Direct distribution of subscription

 

If you subscribe to a subscription music service you probably pay $10 a month. And if you are like most people, you probably do so believing your money goes to the artists you listen to. Unfortunately, you are wrong.

The reality is only some of your money is paid to the artists you listen to. The rest of your money (and it’s probably most of your money) goes somewhere else. That “somewhere else” is decided by a small group of subscribers who have gained control over your money thanks to a mathematical flaw in how artist royalties are calculated. 

The Flaw in the Big Pool

Streaming services calculate royalties for artists by putting all of the subscription revenue in one big pool. The services then take out 30% for themselves. The remaining 70% is set aside for royalties.

Data: Actual Streaming Service numbers for premium subscribers in December 2014, per Section 115 disclosures. Source: Audiam

This giant bag of royalties is then divided by the overall number of streams (aka “plays” or “listens”). The result is called the “per-stream royalty rate”.

Data: Actual Streaming Service numbers for premium subscribers in December 2014, per Section 115 disclosures. Source: Audiam

The problem lies in the fact that this “Big Pool method” only consider the overall number of streams. It does not consider how many subscribers generated those streams or how many % they spent listening on each artist.

So why is this bad?

SUBSCRIBERS CANNOT FULLY SUPPORT their favorit artist

Imagine a hypothetical artist on a streaming service. Which do you think that artist would rather have: 10,000 fans who stream a song once, or one fan who streams it 10,001 times? Seems obvious, right? 10,000 fans is much better than one fan! But the Big Pool method, which only cares about the number of clicks, says the single person is worth more!

So this guy…

…is worth more than this huge crowd?

Photo: James Cridland, media.info https://media.info

The message to artists and fans is crystal clear: just click a lot.

Backwards

This is bad for the artist, but astoundingly it’s even worse for streaming services: if each subscriber is paying $10 a month then those 10,000 subscribers would generate $1.2M in annual revenue, while the single user only generates a measly $120. Clearly the services benefit from getting more subscribers, not more streams, so why are they incentivising streams and ignoring subscribers?

But Wait, It Gets Worse

If the Big Pool rewards artists who get lots of streams, major labels can sign artists who can get a lot of streams. But what if artists aren’t the only ones getting lots of streams?

Click fraud is rarely discussed in the context of streaming music, but it’s fairly simple for a fraudster to generate more in royalties than they pay in subscription fees. If each stream is worth $0.007 a click, the fraudster only needs 1,429 streams to make their $10 subscription fee back, at which point additional clicks are pure profit. The potential profits are substantial: At the Streaming Service it only takes 31 seconds of streaming to trigger a royalty payment, which means as many as 86,400 streams a month can be generated, resulting in over $600 of royalties. At Apple Music the threshold is just 20 seconds, making it hypothetically possible to clear 129,600 streams and $900 in royalties in just one month!

Awareness of click fraud in streaming music is so widespread that developers make apps to facilitate it. The services will tell you they work hard to make their systems secure, they pay bounties for people to find bugs, and once in a while they even catch and ban click frauders. But security researchers are not impressed, many people are not getting caught, and ultimately we have to confront the simple fact that there is no such thing as a foolproof way to prevent click fraud.

Click fraud is not the only way to cheat the system. One band made an album of completely silent tracks and told their “fans” to play the blank album on repeat while they slept. If a subscriber did as instructed the band earned $195 in royalties from that single subscriber in just one month. But if each subscriber only pays $10 in subscription fees, then where did the other $185 come from?

It came from people like you.

The media suggests that the Streaming Service was the one being “scammed” by this “clever” and “brilliant” stunt, but in reality the Streaming Service suffered no financial loss at all. The $20,000 that the band received didn’t come out of the Streaming Service's pockets, it came out of the 70% in royalties earmarked for artists. In essence what happened is every artist on Streaming Services got paid a little less thanks to an album with no music on it.

To understand why, we need to talk about how “average” can be an illusion.

