Could Fintech Fix the Music Industry’s Broken Economics?
In April 2018, one of the top streaming services made its $30 billion debut on the stock exchange and resurrected a familiar debate in the music industry: While streaming services have become a de facto way for fans to discover and enjoy music, lesser-known entertainers are finding it difficult to make a living.
While the “per stream” payout from a streaming service can vary, the average for one popular streaming service in 2016 was $0.0046524—and it’s trending downward. Additionally, that pay goes to all “rights holders,” which includes labels and publishers, meaning that, at the end of the day, an artist will likely see even less money.
The economics are stark: Based on the average payout above, an artist whose song is played 100,000 times in a month could make less than $500.
Emerging technologies more often associated with finance than with the arts could offer an antidote. Earlier this year, The Music Fund was formed to help artists turn their musical creativity into cold, hard cash. The tech? Big data analysis.
The Fintech Playbook Meets Music
Streaming services that pay per stream serve the stars—artists whose songs are played not just thousands, but millions of times each month. Artists who have only managed to achieve modest success in the music industry, on the other hand, still struggle and often can’t afford to fund their next projects. The Music Fund claims to offer a solution, drawn from the tried-and-true methods used by its parent company, investment management and data science company Winton Capital.
When the The Music Fund launches its platform, it will allow artists to swap a percentage of their existing royalty streams, for set periods of time, in exchange for lump sum pay-offs. Geoffrey Cross, managing director and head of data at Winton Capital, uses the example of a musician friend to explain how it will work:
“He’s not number one, but he’s getting royalties. He wants to release another album, and that costs somewhere between $5,000 and $10,000—and, for him, that’s a crazy amount of money. But he has this royalty stream coming in, and he can sell a portion of that stream to fund the album.”
Artists will choose how much of their existing revenue streams to hand over—from a few percentage points to a quarter (or more) of their upcoming expected incomes—and the length of time they’re willing to do so. And there will be no long-term binding contracts. While Cross’s friend would give up some of his royalty stream for the agreed-upon period, any royalties from the new album would not be included in the fund’s monthly cut.
Gwen Hughes, an Atlanta, GA-based vocalist, songwriter and band leader, says she’s excited by the idea behind the fund. She has 6 albums and an EP on one of the most widely used streaming services, and the top single has over 3,000 listens.
“The artist has to make the choice: Do I need that income to live on?” Hughes says. “[Some artists] live on the royalties of what they’ve written. But for others, like me, royalties are a supplement to the other things they do.”
A Savvy Hedge, or a Risky Gamble?
The artist, for their part, is risking a set amount of income against the success of their next project. For the Music Fund the risk is centered on the ebb and flow of the stream. It could collect more than it gave the artist if fan interest is on an upswing—or it could lose a bundle if the artist’s popularity dwindles.
To make the safest bet, Cross and his team at The Music Fund analyze data in the same way they do for stock investments at Winton, using algorithms that look at a variety of factors. Rather than looking at data like seasonal demand, historical market movements and debt to earnings ratios, the focus is on streaming plays, video views, gigs played, evolving music trends by geography, and social media followers. Based on that, it uses data science and machine learning to predict future royalty streams. The terms of the agreement are based on that prediction.
For instance, if R&B is showing the hallmarks of an upcoming spike in the U.K. and an artist specializing in that genre is seeing their popularity increase at a steady pace before that the spike occurs, it would be a fairly safe bet for the Fund.
“Genres are like sectors in the stock market, and certain ones will go up and down over time,” says Cross.
Using that information and the company’s proprietary analytical tools, the Fund says it will be able to make smart predictions about what the market might do. It’s essentially the music industry equivalent of the process that Oakland’s baseball team pioneered in the early 2000s, an approach that professional football and other athletic leagues have since embraced. The Music Fund doesn’t deliberately seek artists who will hit home runs. Rather, it wants those who will consistently get on base.
“We’re not doing what a record label would do,” says Nick Smith, a senior manager at The Music Fund. “We’re not investing in just the top players. We’re trying to invest very broadly . . . and do better than the market.”
The Music Fund is not designed to help musicians make millions—at least, not at this stage. But the hope is that the platform, if successful, will give up-and-coming musicians a chance to make some money for their work—more than they would on streaming services, at least in theory. Whether the vision is a hit or flop remains to be seen, but their claims to help musicians wrest control over how their work is used—and how they’re compensated—is a jolt that the music industry needs.
This content is produced by WIRED Brand Lab in collaboration with Western Digital Corporation.
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