Understanding The Cloud: How You Can Benefit From Streaming Music

By George Howard (follow on Twitter)

Overview: Cloud-based streaming is here and growing

The first thing you must be clear on is that, inexorably, we are moving towards an all-streaming delivery of music. Should you be interested, you can read more details about the coming streams in an article I wrote some time ago entitled, “The Stream that Snuck Up on You.” The premise is that in an era of (near) constant connectivity, there is little-to-no reason to actually have the file on your device.


Soon, about the only place where (for better or worse) you won’t be online is on a subway.  Combine this constant connectivity with a virtually unlimited selection of music that is available for instant streaming, and you truly must ask, “What is the distinction between ‘ownership’ of a file and streaming?”


The old arguments for ownership — “I want to be able to play it whenever I want.” (Answer: (see above) you now can unless you’re in a subway); “I don’t trust that the streaming service will stay in business.” (Answer: another one will quickly fill any gap in the market; there’s no shortage of these types of services, and, if the VC money now pouring into this space is any indication, there will soon be more) — are no longer valid.

Like it or not, it’s about streaming.  Certainly, old habits die hard, and there will be early adopters who quickly and gleefully abandon their ties to “ownership,” and laggards who continue to meticulously alphabetize their CDs near their LPs and speak righteously about sound quality.  Still, downloads will go the way of their forbearers — vinyl, cassette, and CDs — and be relegated to a niche product.

Even if you don’t agree with this conceit (which, if you haven’t noticed, I’ve made a little (just a little) more emphatically than necessary in order to make a point), it’s clear that cloud-based streaming is not only here to stay, but will become an increasingly material portion of music delivery.

The Rules Around Cloud-Based Streaming

Given this, what does an artist who controls her own destiny do in order to capitalize upon this cloud-based zeitgeist?  The answer, as is so often the case, is to first understand the rules around streaming, and then to have a strategy that integrates with your overall plan for success.

As is the case with all aspects of the music business, the rules around cloud-based streaming are defined and codified in accordance with certain of the six exclusive rights an artist is automatically granted upon the creation and fixation of an original work.  For more on your six legal rights, download the free TuneCore Survival Guide.  In the case of streaming, the rights that must be addressed are: the exclusive right to reproduce; the exclusive right to publicly perform; and the exclusive right to digitally transmit.  These rights correspond to the two types of streams.

There are two dominant types of streams: interactive and non-interactive.  Interactive streams are of the type you find on a service like Rdio or Spotify.  On these services, you can pick a specific song to listen to, listen to that song as many times as you like, rewind the song, etc.  Essentially, it’s as if you have the song in your library on your iPod.  These interactive streams have been deemed reproductions, and as such require a “streaming mechanical” license to be in place between the streaming service and the copyright holder of the song.  This license thus grants the streaming service the right to reproduce.  Additionally, when these songs are played by the end user, there is a public performance that occurs, and, in order to not infringe on the copyright holder’s exclusive right to publicly perform, the streaming service must pay a blanket license fee to the Public Performance Organizations (ASCAP/BMI) who act on behalf of the copyright holder.

Non-interactive streams are much more akin to what you encounter on traditional radio.  That is, you cannot select a specific song, you cannot rewind a song while it’s playing, and there are limits to the number of times you will hear a specific song.  The best example of a non-interactive streaming service is Pandora.  With respect to the rights associated here, there are, as above, the public performance royalties that must be paid by the streaming services to the PROs who represent the copyright holders.  Additionally, there is a digital performance royalty in the sound recording that must be paid by the non-interactive streaming service to the copyright holder of the master in order for the streaming service to not infringe upon the copyright holder’s exclusive right to digitally transmit her work.

As you can see, running an interactive streaming site, such as Spotify, is a far more expensive proposition than running a non-interactive site; such as Pandora.  Someone desiring to set up a business that allows for interactive streaming must make deals with the master holders (i.e. the labels), and pay much higher royalties to the songwriters (publishers) than does someone who streams in a non-interactive fashion.  The non-interactive streaming services must pay as well, but they’re able to enjoy compulsory license rules that obviate the need to make deals with master holders (i.e. labels), and pay a lower rate to the songwriters (publishers).

This makes sense when you think about it.  If you are a content holder, you are going to be far more threatened by a service that is allowing for the repeated, on-demand play of your master(s) by the customer (i.e. interactive streaming) than you will streaming that is more akin to traditional radio, that at least in theory, might compel someone to purchase a song they heard in a non-interactive way so that they are able to hear it whenever they want.  Because of this dynamic, the fees associated with interactive streaming are much higher than non-interactive streaming.

