How should revenues from music streaming be distributed among artists? Under the current model, users also pay for music they do not listen to. A recent study by Kühne Logistics University and Universität Hamburg compares this “pro rata” model with an alternative, user-centered payment model. The results show that a user-centered payment model could be fairer – and is also applicable to other sectors. The results have been published in the Journal of the Academy of Marketing Science.
Currently, the money that streaming services like Spotify earn through user fees or advertising is distributed to rights holders using a so-called “pro rata” model. This means that all revenues are aggregated and allocated to an artist based on their share of total views. As a result, users could also pay for music they do not listen to. The study compared this model with an alternative, user-centric model. Here, each user's revenue is allocated to the artists he or she listened to in a given month - i.e., based on individual usage.
Prof. Dr. Dr. h.c. Sönke Albers, co-author of the study, shares some insights.
Prof. Albers, is the current “pro rata” model used by streaming services such as Spotify unfair in your view?
Prof. Albers: In the pro rata model all users’ streams on a streaming service are thrown together, and the artists are paid according to the total number of streams. It doesn’t take into account individual Spotify users’ willingness to pay or their frequency of use. So sometimes users subsidize artists they’ve never listened to. Users with high streaming numbers determine which artists get paid and how much at the expense of users with fewer streams. This leads to privileging mainstream music to the disadvantage of niche genres.
What consequences would switching to a user-centered payment model have in the music industry?
Prof. Albers: In a user-centered payment model, Spotify’s revenue isn’t distributed proportionally to total streams, rather proportionally to the number of streams per individual user. So the revenue that Spotify gains from an individual user goes straight to the artists who the user streams. This is fairer, and by the way, it can’t be affected by fraudulent activities such as auto-streaming all night.
Do these findings apply to other sectors?
Prof. Albers: What’s interesting is that there are many other situations in which a pot of revenue from flat rates has to be distributed among various providers. Currently, the revenue from the 9-euro monthly ticket in Germany has to be distributed among the local transport operators offering it. Distributed by estimated use, operators in metropolitan areas will profit. However, people in rural areas may have bought quite a lot of 9-euro tickets but used them for fewer, more necessary trips. In this case revenue distribution by individual user would be fairer. You can do this by implementing e-ticketing, in which use is recorded electronically per individual user via sensors.
Publication: Meyn, Janek, Michael Kandziora, Sönke Albers, and Michel Clement (2022): Consequences of Platforms' Remuneration Models for Digital Content: Initial Evidence and a Research Agenda for Streaming Services. Journal of the Academy of Marketing Science.