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DIGITALMEDIAFINLANDOY|digitalmedia.fi
FinnishMusicPublishers’AssociationFinnishMusicians’UnionFinnishSocietyofComposersandLyricistsTheSocietyofFinnishComposersProRataandUserCentricDistributionModels:
AComparativeStudy
30.11.2017JariMuikku
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TABLEOFCONTENTS
1. Introduction.......................................................................................................................31.1. Background.........................................................................................................................................31.2. Aims.....................................................................................................................................................31.3. Credits.................................................................................................................................................32. DistributionModels...........................................................................................................42.1. General................................................................................................................................................42.2. ProRataModel...................................................................................................................................52.3. UserCentricModel.............................................................................................................................63. ResearchMaterial..............................................................................................................64. AnalysisandResults...........................................................................................................74.1. TheResultsoftheStatisticalAnalysis.................................................................................................74.2. TheResultsforIndividualArtistsandTracks......................................................................................85. Conclusions......................................................................................................................116. Appendix:TheAnalysisProcess.......................................................................................136.1. ProRataModel.................................................................................................................................136.2. UserCentricModel...........................................................................................................................13
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1. INTRODUCTION
1.1. Background
AccordingtotheIFPI,digitalrevenuesmadeup50%ofthetotalrevenuesofrecordedmusicbusinessongloballevelin2016.Theshareofstreamingofthedigitalrevenueswas59%anditisgrowingfast.InsomeforerunningterritorieslikeNordiccountriestheshareofstreaminghas
alreadyexceededthelevelof80%oftheoverallrevenuesoftherecordedmusicbusiness.1Therefore,ithasbecomeveryimportanttostudycloserthecurrentdistributionmethodsofthe
subscription-basedstreamingservices.Accordingtoourknowledgeallmajoraudiostreamingservicesarecurrentlyusingtheproratamodelbutvariousrightholdergroupshaveexpressedneedstostudyalsoalternativemethodssuchastheso-calledusercentricmodel.
1.2. Aims
Theaimofthestudyistocomparethecurrentproratasystemandthealternativeusercentricsystemwithrealdatafromamajorstreamingserviceinordertoseehowthemethodsaffect
distribution.Thehypothesesofthestudywere:
1. Thecurrentproratasystemfavoursonlyfewtop-levelrightholders.2. Theconsumerswhopaymonthlysubscriptionfeesdonotknowwhichartists,worksand
otherrightholdersgettheirmoneyregardlessoftheirlisteninghabits.
3. Thecurrentdistributionsystemdoesnottakeintoaccountthedifferencesbetweenthedurationsofthevariouskindsofmusicalworksbutaretreatedequally.
1.3. Credits
ThestudywascarriedoutduringApril-November2017.Thestudywasdoneintwophases.
Thefirstpartwasthestatisticalanalysis,whichwasdonebyDr.PradeepDurgamofAaltoUniversity.Thesecondpart,writingofthereportandsomefurtheranalysiswasdonebyConsultant,Dr.JariMuikkuofDigitalMediaFinland.
1http://www.ifpi.org/downloads/GMR2017.pdf
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2. DISTRIBUTIONMODELS
2.1. General
AllmajormusicaudiostreamingservicessuchasSpotifyandAppleusecurrentlyproratamodelintheirdistributiontotherightholders.Analternativemethod,usercentric,hasbeenatopicofinternationaldebateforawhilebut,sofar,noneofthemostimportantstreamingserviceshave
usedit.Therearesomeannouncedon-goingusercentricpilotprojectslikeinFrancebetweenDeezer
andSACEM,but,atthetimeofwritingthisreport,theresultsoftheseprojectswerenotpubliclyavailable.
ThemostextensiveacademicstudyonthistopicistheresearchprojectbyUniversityofOslo(2014)2.AsimilarkindofstudywasdonealsoinDenmarkin2014,anditusedsimilarmethodsinordertomakethesetwostudiescomparable3.Bothstudieswerebasedonnationalreportsfrom
NorwegianstreamingserviceWiMP(laterTidal).Theoverallincomeofamusicaudiostreamingservice,whichconsistsmainlyofsubscriptionfees
and/oradvertisingrevenues,issharedbetweenthreemaingroups:
GROUP RIGHTHOLDERS SHARE(ESTIMATEDTOTAL)
Recordings
Recordcompaniesandotherproducers4
Performers5
55-60%
Recordedworks ComposersLyricists
ArrangersMusicPublishers
10-15%
Streamingservices --- 30%
Incaseofsubscription-basedstreamingservicesthemostcommonmonthlyfeeforanindividualconsumeris€9.99permonth.Serviceshavealsovariouskindsofofferings,specialpricesfor
2https://www.hf.uio.no/imv/forskning/prosjekter/skyogscene/publikasjoner/usercentric-cloudsandconcerts-report.pdf3https://koda.dk/fileadmin/user_upload/docs/Analysis_Music-Streaming-In-Denmark_2014.pdf4Otherproducers=e.g.productioncompaniesandartiststhemselves.Distributorsandaggregatorsdonotusuallyownanyrights,buttheygettheirsharefromrecordcompanies’revenues.5Thisrefersmainlytotheartists,whogetroyaltiesfromrecordcompanies.