As an artist who releases your own records and writes your own music, you, of course, benefit financially from both interactive and non-interactive streams.

For interactive streams, you will be paid both from the negotiation of the master rights (i.e. the interactive streaming service must make a deal with you for the rights to stream the music you release on your label) and from the public performance of these streams via the payments the streaming services make to the Public Performance Organizations (ASCAP/BMI) who negotiate on behalf of their affiliated writers and collect blanket license fees from the streaming services and then distribute this money to their affiliated writers.

For non-interactive streams you, as master holder/featured performer, will collect digital performance royalties from the public performance of the sound recording via SoundExchange, who operates in the same manner described above as do ASCAP/BMI, but on behalf of the master holder/featured performer.  Of course, you also will receive your public performance income for the song itself via ASCAP/BMI.

What you can do to capitalize on cloud-based streaming

Currently, few artists are seeing huge payments from either interactive or non-interactive streams.  However, as these types of services become increasingly prominent, and as tracking, collection, and distribution associated with streaming improves, one hopes that this income will become more material.  Additionally, as an increasing number of artists own their own masters, they will be able to strike deals with the interactive streaming services that at least give them more favorable rates (not to mention direct payments) than they get via payments from their record labels.

Last, it’s of course important to note the promotional benefit of an increased amount of music being streamed from the cloud into the public consciousness at any time.  As above, services like Pandora do indeed act in the manner that traditional radio had always aspired, and do seem to introduce customers to new music.  The ability to achieve some level of customer attraction on the back of these streaming services (while also being paid royalties) is appealing from the perspective of extracting additional value (via ticket sales, merch, artist subscription models, etc.).

The cloud is upon us; it looms large, and no gale force winds will blow it away and return physical sales or even downloads to our atmosphere.  Streaming will become increasingly present in peoples’ lives (wait for the Pandora IPO if you don’t believe me). As artists, it’s imperative to prepare and capitalize upon this disruptive technological innovation.  In order to immediately begin the preparation process, be sure to affiliate with both a PRO (like ASCAP or BMI) and with SoundExchange.  At that point you’re covered in terms of non-interactive streams.  You should then look for opportunities where you can extract value out of these streams.  This can be direct financial value via licensing your owned masters to interactive streaming services, or brand building value by strategizing how you can leverage an increasing presence on these streaming sites by incorporating it into a larger business development plan.

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George Howard is the former president of Rykodisc. He currently advises numerous entertainment and non-entertainment firms and individuals. Additionally, he is the Executive Editor of Artists House Music and is a Professor and Executive in Residence in the college of Business Administration at Loyola, New Orleans. He is most easily found on Twitter at: twitter.com/gah650


  • http://www.stevencravis.com Steven Cravis

    A great way artists could gain hold of their own catalog and actual statistics (of interactive and non-interactive streaming is through watermarking technology
    See https://ruby.activatedcontent.com/admin/index.cfm?action=page&idPage=wmrk and
    See https://ruby.activatedcontent.com/admin/

  • http://www.scorchermusic.com Dennis Williams

    Excellent stories pertaining royalties,most of us singers/songwriters,indies/labeles never get royalties
    Each changes wee been left out.The cloud will still be dark for many of us.this business of music is who know
    you.As an individual i’ll wait and se the positive out come in the future.Excellent stories George Howard,
    Your respect.

  • http://profile.typepad.com/mark168 Mark

    THANK YOU. Like you I have been “proclaiming” for a year or so the death of relevance of the concept of “owning” music. It’s something we have grown up with because it has become a natural social idea that music is a possession and, as such, is “mine” or “yours”. In reality, it simply exists. Access is all that matters. The network is everything and many people haven’t quite grasped this yet. The 90s and 00s were all about DOWNloading. The 10s and 20s will be about the opposite – people will be asking “how do I get this junk out of my laptop/house/phone SD card” onto ‘the network’?
    A complete shift of perception is coming regards physical ownership of non-personal, society-wide data (music, broadcasts, articles, etc) and I find it fascinating and also a little saddening to hear the truly well-intentioned counter-arguments of those who have yet to see the perspective of the land on which we stand. Seeing the wood for the trees. The age-old human nature problem.

