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FYI

Faza The Cynical Musician Questions Music Biz Metrics

In order to bring items as different as records and streams to a common denominator, the industry standard practice is to use equivalents. Nielsen counts 1.500 streams as the equivalent of one album – which may be seen as 150 streams being equal to a single download track sale, with 10 single track sales being equal to one album sale (this, incidentally, is where the practice of counting “equivalent albums” originated). This conversion factor is supposedly sufficient to integrate data for different methods of music delivery. I want to convince you that it isn’t.

Faza The Cynical Musician Questions Music Biz Metrics

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It’s that time of the year when industry reports start showing up. Looking at data from both the United States and the United Kingdom, one might express a guarded optimism (perhaps trying not to sound ecstatic – years and years of steady decline will do that to a body). In short, the recording industry appears to be growing, at last.


In retrospect, “appears” may prove to be a very appropriate word here.

The situation in both markets may be summed up as follows: streaming and vinyl – up; everything else – down. Given that vinyl is still very much a question mark, and still not a huge component of the overall market (6.5% and 5% in the US and UK, respectively), everyone’s eyes are on streaming as the new engine of growth.

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Being the Cynical Musician, I tend to go straight for the soft, tender bits and must therefore point out that in both cases we are looking at consumption figures. This means that one of the things being discussed is not like the others.

Traditionally, end-of-year figures such as those coming from Nielsen and the BPI, were sales figures. The whole point of Nielsen Soundscan was to record transactions that actually took place, rather than relying on things like number of units shipped by the labels (that may well get shipped right back to them before the year is done). The streaming numbers, however, are clearly not sales, because streaming does not work that way. As a result, we’re getting an apples to oranges comparison.

In order to bring items as different as records and streams to a common denominator, the industry standard practice is to use equivalents. Nielsen counts 1.500 streams as the equivalent of one album – which may be seen as 150 streams being equal to a single download track sale, with 10 single track sales being equal to one album sale (this, incidentally, is where the practice of counting “equivalent albums” originated). This conversion factor is supposedly sufficient to integrate data for different methods of music delivery. I want to convince you that it isn’t.

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Why do we care about sales numbers at all? There are two primary reasons:

  1. It allows us to judge how well the industry is doing, as a whole (more sales = more revenue),

  2. It allows us to compare the selling power of various artists and recordings.

It ought to be obvious that streaming numbers fail miserably on the first count (but I’ll explain it anyway) and are of limited use on the second.

Let’s start with the money. I’ve said it time and time again, but it bears repeating: the number of streams has nothing to do with revenue on an industry level and is only loosely related to revenue on artist/recording level.

In terms of aggregate industry revenue, there are just two numbers that matter: the number of users and average revenue per user (ARPU). In the case of subscriptions, ARPU is the subscription fee paid by the average user (taking account the number of periods under subscription and the price of the plan). In the case of ad-supported streaming, it is total advertising spend divided by the number of users. Multiply ARPU by the number of users and you get the service’s total revenue – some portion of which will be divided amongst all participating rights holders.

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Did you notice what was missing? The number of streams. People could be listening to almost no music, and the aggregate industry revenue would be exactly the same – provided the number of users and ARPU remained unchanged.

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With regards to individual recordings and artists, the situation is less clear-cut, but even here the number of streams doesn’t tell us that much about how profitable a given song or artist is.

We’ve already seen that streaming revenue is solely dependent on the number of users and ARPU. How it gets divided, on the other hand, depends on actual consumption, i.e. the number of streams. There is a paradox here: more streams means less money.

Specifically, more streams means less money per stream. The amount to be divided is independent of consumption, therefore more consumption means each unit of consumption (stream/spin) is cheaper. In other words, each additional stream an artist or recording sees means that the per-unit revenue of all their accumulated streams decreases.

Does more streams mean more money for the artist/recording? Maybe. It may mean less money. It may mean no meaningful change in revenue. The total number of streams achieved by the artist/recording – used to calculate the stream-equivalent album number – tells us exactly nothing about how much those streams are worth. The only meaningful number in this context is the relative number of streams – how many streams the artist/recording is getting compared to everyone else.

Nielsen’s report has Drake’s Views at 2 million SEAs plus change. That translates to roughly 3 billion streams. Is that a lot? Well, he’s on the top of the heap, so we can say that it’s more than anyone else got. On the other hand, total on-demand streams were over 431 billion, so Views accounts for less than 1% of them. This is the problem, in a nutshell: having more streams than anyone else may not count for a lot if there’s a lot of people getting a lot of streams.

This brings us to the second issue, namely: comparing artists and recordings with one another. As has already been said, getting more streams than everyone else is of utmost importance in an all-you-can eat model, such as we have now, because it determines the size of your share in total revenue. On the other hand, given the sheer number of artists and recordings available (which is only going to get bigger, year-on-year), even the Top Dog might not end up getting that big a share at the end of the day.

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Views shifted 1.6 million units in album sales. Working under a rough-and-ready assumption of $10 a piece, we get $16 million in fan spending. Assume 70% of that makes it’s way to the rights holders and you get $11.2 million in revenue.

What’s 3 billion streams worth? Beats me, to be honest. For paid, on-demand streaming, I tend to assume $0.005 per stream (my own experience is closer to $0.004). This would give us $15 million. Nice! However, this figure includes all streams – not just the paid ones – and the average per-stream revenue is likely to be considerably lower.

For our purposes, I will account for just one differentiator: audio-only and video streams. It so happens, that video streams are overwhelmingly YouTube (to the surprise of exactly nobody) and YouTube doesn’t pay nearly as well as the figure I used previously. Because I am generous by nature, I will assume that an artist the stature of Drake can get an average $0.001 per video stream (my own average is, shall we say, considerably less).

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Nielsen gives the number of video streams at 179.88 billion, which is roughly 41.5% of the total 431.74 billion streams (audio+video). Applying this, we get a weighted average per-stream figure of $0.00334 accross both types of streams. Multiply that by 3 billion streams and we see that Drake’s 2 million SEAs are worth only $10 million or so. So, “selling” 25% more stream-equivalent albums actually gets you less money than “proper” album sales.

Well, it’s not like we didn’t know this already.

P.S.

I probably should stress that the above calculations are pure guesswork (I have no insider knowledge of Drake’s financials), and also that I was trying to err on the side of streaming. In reality, pure album sales are likely to be worth more and streaming considerably less. If Drake’s per-stream rates are anything like mine, his streams are likely worth under $7 million in revenue.

It’s also worth reminding ourselves that Drake is the absolute leader of the pack, as far as streaming goes (based on available numbers). The runner up, in terms of SEAs, is Rihanna’s Anti, with less than half the number. Other Nielsen top sellers have even fewer SEAs.

  Posted by: The Cynical Musician: Krzysztof Wiszniewski – just Faza to most people I know.

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