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✖️ Ethical music streaming can't be optional: critiquing the Ethical Pool

Hi everybody! It has been a long time since the last MxTxF edition (January). I decided to take a bre
✖️ Ethical music streaming can't be optional: critiquing the Ethical Pool
By MUSIC x TECH x FUTURE • Issue #100 • View online
Hi everybody!
It has been a long time since the last MxTxF edition (January). I decided to take a break and focus on settling in Berlin (where I had just moved), as well as my role as Product Director at classical music streaming service IDAGIO (we just raised another round and launched in North America 🇨🇦🎉🇺🇸).
Most of my attention is currently applied to building product, team, and process. While I keep my eye on innovation in the wider music business, it’s not where my focus is, hence the lack of editions.
Every so often, however, articles appear that are very close to my specialty. The latest such article, about the way royalties are divided on streaming services, definitely hits close to home. Every day I think about the dynamics between fan, artist, label, and all the other elements of the ecosystem.
So after a long hiatus, here it is: edition 100! Glad you’re with me!
Love,
Bas

Ethical streaming doesn't work as an opt-in. It should be the default.
I remember when I first signed up to Spotify. It was the day they launched in The Netherlands. Finally a digital service that allowed me to do the right thing in a more convenient way than the file sharing networks which were up until then the most frictionless way to access music.
Very rapidly, the files on my computer and the CDs in my room became unimportant. I was happy, too. If I really love an album and play it all the time, or spend an entire month just listening to one artist, they are going to get my money.
I was wrong.
It’s how everyone thinks streaming works, but it actually doesn’t.
A simplified explanation:
Your streams typically get pooled with other users’ since Spotify and other services pay per stream. This means that if you only listened to one album in a month, and the average user listened to two, only half of your subscription money will go to that album. The other half goes to whatever those other people were listening to.
Even more simple:
There’s a per-stream royalty rate. Let’s say it’s $0.1 (it’s way lower). If you listen to only one track in a month, only $0.1 from your subscription fee will go towards the artist. The rest gets added to “The Big Pool” and sent to other artists (including ones you’d rather not see profiting from you, like Chris Brown).
Sounds strange?
I’m adding links for further reading to the bottom.
This has been a hot topic for years, and is still gaining momentum. Recently an article addressing this topic started being sent around. In it, Chris Castle proposes an Ethical Pool which would let users make sure the money they pay only goes to the artists they listen to (or at least the respective rights holders).
I’m all for this and am proud to work for a service (IDAGIO) that already has such a model in place for all its subscribers. My problem is with the suggested implementation:
When the fan signs up for a service, let the fan check a box that says “Ethical Pool.” That would inform the service that the fan wants their subscription fee to go solely to the artists they listen to. This is a key point—allowing the fan to make the choice addresses how to comply with contracts that require “Big Pool” accountings or count Ethical Pool plays for allocation of the Big Pool. Remember–the Ethical Pool exists along side the Big Pool, not to the exclusion of the Big Pool. If the fan did not opt in to the Ethical Pool, the default would be the Big Pool.
Unfortunately no service that isn’t uniquely positioned around this proposition would ever implement that. The goal for services is to make crucial steps such as signing up and subscribing as frictionless as possible. Introducing complex topics here is how you kill your sign up conversion rate and your revenue with it. And the reason why it’s a very complex topic, is exactly because people think this is how streaming works anyway. You don’t want them to go “oh, hold on, I thought that’s how it works? This is confusing.. Not sure if I should trust this.. I’ll try another service first.”
Artists also would be able to opt into this method by checking a corresponding box indicating that they only want their recordings made available to fans electing the Ethical Pool. The artist gets to make that decision. Of course, the artist would then have to give up any claim to a share of the “Big Pool.”
This effectively creates two services in one, where some music is available to you and some isn’t – for an abstract reason that many people won’t understand. This was a major source of confusion when we had a free tier at IDAGIO through which we would stream public domain content for free to users. All “premium” content was marked with a tag and you’d have to subscribe to listen to it. Pretty clear, but still not clear enough. If it’s not extremely simple, it’s too complicated.
What’s outlined in the article simply leads to an utterly confusing user experience for reasons that many people are not aware of or currently care about. This means that whichever service would implement this would suffer and drop their conversion rate to below that of competitors who don’t do this. Whoever moves first loses, because people will go to the service that’s easy to understand or just stay where they are (e.g. using YouTube for free).
The second problem is that this is not how most music ends up on streaming services. Instead, it goes through labels and distributors, who put the music up on many different services with varying accounting methods. So where do the artists opt in?
Simply put: I don’t believe this is going to work as an opt-in. We should go a step further. The only way to build an ethical pool in a sustainable way is to make sure the entire service functions on that premise.
It’s a clearer value proposition to the users, and it won’t lead to confusing segmentation of the music on the service. I understand the proposition of The Ethical Pool model and appreciate Chris Castle’s point of view. To me it feels like something halfway, a compromise. We should not be thinking about compromise just yet. There are clear reasons why a user-centric model would benefit the listeners, artists, labels, and service involved:

  1. Incentive to bring fans on board. If your hardcore fans are on this service, then you’ll make more money than if they were on a “Big Pool” service.
  2. Incentive to keep fans engaged. If 100 people listen to only your music in a given month, you get their subscription money. It’s as if they’re subscribed to you. This means it incentivises artists to be more active on the service. Also: more engagement won’t make the service bleed money. Some services currently have models through which users can cost more streaming royalties than they contribute through their subscription money. That’s unsustainable.
  3. A more direct artist-fan relationship. The two above factors create the opportunity to go a step further. The service, in a way, turns into a game of who can hold people’s attention best. Artists could band together and include each other on their playlists. You get real competition and you can gamify that, e.g. letting people unlock discounts, fan club access, tickets, or attain social status in artist-centric alliances. Let’s open up new revenue sources.

The author seems to be excited about that too:
The subscription service could also offer a “pay what you feel” element that would allow a fan to pay more than the service subscription price as, for example, an in-app purchase, or—clasping pearls—allow artists to put a Patreon-type link to their tracks that would allow fans to communicate directly with the artist since the artist drove the fan to the service in the first place.
So let’s not make it an opt-in. Make it a default.
Let’s do it properly.
Curious to hear your thoughts and experiences around this topic. Feel free to reply to this email or take it public and ping me on Twitter: @basgras
Additional reading
Notes
For the sake of readability, I’ve referred to “artist” a lot. In fact, money reaches artists in various ways, and their deals with labels and distributors influence the amounts they get. Likewise, music services don’t distribute the full amount that users pay back to rights holders, since they also have to cover their own costs.
Furthermore, with regards to accounting and the distribution of royalties, I’ve simplified things. If you’re looking to have a definitive and exact explanation of how this works: Google is your friend. Be prepared to spend hours on studying it.
The MxTxF community
For a while I ran a Facebook group for MUSIC x TECH x FUTURE. That is now gone, since I’ve deleted my Facebook.
I’ve also been running a community on Slack, called the Music Tech Network. If you would like to connect to the wider community, then click here to apply. Just put your name, email address, and the secret word (MxTxF) and I’ll add you whenever I have time.
If a lot of applications come in at once, I may create different phases, so that the community doesn’t get overwhelmed by the influx. Look forward to seeing you on Slack!
Music
Anthems by HDmirror
For those that don’t use Spotify: stream / buy on Bandcamp.
I hope you’ve enjoyed this special edition. And until the next one!
Love,
Bas
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