  • http://www.sebastianportillo.com Seb

    As a writer from Switzerland I not a member of the SACAP/BMI but my songs are streamed in the US. If I m already a member of the Swiss Royalty Society do I still need to sign in with ASCAP/BMI?

  • clintonslurvey@gmail.com

    STAY AWAY FROM ANY AND ALL STREAMS! You’ll never see a dime and if you do it will be so insulting. Something like .001 per stream which means you’d have to have 100 streams to make a penny. And regardless of what the laws are, BMI, ASCAP, Soundexchange, Harry Fox only pay royalties to those that are ‘IN’ the club. I suppose 1 would have to have a gold record to be in the club and even then I know artists that never receive a dime of royalty money. I got in this business to make music and make money but what ends up happening is chasing money and making heartache. Mark my words, you’ll never see a dime!

  • http://www.moozi.cc Rich

    If streaming music becomes the ‘de facto’ of music consumption then I can imagine ISP’s will set up their own direct competition to iTunes by offering unlimited music on tap to all their customers. Maybe Apple will cry foul about ISP’s when people no longer download music, just as the labels cried foul about Apple when people stopped buying CDs!
    Whatever the outcome, I think the days of earning obscene riches from selling songs are well and truly over.

  • TonsoTunez

    clintonslurvey@gmail.com writes:
    “BMI, ASCAP, Soundexchange, Harry Fox only pay royalties to those that are ‘IN’ the club.”
    So … join the ‘club(s)’ … nobody is excluded… and everyone gets paid the same rates multiplied by the number of times their works are used.
    All you have to do is sign up and register your works. The ‘clubs’ handle the licensing and collecting and represent you in rate courts and collective bargaining situations (where allowed by law) against multi billion dollar advisories that don’t want to pay you a dime. In other words, takin’ care of business.
    All you have to do on your end – if you are the ‘record company’ and/or ‘music publisher’ and represent other contributors to your musical offerings – is pay those with whom you have contractual obligations.
    I will agree with you, however, that there is very little money for creators in the streaming world … as to the digital benchmark related to success think of a billion as the new million when it comes to uses of your works in cyberspace.
    You might want to take a look at this article:
    Cloud Music Boom: Everyone Wins, Except the Creators
    http://www.theregister.co.uk/2011/03/18/cloud_music_everyone_wins_except_creators/

  • http://profile.typepad.com/tunecore TuneCore

    no you do not, the PROs exchange money between them

  • John

    The future of music is beginning to make me hate what I love. The dream of the songwriter to have that one hit that might financially change your life is no longer a dream but a neverending nightmare.
    Lets face it, what is the point (financially) of slogging away hour after hour, day after day, to try and earn decent money from your musical creations these days. It aint gonna happen.
    If however, you are just happy to create music and let people hear what you have done for free then go for it.
    Also if you want to spend your life creating music then PAY THEM (the industry PRO’s?? to help?? you,) there are thousands of websites lining up to take your dollars to enter song comps, give you song critiques (who knows it might be a farmer somewhere who critiques it and takes your twenty bucks) or promise to get you a publishing deal for sync licensing haha.
    (where they’ll take 50% anyway)
    Truly guys, dont be fooled, the days of making money from music are over unless you play ‘live’ and sell merch.
    My last royalty payment for the 6 month period in which I had numerous online radio plays came to $5.85
    Wow!! Now I can buy my own private jet!
    So unfortunately fellow artists it may be time to get a haircut and get a real job!

  • http://www.moozi.cc Rich

    @John: We poor artists have always suffered for our passion, and while there may be less chance of living a multimillion dollar lifestyle as a musician these days, I’m sure that the opportunity still exists to make a living from music via multiple income streams (downloads, gigs, merch, streaming, syncing, etc). Do it for the love of your art first and if you are starting to hate what you do then take some time out and reassess your priorities. Never give up on your dreams though because that will be the day your soul dies.

  • John

    @Rich : Good point Rich, I’ll never give up on my music dreams and I won’t let the soul die without a fight but truly, this game (music creation and marketing), is, in my opinion starting to become too much of a futile effort, and for too little reward.
    At the end of the day though, it has given me years of awesome memories playing live and doing some great shows. For that I am forever grateful, but financially at this point, it’s not looking too fruitful!
    The “cloud” may be approaching fast, I just hope there is a silver lining somewhere!

