Advertising and subscriptions depress the value of music

Ad-supported and subscription-based monetisation business models punish the music industry, especially indie artists and labels, for its success.

How? Both limit how much money artists, labels, and rights holders can earn on their music.

Why? It’s more profitable for Spotify and the like to collect money from everyone and reduce artists, labels, and rights holders to fighting for leftover scraps in a royalty pool model.

They also hurt users, but we’ll cover that one next. Let’s dig in.

Ad-supported revenue has at least two limits: how many ads can play in a given hour and how many ads/interruptions before the listener leaves. I suspect a third exists, too: how many ads can sell before the diminishing returns destroy their value.

Either way, there is so little revenue in advertising that Spotify only generates €0.42 per user per month. It pays roughly 60-65% of that to rights holders, and If that strikes you as appalling, welcome to the club.

Subscription-based revenue has an obvious but no less nefarious limit: how much a subscription costs governs how much revenue artists, labels, and rights holders can earn from each user.

Consider that their most devoted fans pay the same as everyone else, but revenue share models allocate their share based on the percentage of all other songs played.

Also, Spotify offers discounted subscriptions for families, couples, and students, not to mention less affluent countries, which dilutes the pot of gold at the end of the streaming rainbow.

On top of that, the top labels skew the percentages again. See, for instance, UMG’s Streaming 2.0 or artist-centric models.

I don’t expect fans or even casual music listeners to understand these dynamics. And we all know Spotify and the like are in no hurry to educate us.

However, savvy artists, labels, and rights holders realise they cannot win in this system. That’s why they’re gravitating to our model. It’s only fair.