proposed an impossibly complex structure for song pricing. Steve Jobs wanted simplicity. He shrugged and said, “99 cents per song sounds about right,” and, with Apple’s market leverage, it became so.

But the music business is no longer grasping at straws like we were when Jobs pulled that number out of thin air. We have plenty of data showing that fans are willing to engage with the artists they love and spend money on music.

Let’s look at some of the biggest stories from the last two years. In 2021, fans paid more than $86 million for music NFTs, showing that they were willing to take a risk on an entirely new (and unproven) category of music products. The first half of 2022 was record-breakingly profitable for live music. The average gross of live events, the average tickets sold per show, and the average ticket price are all above where they were in 2019, the last year before the pandemic. Vinyl sales rose 22% in the first half of 2022.

Not everyone is benefitting equally from these trends, but it’s still clear that we’re not in 2003, 2008 or 2013 anymore: The challenge now is to make sure that profits from music can actually reach the artists.  But that’s hard to do when DSPs act like fans will refuse to pay for the primary way they consume music – listening to recorded songs. It’s as if auto industry experts advised Ford, “You’ve got to make your revenue from selling Ford-branded trucker hats, because you can only charge cost-of-materials for the trucks themselves.”

What’s worse are the deductions that DSPs take from rights holders, and the ones labels take from artists. I’m all for fair compensation, but that’s not possible when charges are so opaque. Every DSP deducts promotions, fees, and subscriber acquisition costs from the money they pay to artists via licensing fees; they tell us there’s no other way to make streaming work. But streaming should be a reliable way for artists to earn a living, which it can’t be if streaming income is eaten up by fees.

The time is right to experiment with ways to get artists more money. Several services, including Apple Music and Deezer, have raised subscription prices, and Spotify is said to be “considering” it. As the world’s largest paid music-subscription service, a Spotify price hike would not only be a bold statement, it would send the message that artists deserve to make a better living from music.

The music industry needs to embrace optimism: Streaming revenue may level off, but it won’t stop growing in the foreseeable future. We must stop thinking, “Can music be profitable?” and start asking, “How do we manage these profits?” The fact that the DSPs are pushing back on Apple’s 30% cut means we’re ready to start asking these questions. 

At Stem, we have first-hand experience with the obstacles that are preventing artists and labels from asking for a better deal from DSPs. Administering earnings is more cumbersome than it is in any other digital industry, making it difficult for artists to know their own worth. On November 14, we introduced a new royalty platform and made it available to everyone — even to labels that don’t distribute with us. This platform will put artists and labels on the same page, clearly understanding the value they bring to the table, so they can speak up for themselves and demand what they’re worth.

When the music business faces its next industry-disrupting moment, my guess is it won’t be a repeat of the aught’s crashing revenue. I think it will come from an entirely different direction: the artists. Labels are fighting for the opportunity to work with talent, while artists are finding they have more options than ever before. Artists are already working with multiple labels and distributors and shopping for partners every time they have a new project. They’re going to weigh offers against each other to secure the best financial support and marketing commitments.

When artists and labels are able to easily access the data that proves their value, they’ll be in the same strategic position that DSPs are in now. They won’t have to accept bad deals because they’ll be armed with financial information that puts them in a stronger negotiating position.

Eight years ago, I started a new company because I believed that fans wanted to support artists and the music pros who support them. Today, I don’t just believe it – I have the data to prove it. And now, artists and labels can have the data to prove it, too. DSPs need to respond to the rising value of music by raising subscriber fees and giving more artists the opportunity to turn their music into their business.