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students,familypackages,andsoon,butinthisstudy,weusethe€9.99permonthpersubscriberasthecalculationbasis.
Ifwedeductservices’share(30%),theremainingsharableamountofmoneyperuserpermonthis€6.993.ThissumincludesVAT,butwedonotdiscusstheVATissuesofthecross-border
Internetservicesinthiscontext.Inthisstudy,wedonotanalysethefore-mentionedsharesorhoweachgroupdividesitsshare
betweentherespectiveparties.Forthesakeofclarity,weconsiderallroyaltiespaidbythestreamingservicesas100%incomeforallfore-mentionedrightholders.
Inthisstudy,theterm“track”meansasinglerecording,whichusuallyconsistsofonerecordedmusicalwork.
2.2. ProRataModel6
Intheproratamodel,allrevenuespermonthareputtogetherandsharedbetweenindividualtracksaccordingtothenumberoftotalstreams.7
Theformulaoftheproratacalculationmethodforanindividualtrackisasfollows:
Totalno.ofstreamsofTrackA_________________________XTotalrevenueTotalno.ofstreams
Forexample,ifTrackAgets100streams,thetotalnumberofstreamsduringamonthisonemillionandthetotalrevenueafterservice’sdeductionis500,000euros,theshareofTrackAiscalculatedasfollows:
100÷1,000,000=0.00010.0001x€500,000=€50
Thesumof€50isdividedbetweentherightholdersofTrackA(asdescribedinchapter2.1).
6Thenumberspresentedinchapters2.2and2.3aretheoreticalanddonotrefertotheSpotify
reportmaterialusedinthisstudy.Theyareonlyexamplestoclarifythecalculationmethods.7Itshouldbenotedthatthiscalculationformulaisasimplifiedmodel,whichdoesnottakeintoaccountthemoredetailedcalculationmethods,whichareusedinrealityasdefinedincontractsbetweenthevariousparties.
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2.3. UserCentricModel
Intheusercentricmodel,thecalculationisbasedonthelisteninghabitsofeachindividualuser.
Theformulaoftheusercentriccalculationmethodforanindividualtrackisasfollows:
No.ofstreamsofTrackAlistenedbyUser1____________________________________ XTotalrevenuefromUser1No.oftotalstreamslistenedbyUser1
Forexample,ifthetotalnumberofstreamslistenedbyUser1duringamonthis100,theshareofTrackAoutofthese100streamsis25,andtherevenuefromUser1is€6.99,theshareofTrackAiscalculatedasfollows:
25÷100=0.250.25x€6.993=€1.75
Thesumof€1.75isdividedbetweentherightholdersofTrackA(asdescribedinchapter2.1).
3. RESEARCHMATERIALTheresearchmaterialconsistedofaconfidentialusagereport,whichwaskindlyprovidedbySpotify.Thematerialwasavailableonlytotheresearcher,Dr.PradeepDurgamofAalto
University.ThematerialconsistedofusageinformationonFinlandduringthemonthofMarch2016.It
includedallSpotifyPremiumsubscribers(anonymised)inFinlandandallthestreamstheyhadlistenedduringthisperiodoftime.Thereportconsistedofmorethaneightmillionindividualstreams.8
8TheanalysisprocessstepshavebeendescribedindetailintheAppendix.
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ThedatareceivedfromSpotifywasarrangedaccordingtothefollowingparameters:
1. UserID:UniqueIDsperuser9
2. TrackID:AutomaticallygeneratedtrackIDs3. TrackTitle:Titleofthetrack4. TrackArtists:ArtistoftheTrack
5. AlbumTitle:Albumtitlefromwhichthetrackwasplayed6. StreamCount:Numberoftimesthetrackwasstreamed
Theresearchertookarandomsampleof10,000trackstorepresentthewholematerial.This
sampleincludedtracksfrom4493individualartistsand22,496streams(individuallisteningtimes),listenedby8051userIDs.
