On Tuesday, Damon Krukowsi sent a post to his newsletter Dada Drummer Almanach about streaming music accounting and why it is, in his opinion, “widespread fraud.” The post is very good, and not super long, so please go read it first.
Done? Good.1 So his main subject is the difference between “pro-rata” accounting and “user-centric” accounting in music streaming payouts. As Krukowski describes them:
User-centric accounting is what you probably assume is happening when you stream a song; that is, the song earns that particular artist a portion of the money you put into the system (whether by subscription or by listening to ads). But that’s not how it’s set up on Spotify, Apple Music, or anywhere else at the moment other than a part of SoundCloud that includes the Portishead song. What happens instead is referred to as pro-rata accounting: your stream registers as a click toward that artist’s share of all streaming income, which is then divided up according to relative total usage.
This post went around the Tabs Subscriber Discord and everyone’s response was “needs more math” because we’re a bunch of fuckin’ nerds. So I’m excited to announce that in order to get a better grasp on the numbers here I have launched a new streaming music service called Sporkify. It’s only $10 a month, and since we’re funded by Egg, we’ll use all of the subscriber money to pay the artists. We’re just out of private beta so we only have 100 subscribers, but that’s pretty good for our first month! Especially since we only have two artists on the platform: trip-hop legends Portishead, and brand new pioneer of 30-second bops, DJ Spiders Georg. So far this month, Portishead has racked up a respectable 36,000 streams, but DJ Spiders Georg is absolutely crushing it with 864,000 streams.
Since we account for streams “pro-rata,” the split is pretty simple: Portishead earned 36,000 of 900,000 total streams, which is 4%. Four percent of our $1000 in monthly user fees is $40. Not bad! That leaves DJ Spiders Georg with the remaining 96% of streams and income, or $960. Rolling Stone is planning a cover story, the label is thrilled, and everyone is signing up for Sporkify, the exclusive home of streaming’s breakout new star, so Egg is also thrilled.
But wait! Some newsletter dork has suggested that this might be a little fishy. I’m not gonna make it public yet, but between us, I took a look at the breakdown if we were to recalculate this on a user-centric basis, and the results were surprising. It turns out that only ten users are responsible for all of DJ Spiders Georg’s streams. And since all of DJ S.G.’s songs are exactly 30 seconds long, to reach 864,000 streams each of these ten users is streaming DJ S.G. literally 24 hours a day, 30 days a month, nonstop. The other 90 users are all pretty big Portishead fans, but only average a normal human quantity of just over 13 streams a day each. When we recalculate the shares distributed per-user, suddenly Beth Gibbons & Co are taking home 90 users worth of $10 monthly fees, or $900, and DJ Spiders Georg is trying to figure out how to make his Lambo payment on only $100.
Of course looking at the client IPs, it’s obvious now that DJ Spiders Georg paid a bot service for all of his streams. They charged him double the monthly fee for each of ten dedicated accounts, or $200. On a pro-rata basis, that $200 investment in streams earned him $760 in profit. On a user-centric basis, it’s a dead loss of $100.
Obviously in my fake example, the results are stark. Portishead makes over 22 times as much money with user-centric accounting. In the real world, returning to Krukowski again:
What if user-centric accounting resulted in a huge reduction of reported streaming numbers by limiting them to actual streams listened to by actual people? What if Spotify’s total numbers were off by as much as 500%, as Portishead’s experiment on SoundCloud suggests is possible, and the top earners’ streaming numbers were as well? Stef Van Vugt would be out a lot of money, but so would Spotify, and so would the three major labels – who control a disproportionate percentage of music on the streaming charts.
Spotify is (probably?) not 10% bots. But right now, even if we keep all the bots, pro-rata accounting appears to be slicing off a portion of every user’s monthly bill and funneling it away from the long tail to subsidize the head of the snake, where the biggest labels and the biggest stars sit, as well as potentially all the fake streams. Notorious music industry curmudgeon Steve Albini thought the internet had solved “The Problem With Music” by 2014, when he told Quartz’s John McDuling:
“I think there is incorrect calculus being done by the people who are upset about [streaming services].” When a song is played one million times on Spotify, it can still have an audience of one person who plays it a lot. When it is played one million times on terrestrial radio, the audience is orders of magnitude bigger, he explains. “I actually think the compensation is not as preposterous as anyone else,” he says. “It’s like complaining that cars are going faster than horses.”
Forget squeezing millions from a few megahits at the top of the charts. The future of entertainment is in the millions of niche markets at the shallow end of the bitstream.
Here we are in the future, and it turns out to be the exact opposite: pro-rata stream accounting and fake streams are squeezing millions from the niche markets to inflate the earnings of a few megahits at the top of the charts.