Average Does Not Mean Typical

One of the most misleading words used in the streaming music industry is the word “average”. You’ll often see streaming services bragging about how their “average” user is streaming x number of hours per day, particularly when they are pitching advertisers. But don’t be fooled by the word “average” here — it’s an illusion. Average does not mean typical.

Think of it this way: imagine you are in a room with a random group of people. What is the average income of everyone in the room? It’s likely that roughly half will be above average, and the other half will be below average.

Now what happens when Bill Gates walks into the room?

Everyone in the room is below average now, thanks to Bill.

The same effect is happening in streaming music: a small number of super-heavy-usage subscribers have raised the “average” usage to the point thatmost subscribers are now below average.

We can illustrate this with a graph:

To understand how heavy-users wind up in control of your money, it helps to look at how royalties flow at the individual level:

Every user pays $10 a month, which generates $7 in royalties. If the per-stream rate of $0.007 is determined by dividing overall revenue by overall plays, then simple math tells us the “average” subscriber is streaming 1,000 times (1,000 * $0.007 = $7.00).

So if you stream 200 tracks in a month you will send $1.40 to the artists you listened to (200 * $0.007 = $1.40), and the remaining $5.60 of your $7 is now up for grabs. So who’s grabbing it?

Well, let’s imagine a heavy-user who streams 1,800 tracks in a month. As a result of all this streaming they send $12.60 in royalties to the artists they listen to (1,800 * $0.007 = $12.60). Since they only contributed $7 towards royalties, they are $5.60 short. Guess where that money comes from?

You.

It’s worth noting that many (if not most) of these heavy-usage “subscribers” are probably not individuals at all. They are actually offices, restaurants, gyms, hair salons, etc. Businesses like these can stream up to 24 hours a day — far more you as an individual could ever hope to do. And they probably don’t share your taste in music either. But they pay the same $10 you do, so why do they get to decide where your money goes?

It’s like you bought a CD and the store told you that you had to listen to it 1,000 times, or they will give your money to Creed.

The Subscriber distribution Method

There is a better way to approach how and artist can become supported, one which addresses all of these problems, and it’s called Direct Subscription Distribution.

The premise behind Direct Subscriber Distribution is simple: the only folks that should receive your money is :

  1. The artist that invited you, since it's someone you already support and they help to grow the market for every artist.
  2. The artists you follow, which provides you the privilege to decide who to actively support every month with part of your subscription.
  3. The percentage of artists' content you listen to, read or view per minute, which is automatically divided and distributed from your subscription.

Direct Subscriber Distribution simply divides up $11 based on who invited you, who you follow and how much time you spend consuming works from each artist. So if you were invited, follow and listen to an artist exclusively, then that artist will get the entire $9.32 which is estimated after Pindify's revenue and Transactions fee, but if you listen less they get proportionately less.

sub_distribution.png

As an example, if are invited and wanting to support your friend "Buddy Artist" who's has a few songs and who's a paying member (merchant) of Pindify,  Buddy will receive $2.32 per month from you. If you listen to his subscribable songs 25% of the time, then Buddy would get $1.125 this month ($4.50 * 25% = $1.125). If you also follow Buddy among 9 other artists , then Buddy receives  $0.25 this month ($2.50 * 10% = $0.25) Buddy will make $2.32 + $1.125 + $0.25 = 3.69 this month from you. Let us speculate that he has 500 supporters and friends like you then he makes 1,847.50 this month.

Further more let us say that you also follow and listens to Taylor Swift 10% of the time, since, well let's face it she's that good, she would get $0.25 + $0.45 = $0.70 this month. Let us speculate that she has 20 000 supporters like you then she would receive $14 000 this month.

Lastly, let us say that you follow your favourite photographer and designer who gets $0.25 from you every month, and you help here her by sharing her art so that she gets 3000 new subscribing followers that follows an average of 20 merchants and half of them would spend 1% on their time watching her work, then she would be making ($2.50 * 5% = $0.125)+($4.50 * 1% = $0.045)*3000 = $510 this month

The idea with Pindify's Direct Subscription Distribution method is not merely to divide your subscription in to what your consume, but to empower anyone who works hard, are beloved or has pure talent. It's important for a democratic market that both the consumer and the merchant has equal say.