4. ANALYSISANDRESULTSTheanalysisispresentedintwosections.Inthefirstpart,wepresenttheresultsofthestatisticalanalysis.Inthesecondpart,wepresenttheanalysisfromthepointofviewofindividualtracks
andartists.
4.1. TheResultsoftheStatisticalAnalysis
ThestatisticalanalysisoftheresearchmaterialwasdonebyusingthePearsonTwo-TailedCorrelationAnalysismethod.Theresultswereasfollows:
Correlations
RevenueDiffUser-Pro
ConsolidatedStreamCount
RevenueDifference:UserCentricvs.ProRata
PearsonCorrelation 1 -.769**
Sig.(2-tailed) .000
N 4493 4493
ConsolidatedStreamCount PearsonCorrelation -.769** 1
Sig.(2-tailed) .000 N 4493 4493
**=Correlationissignificantatthe0.01level(two-tailed)N=Numberofindividualartists
ThetableshowsthatthereisahighcorrelationbetweentheStreamCountandtheRevenueDifferencebetweentheUserCentricandProRatamodels.
9Theuser-datawastotallyanonymized.
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Thenegativesign-.769meansthatthevariables,StreamCountandRevenueDifference,are
movinginoppositedirections.ThismeansthatastheoverallStreamCountdecreases,therevenuedifferencebetweentheUserCentricandProRatamodelsincreases.ThisindicatesthatUserCentricrevenuefortrackswithsmallernumberofstreamsgetsbiggerasthetotalnumber
ofstreamsperusergetssmaller.Therefore,UserCentricrevenuefortrackswithsmallernumberofstreamswillincreasewhen
thetotalstreamcountperuserislower.Thetrackswithsmallernumberofstreamswillearnmorefromeachuser,whichindicatesthattrackswithsmallernumberofstreamswillearnrelativelymoreinUserCentricmodelthaninthecurrentProRatamodel.
4.2. TheResultsforIndividualArtistsandTracks
Theresultsofthemoredetailedanalysisweredecidedtobearrangedaccordingtotheartists10.The4493individualartists11,whowereincludedinthesampleof10,000tracks12,weredivided
intothreemaingroupsaccordingtothetotalnumberofstreams.Thepercentagefiguresinthefollowingdiagramrefertotheirshareofthetotalnumberofartists,
andthestreamcounttothetotalnumberofstreamsperartistwithinthesample(canincludeonlyonetrackorseveraldifferenttracks):
10Itshouldbenotedthateventhoughweusehereartistsastheleadingparameteroftheanalysis,theanalysisconcernsallrightholdersofeachindividualtrack.11Asthereportmaterialdidnotincludeinformationonthenationalityoftheartists,wewerenotabletocomparetheresultsbetweennationalandinternationalartists.12Dr.Durgamdidalsoanadditionaltestcomputerrunwithasampleof50,000trackswithalimitednumberofartistsinordertoverifytheresultsofthesmallersample.Theresultsconfirmedthattheoverallresultswerethesameasinthesampleof10,000tracks.Themaintrendisthatasthesizeofthesamplegrows,therelativesizeandthestreamcountoftheBasic-TierremainsthesamebutthedifferencebetweenthebasicandTop-Tierstreamcountsgrowsexponentially.
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Inallfore-mentionedgroupsthedifferencesinthefinancialresultsbetweentheprorataandtheusercentricmodelswerequitedramaticfromthepointofviewofanindividualartist.
Intheproratamodelthesituationisquiteclear.Themoreyougetstreams,thebiggerisyourshareofthetotalrevenues.
TheshareoftheTop-Tierartistsofthetotalrevenuewas9.9%accordingtotheproratasystemwhereasonly5.6%accordingtotheusercentricsystem.NoneoftheTop-Tierartistsgotmore
revenuesintheusercentricdistributionmodel.Thedifferencebetweenthetwodistributionmodelsinthetop-tiershowsthattheproratamodelfavoursthefewtopartistswhenthecalculationisbasedonlyonthetotalnumberofstreamsperartist.
However,intheMid-andBasic-Tiersthedifferencesbetweentheprorataandusercentricmodelsforindividualartistswerepercent-wisehightobothdirections.Inotherwords,artists
couldgeteithermuchmoreorlessintheusercentricmodeldependingonthecasewithinthesamplereportmaterial.
Intheusercentricmodeleachartist’ssharedependson,firstly,thetotaloverallnumberofstreamsorwhetheritislowerorhigheraspresentedinchapter4.1.Secondly,itdependsontheindividuallistener’shabitsorwhetherhe/shelistensonlycertainartists,howmanytimescertain
tracksarelistened,howthelistenedstreamsspreadamongvariousartists,andsoon.