  • Juliusmonk

    Ok, so it’s officially over… Music is finally devoured by the insatiable digital chaos. Millions of tunes that nobody really listens to, destruction of the career concept. An age of idiocy, simple overcompressed drum and bass, catchy (sigh) melodies and a continuous flood of new ‘hypes’. If music is just some background filler of your very important tasks (like updating facebook or tweeting your trivial life around), then really you shouldn’t care about art anymore. As if the volatile mp3 wasn’t enough…

  • Abe Jentry

    The digital age is doing one thing; leveling the playing field and removing all the “posers” from the game. I see that within ten years, there will be very few ass wipes that have no musical talent making music simply because it is a sexy way to make money. The industry is moving back towards Indie music where the purpose is artistic expression, not commercial efficiency. Today, virtually (no pun intended) everyone whom loves music can write, record, promote and release their music. If you love it, you can do it. Day job or not. If your music blows, then nobody will listen to it, and you can then bitch and moan about the digital age taking over. If you are good at your art and can delivery a sound that speaks to people, the digital age will only provide you with BETTER tools to showcase your art to the world. The “old world” music model was far more exclusive and closed off to musicians with real talent than today’s market. It is extremely important to be educated about where the market is going (i.e. thank you very much George) because it will help us to not waste money buying cassettes or buying 10,000 copies of our album, but this understanding should be used to maximize your talent, not provide an outlet to bitch about how unsuccessful you are.
    The digital age is here. Get good, get wise, and make music if you love it. Please quit bitching if you aren’t up to it.

  • juliusmonk

    I thought I was saying the obvious but, yet again, you Abe proved me wrong.
    After three albums, I can safely say I am completely unsuccessful. I am not ashamed. I did what I had to do. What I could. I do not discuss this modern age as a way of justifying myself. I am speaking as a music lover, a consumer if you wish, who can’t keep track of the brand new names popping up every two weeks. Who doesn’t hear any new ideas, who doesn’t find any new acts destined to become a classic. If you do, good for you.
    You can pretty much assume I am old. I did like the ritual of listening to music, following an artist, witness the evolution, the changes, the search, the screwing up. I don’t have to move on just because someone says so. More people have access now, yes. Which means that we’ve exchanged some false negatives by a massive amount of false positives. Big fucking deal. A good business model, though.
    Time will tell if your digital fascination is justified. So far, I don’t see the music encyclopedia of humanity getting any bigger, or shall I say, thicker. Oh well.
    What always takes me by surprise in this web 2.0 (or whatever the name is) world is the imperative: quit bitching, do this, do that.
    I do whatever I want, pal. With the limitations of real life and my own as human being. And my wife. But she’s ok with me bitching all day, I think. It actually was only a tiny fraction of the bitching I can deliver…
    I guess you’ll have to accept it. Isn’t that what the leveling of the playing field is all about?

  • Rollo

    What does this mean for Tunecore? Will you be the way artists get their music to the cloud?

  • Rollo

    What does all this mean for Tunecore? Will you be the way that artists get their music to the cloud?

  • http://profile.typepad.com/tunecore TuneCore

    "the cloud" is a type of music service that entities like Google may offer
    If TuneCore is in deals with these stores then yes, your music would be available in their cloud based service

  • Ben

    This really got me to thinking…. there are still an awful lot of cars out there with radios, cassettes, and cd players on board. There are a lot of locales that will not be serviced with persistent internet connectivity for some time. The pace of change in media from where many of us perceive it now appears ferociously fast, wide, and deep. Yet it is focused on observations of the most active user and producer relationships.
    As much as the ‘playing field has been leveled’ and ‘the old model is collapsing’, a handful of the captains of industry are still walking onto their personal jets with full pockets. While espousing the great egalitarian aspects of new technology and markets they are encouraging their staff and artists to work harder for less and to lower their expectations of the future. A few more years out, I doubt the Googles and Apples are going to behave any less entitled to their position and status than the bad old order did. So far, their aims seem to be absolute control and domination, no matter how much access to the basic tools to participate in their scheme they claim to provide. I am a huge fan of the developments of the last ten+ years, but let’s not kid ourselves.

  • Errol Michael “Filo” Phillips

    This is more of a question than a comment. Does Soundexchange now provide the same services (i.e. collections for public performances) as BMI or ASCAP?

    • Anonymous

      @Errol

      BMI/ASCAP license and collect non exclusively for one of six legal copyrights controlled by the songwriter/publisher called “public performance”.
      Soundexchange collects money owed to performers and the entity that controls the recording of the song (traditionally the label) for the “digital transmission” of a recording.
      Jeff