Galaxie 500: There's no money in being a Tugboat captain

Damon Krukowski out of Galaxie 500 and Damon & Naomi has written a piece for Pitchfork about how low royalties from Pandora and Spotify are.

They are, as we know, low:

Galaxie 500's "Tugboat", for example, was played 7,800 times on Pandora that quarter, for which its three songwriters were paid a collective total of 21 cents, or seven cents each. Spotify pays better: For the 5,960 times "Tugboat" was played there, Galaxie 500's songwriters went collectively into triple digits: $1.05 (35 cents each).
To put this into perspective: Since we own our own recordings, by my calculation it would take songwriting royalties for roughly 312,000 plays on Pandora to earn us the profit of one-- one-- LP sale. (On Spotify, one LP is equivalent to 47,680 plays.)

Obviously, this isn't comparing like with like; if you expect streaming to earn selling-like money on a rental-like proposition, you're going to be disappointed. It's more like radio plays.

And if you're expecting to earn radio-like money from streaming, you're going to be disappointed, too. With radio, you get paid for playing to big chunk of people; online you have to collect each of those listeners individually and so - unless you're a One Direction or a Lady GaGa - you're going to struggle to gather together an audience large enough to make anything beyond chump change.

But even if you set your expectations low, there seems to be something strange going on. Having set low royalty rates, Spotify then claws back most of the cash for... um, 'reasons':

[F]or 5,960 plays of "Tugboat", Spotify theoretically owes our record label $29.80.

I say theoretically, because in practice Spotify's $0.004611 rate turns out to have a lot of small, invisible print attached to it. It seems this rate is adjusted for each stream, according to an algorithm (not shared by Spotify, at least not with us) that factors in variables such as frequency of play, the outlet that channeled the play to Spotify, the type of subscription held by the user, and so on. What's more, try as I might through the documents available to us, I cannot get the number of plays Spotify reports to our record label to equal the number of plays reported by the BMI. Bottom line: The payments actually received by our label from Spotify for streams of "Tugboat" in that same quarter, as best I can figure: $9.18.

Taking two-thirds of the money away because the computer said so seems to be quite a disgrace. To not even be able to explain to the musician why Spotify are pocketing twenty bucks from a thirty dollar payout is, at best, unfair.

And it gets more unfair. Pandora pays a few cents to the musician as well as the songwriter. At the moment:

Pandora in fact considers this additional musicians' royalty an extraordinary financial burden, and they are aggressively lobbying for a new law-- it's now a bill before the U.S. Congress-- designed to relieve them of it.

As Damon points out, even with all this Scrooge McDuckery, neither Pandora nor Spotify are getting rich, either:

Pandora and Spotify are not earning any income from their services, either. In the first quarter of 2012, Pandora-- the same company that paid Galaxie 500 a total of $1.21 for their use of "Tugboat"-- reported a net loss of more than $20 million dollars. As for Spotify, their latest annual report revealed a loss in 2011 of $56 million.

Damon's conclusion? He subscribes to Spotify himself, and so isn't calling for a boycott, or a march on the server farms with burning torches. It's just this:

I have simply stopped looking to these business models to do anything for me financially as a musician. As for sharing our music without a business model of any kind, that's exactly how I got into this-- we called it punk rock. Which is why we are streaming all of our recordings, completely free, on the Bandcamp sites we set up for Galaxie 500 and Damon & Naomi. Enjoy.

And he's right. Having your music on Spotify is better, financially, than having it on a torrent or giving it away for nothing; but not much better.

That doesn't mean Pandora and Spotify should be allowed to try and shrink the already small sums they're paying, though. There's a logic to there not being much in pot; there's no reason for the house not to share it fairly.

[Thanks to @zaichishka for the tip]