Top-Tier:~0.4%StreamCount:
100+
Mid-Tier:~9.6%StreamCount:10-99
Basic-Tier:~90%StreamCount:1-9
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Theonlyartistgroup,whichgotalmostthesamefinancialresultsinbothmodels,wasartists,whoarepopularinmanyconsumersegmentsandhavealargelistenerbase.Thisandallother
observationsseemedtoconcernbothdomesticandinternationalartists13.Popularartists,whowouldhavegotmuchlessmoneyintheusercentricmodel,aremostlikely
listenedbyasmallernumberofsubscriberswholistentheirtracksmanytimes.Popularartists,whoarelistenedbyalargenumberofindividuallistenersandwholistenthemfewertimes,arelessaffectedbythechangesbetweenthetwomodels.Thisseemedtorelatealso,toacertain
degree,todifferentmusicalgenres14.Incaseofmostartists,whogetonlyfewstreams,thechangesarepercent-wisedramatic
betweenthetwomodels.Intheusercentricmodeltherevenuesaredirectlyaffectedbyeachsubscriber’slisteninghabits.Ifasubscriberlistensonlyacertainartisteitherfewtimesoralotoftimes,his/hermoneygoesonlytothisartistandtherespectivetracks.However,ifhis/her
listeningisspreadamongmanyartists,therevenueisalsospreadaccordinglyandaffectseachartist’sandtheothertrack’srightholders’revenuesinanegativeway.
Theextremealternativescanbedemonstratedinthefollowingway:
• Ifasubscriberlistensonlyonetrackonceduringamonth,thewhole€6.933wouldgo,
accordingtotheusercentricmodel,tothattrackanditsrightholders.
• However,intheproratamodelthismoneywouldbejustaddeduptotheoverallpot,
whichwouldbedividedaccordingtothenumberofstreamsofeachtrack,andtherightholdersofthatonetrackwouldgetonlyafractionofthesameone-track-once-a-month-
user’smoney.
Furthermore,ifthelisteninghabitsofvarioussubscribergroupsarecumulated,theoveralleffectscanberemarkableintheusercentricmodel.Accordingtothestatisticalanalysisofthe
sample,thechangesof50%ormoretobothdirectionsbetweenthetwomodelsarenotrare.TheoverallshareoftheTop-Tierartistsisquitedifferentinthetwomodels.Comparedwiththe
proratamodel,intheusercentricmodelalmosthalfoftheTop-Tier’srevenueswouldhavebeenspreadamongtheartistsandtheotherrightholderswithfewerstreams(Mid-TierandBasic-Tier).
Allinall,themostimportantpointincomparingthetwomodelsistherelationbetweenthetotalnumberofstreamsandthelisteninghabitsofasinglesubscriberorsubscribergroups.
13Itmustbeemphasizedthatthiswasnotanalysedstatisticallyasthedatadidnotincludeinformationonthenationalityoftheartists.14Thispointofviewwasnotanalysedstatisticallyasthedatadidnotincludeanygenreclassification.
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Intheproratamodelonlythenumberofstreamscount,whereasintheusercentricmodelthetotalnumberofstreamspersubscriber,aswellashowtheyarespreadamongvarioustracksand
artists.Therefore,theusercentricmodelislesspredictable.Itisalsoclearthattheproratamodelfavoursthefewtop-tierartistswhogetbiggestamountsofstreams.
Thisanalysiscouldalsohavebeendonebasedonworksinsteadofartists.Inthatcasetherewouldhavebeendifferentkindsofvariationssuchasseveraldifferentrecordingsofaworkbyseveraldifferentartists,workscreatedbyseveralcomposersandlyricists,andsoon.However,
weassumethattheresultsofthework-basedanalysiswouldhavemostprobablybeenquitesimilar.
Itcouldalsobestudiedifsubscriberschoosetrackstheylistenbasedonanartist,aworkoracombinationofthem,orsimplyprefertouseready-orself-madeplaylists.Subscriberscanalsorelyoneachservice’salgorithms,whichlearnthetasteofeachuserandofferrecommendations
orplaylistsbasedontheirlisteninghabits.Itshouldalsobenotedthatthecurrentproratadistributionsystemdoesnottakeintoaccount
thebigdifferencesbetweenthedurationsofthevariouskindsofmusicalworks.Forexample,eachplayofathree-minutepopsongistreatedindistributioninthesamewayasaplayofa15-minuteclassicalmusicwork.Inthisstudy,itwasnotpossibletoanalysethis,astheresearch
materialdidnotincludeinformationonthedurationoftheindividualtracks.
