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Music streaming: what do songwriters really get from YouTube or Pandora?

Writers are angry about the royalties they get when their tracks are played – they deserve a bigger (pizza) slice of the action
Psy: Gangnam Style video
Psy: royalties from YouTube for his Gangnam Style hit are likely to be smaller than you think

Music streaming: what do songwriters really get from YouTube or Pandora?

Writers are angry about the royalties they get when their tracks are played – they deserve a bigger (pizza) slice of the action

There's been much speculation as to the enormous amount of money Psy must have raked in from the hundreds of millions of hits his Gangnam Style video has had on YouTube. There's no way of knowing for sure, as all Google/YouTube deals are covered by non-disclosure agreements – and do not allow independent labels to demand audits. However, the chances are that though the amount won't be insignificant, it will be much lower than one might think. And, judging by the royalty statements that just landed on the doormats of songwriters all around the world, we can be certain that the co-writer of the track didn't earn a fortune off YouTube.

As a matter of fact, one of the songwriters' forums on Facebook was alight with angry – and sometimes despondent – postings of royalty statement screengrabs. Ellen Shipley, the co-writer (with a 50% share) of Belinda Carlisle's Heaven Is a Place On Earth reported receiving $38.49 for the 2,118,200 streams the track had accumulated on YouTube in the last quarter. For the over 330,000 hits her 'N Sync track I Drive Myself Crazy had on the video site, she received $4.31. "I can't even buy a pizza for that," she pointed out.

Another songwriter reported getting about $80 for 9m YouTube streams. The discrepancy in rates may be attributed to the fact that YouTube does not have a licence agreement with performance rights societies in countries such as Sweden, despite being available there, so streams from those countries don't result in any royalties at all. It may also be attributed to the fact that, at least in the UK, YouTube paid PRS for Music a lump sum back in 2009 for usage until 2012 (they're currently in licence negotiations covering future usage), which means the more hits YouTube videos get, the less songwriters get paid per hit.

Now, some may claim that YouTube is just a discovery tool and so, like MTV back in the day, should not be an income stream for artists and songwriters. But, as with MTV, record labels have realised that they're spending millions on the music videos from which YouTube – without having to pay anything for the content it hosts – is earning big advertising revenue.

And, unlike MTV, YouTube is "on demand". A recent Nielsen survey discovered that listening habits are changing, as 64% of US teenagers mainly listen to music on YouTube – a revelation that may confirm predictions that, in the future, streaming will be the main way music is consumed.

As YouTube playlist generators become more commonly used, that number may still rise, since the user doesn't have to click on a new link every time a track finishes. If that is indeed the case, it appears professional artists and songwriters better get busy looking for another day job.

But YouTube wasn't the only target of the songwriters' Facebook posts. "Pandora report. 1.5m plays – and I received $12.84! WTF???? Pandora can go F$$K itself," wrote one of them below his royalty statement. Another called the $6.78 he made from 633,100 spins on Pandora of his Josh Groban track "an insult".

Though master rights holders (owners of the recordings) get higher royalties, labels and artists (including online phenomenon OK Go) have also conceded the income from streaming services such as YouTube and Pandora are negligible – with Spotify being the exception (at least in Sweden). One Swedish independent label told of how the monthly 100,000 streams his artists generated on Spotify earned the label £94 – a rate he considered reasonable. He deemed the publishers' (songwriters') share "negligible", however, and he pointed out that, unlike terrestrial radio, the musicians playing on the track did not get anything at all from Spotify.

In June this year Kalle Magnusson, who runs the Swedish independent record label Hybris, said Spotify has been a lifeline for the country's labels, which have suffered immensely in the past decade as record sales bottomed out. He claims four out of five Swedish Spotify users pay for the service (a Swedish publishing executive I spoke to claimed a tenth of the population – 900,000 – subscribe to it), and revenue per play had nearly tripled for the label in the past 12 months. He said 80% of Hybris's revenue now comes from Spotify.

While Spotify royalties appear to slowly increase, as the number of subscriptions rise, Pandora – an interactive, ad-supported sort of hybrid of Spotify and radio – wants to further reduce its royalty commitments, despite having been content with the statutory webcasting rate when it was agreed in 2009. The company's founder, Tim Westergren, now argues that since satellite radio (such as Sirius XM) pay less than 10% of their revenue in royalty payments, while Pandora pays more than twice that – and terrestrial radio in the US doesn't have to pay performers and record labels at all (though they do pay songwriters), it's an unfair playing field.

It's worth noting, however, that the US is one of less than a handful of countries – including North Korea, Congo and China – where artists don't get paid for airplay. So perhaps a more reasonable way of creating a level playing field would be to demand American terrestrial radio corporations fall into line with almost every other country in the world by paying artists when they use their music.

Westergren claims that he cares about musicians as, he says, he is one himself. Yet, after Pandora went public with an IPO at a $1.6bn valuation, it appears Westergren is more concerned with pleasing shareholders than supporting musicians. He is currently urging consumers to write to their congressman, demanding they vote for the proposed Internet Radio Fairness Act, which would cut royalty rates for internet radio. So far Pandora has spent more than $500,000 on lobbyists as well as making more than $100,000 in political campaign contributions in 2011/12 alone – and it's a top contributor to Rep Jason Chaffetz, the man who introduced the IRFA in Congress, according to Open Secrets. If Pandora truly cares about musicians but has trouble balancing its books, maybe it should stop spending all that money on lobbying for even lower royalty rates.

As David Lowery put it in his Trichordist blog: where is it written that Pandora is guaranteed the right to stay in business when musicians aren't? If Pandora thinks paying a decent rate for the music that is the sole reason for its existence is unsustainable, maybe – to use an argument thrown at the music industry over and over for the past decade – it's because its business model is flawed and it should come up with a new one.

As for YouTube, a company that has no significant competitors and is far from in the red, how about paying songwriters a decent royalty rate so they can at least afford a whole pizza for what they earn from hundreds of thousands of hits on YouTube?

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