Let’s compare this with the Big Pool: if you typically stream 200 streams per month (that’s roughly 13 hours of streaming), then playing Buddy Artist 25 % of the time would equal 50 streams. Since each stream gets a flat $0.007 per stream, Buddy will receive just 35 cents. (50 * $0.007 = $0.35)

 

But What About Click Fraud?

A nice feature of Direct Subscriber Distribution is that it is very difficult to turn a profit with click fraud: instead of turning $10 into $600, a fraudster would be turning $11 into $9.32, and would waste a lot of bandwidth while doing so.

If the fraudster used stolen premium accounts (reducing their cost from $10 to $1 per account), they would still have to be verified when being paid, potentially flagged and froze

Mission Impossible: Minimum Wage

The Direct Subscriber Distribution can also be a huge benefit to small artists, bands, magazines or channels just starting out.  A band with a respectable fanbase of 5,000 fans they need $12.06 from every one of these fans in order to earn the federal minimum wage for four people, $60,320. In years past they would sell their fans a CD. But now under the Big Pool they need an ungodly number of streams to make minimum wage: 8.6 million streams.

This means every single fan has to stream the band’s music 1,716 times. Assuming a four minute song that’s over 114 hours of listening, and if their fanbase averages 200 streams per month then that means their fans would need to listen to the band 71% of the time for an entire year!

Direct Subscription Distribution only requires the fans to exclusively follow the band to make the minimum wage. It requires the fans to read, view or listen to the band 22.5% of the time, so if the typical fan averages 200 streams a month, then just 45 streams a month is sufficient. If they invite half of the of 5000 fans to become subscribers they'll earn minimum wage. This is far more plausible for a new artist.

But intriguingly, Direct Subscription Distribution also enables fans to financially support an artist using even less effort: If a band can invite and convince their 5,000 fans to follow and listen to them exclusively for two months, the band will earn $93,2k. 

Direct Subscription Distributes enables listeners to directly support the artists they care about without having to expend extraordinary amounts of energy to do so.

The result of Direct Subscription Distribution is that each and every fan winds up being far more valuable to artists. It honors the intent of the supporter, and incentives getting more fans, bringing the goals of everyone (services, labels, artists and fans) into alignment.

If you think about it, this is how most of the genres we love got started in the first place. Hip hop, jazz, blues, reggae, punk, grunge, etc, all came from a small group of musicians, and a small group of fans, supporting each other. Who was the biggest beneficiary of this in the end? The music industry.

What Are We Waiting For?

It boils down to two big obstacles: fear, and inertia.

To be fair, the music industry has been on the wrong end of the economic stick for well over a decade now, and talking about changing royalty methods just as it seems like things are about to get better is understandably scary.

The other problem is inertia. Institutions hate change, it’s expensive and hard, and you have to rethink everything attached to that change. Inevitably various special interests will arise and fight for the status quo. It can be very tricky to overcome their objections.

So it is difficult for the industry to change, even when they know it’s in their best interest. It also leaves creators and independent labels with anarchy when sharing creative work for free on social platforms, we took the liberty to build what we creators really needed: - a market. 

Pindify the creator's market

"Pindify is an ad-free social marketplace for creators and their supporters. Creators can gather, publish, and earn on their art, text, fashion, film and music. Supporters can discover, express and empower their favourite creators. The platform provides a portfolio to showcase social or professional collections. It offers a democratically ranked marketplace to search and discover new creative work. All creative content is arranged inside cards to easily organise, flip , pin and consume. The plattform is based on the Direct Subscription Distribution method which provides supporters the power to subscribe their favourite creators directly, which offers creators an opportunity to earn a steady income each month.
Coming soon on Pindify is also Branding, Trading and Fundraising to further empower the creatives of our world and those who helps out.