5. CONCLUSIONSThestudyhasdemonstratedthebasicdifferencesandcorrelationsbetweentheprorataandthe
usercentricdistributionmodels.Thebasictrendisthatastheoverallstreamcountdecreases,therevenuedifferencebetween
theusercentricandtheproratamodelsincreases.Theproratafavoursartistsandtracks,whichgetthebiggestamountofplayedstreams
regardlessiftheyarecreatedbyalargenumberofuserswithfewplaysorasmallernumberofuserswhohaveplayedthemrepeatedly.
Theusercentricmodelfavoursartistswithsmallernumberofstreams,especiallywhentheoverallstreamcountissmaller.However,itshouldbeemphasizedthatthepositivefinancialeffectisnotautomaticinallusercentriccasesbuttheresultmayaswellbetheopposite.The
resultsdependonthecumulativeeffectsofbothindividualandusergroups’listeninghabits.
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Inanycase,theusercentricmodelgivesmoredirectpowertouserstotargetthemoneytheypayfortheservicetotheartistsortrackstheyfavourcomparedwiththeproratamodel,whichis
nottransparentfromtheirpointofview.
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6. APPENDIX:THEANALYSISPROCESSThereportconsistedofmorethaneightmillionindividualstreams.Thedatawasreceivedinatextformat.Itwasconvertedintoanexcelformat(.xsls)andSPSSformat(.sav)foranalysis.
TheanalysisofthereportingmaterialprovidedbySpotifywasdonebyexecutingthefollowingsteps:
6.1. ProRataModel
Step1:Togetthetotalsubscriptionfeecollectedfromtheusersinthe10,000tracks,thejust
UserIDandtheStreamCountwereextracted.
Step2:TheUserIDwasconsolidatedwithStreamCountthroughtheconsolidationfunctionunderthedatatab.Aftertheconsolidation,thenumberofuniqueUserIDswasreducedto8051andthestreamcountaddedtoeachUserID.
Step3:TheTrackArtistandStreamCountwereextractedfromtheoriginaldatafileandcopiedtoanewexcelsheet.TrackArtistandstreamcountwereconsolidatedthroughtheconsolidation
functionunderthedatatabintheexcelsheet.Afterthisiswaspossibletocountthetotalamountcollectedandthetotalamountfor
distribution:
Collected: 8051x€9.99=€80,429
Fordistribution: €80,429x0.7=€56,300(30%deductionforSpotify)Step4:Thedistributionwascalculatedforeachartistaccordingtotheformulapresentedin
chapter2.2.
6.2. UserCentricModel
Step1:TheconsolidatedUserIDandconsolidatedStreamCountwereextracted.
Step2:Therevenueperstreamforanindividualuserfeewascalculatedasfollows:
Revenuereceivedfromeachuser=€9.99
Deduction(30%)forSpotifyFinalrevenuereceivedfromperuser=0.7x€9.99=€6.993
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Revenueperstreamforeachindividual’suserfee=
Revenuereceivedfromeachuser÷consolidatedstreamcountTheresultwasrevenueperstreamforeachuser.
Step3:TherevenueperstreamforeachuserandtheconsolidatedUserID(count8051)wasthenplacedalongsidewiththeUserIDandTrackArtists,whichhadtheoriginalcountof10,000.
ThentherevenueperstreamwasplacednexttotheindividualTrackArtist(withcount10,000)andUserID(withcount10,000).AftertheSUMIFfunctionoftheexcelsheetthecountofcolumn
ofrevenueperstreamwas10,000.Step4:Revenueperstreamandperuserwascalculatedwiththecountof10,000.
Step5:ThentheUserCentricRevenueperArtistwascalculatedbyusingSUMIFfunctiononcolumnTrackArtist(count10,000)andrevenueperstreamthatwascalculatedearlier.Theresult
wasanewcolumnofusercentricrevenueforallartists.Step6:Theartistswererepeatedandtheamounttheyearnedwererepeated.Thereforeartists
andtheirrevenueswereconsolidatedatthesametimeassumminguptheirnumberofstreams.Step7:Afterconsolidation,theProRataRevenueswereplacedalongsidewithUserCentric
Revenues.ThentheRevenuedifferencewascalculated.Step8:AfterhavingtheStreamCount,ProRataRevenue,User-CentricRevenueandthe
differencebetweenUserCentricandProRataRevenuesIBMSPSSwasused.
ThecorrelationfunctionwasusedinordertounderstandthecorrelationbetweenStreamCountandtheRevenueDifference.