FIM

First pub­lished on the SML web­site

More for few or few­er for more – The results of a com­par­a­tive study on pro rata and user-​centric dis­tri­b­u­tion models

Currently, the mon­ey goes to the most lis­tened tracks instead of being allo­cat­ed in accor­dance with the con­sumer’s choices

The study com­mis­sioned by Finnish music orga­ni­za­tions explored the dif­fer­ences between the pro rata mod­el favor­ing the most lis­tened tracks and being in use in stream­ing ser­vices, and the alter­na­tive user-​centric mod­el based on indi­vid­ual con­sumer’s choic­es. The study con­cen­trat­ed espe­cial­ly on how con­sumer’s deci­sions affect the com­pen­sa­tions paid to the right hold­ers. The research mate­r­i­al was pro­vid­ed by Spotify. The study revealed a remark­able dif­fer­ence in the num­bers of pro rata and user-​centric models.

In the user-​centric mod­el, the con­sumer’s choic­es matter

The mon­ey col­lect­ed from users by music stream­ing ser­vices, such as Spotify and Apple, is usu­al­ly divid­ed into three parts: the stream­ing ser­vice keeps approx­i­mate­ly 30 % of the mon­ey col­lect­ed, and the rest is shared to the right hold­ers of works (com­posers, musi­cians, arrangers, pub­lish­ers) and the right hold­ers of record­ings (finan­cial pro­duc­ers, per­form­ing artists). Currently, all the major stream­ing ser­vices use the pro rata mod­el when dis­trib­ut­ing the share of the right holders.

In the pro rata mod­el, the users’ month­ly fees gen­er­ate a total amount, from which the mon­ey is dis­trib­uted in pro­por­tion to all lis­ten­ing times. The mod­el, there­fore, favours the right hold­ers of the most lis­tened tracks.

In the alter­na­tive user-​centric mod­el, the right hold­er’s com­pen­sa­tion is based on the num­ber of lis­ten­ing times of an indi­vid­ual user: how many dif­fer­ent tracks the user is lis­ten­ing and how many times. If the user con­cerned would lis­ten to only one track, would his/​her whole month­ly fee be paid to the track­’s righthold­ers. Therefore, the dif­fer­ence com­pared to the pro rata mod­el is that it would, in prin­ci­ple, increase the com­pen­sa­tion of the right hold­ers of less lis­tened tracks, and, on the oth­er hand, reduce the com­pen­sa­tion of the most lis­tened music.

“When trans­fer­ring to user-​centric mod­el, the com­pen­sa­tion of the right hold­ers of the most lis­tened tracks could be reduced, depend­ing on the user’s lis­ten­ing times and the dis­tri­b­u­tion of the lis­ten­ing of mul­ti­ple tracks”, says Jari Muikku, the execu­tor of the study and Digital Media Finland consultant.

“In the user-​centric mod­el, the con­sumer has a bet­ter chance of influ­enc­ing whom the mon­ey (s)he is pay­ing for will be allo­cat­ed to. This is a ben­e­fit for the entire music indus­try as it can, because of trans­paren­cy, encour­age more users to order the paid ser­vice”, says Muikku.

The study is an essen­tial step towards a deep­er analy­sis of the dis­tri­b­u­tion mod­els and is encour­ag­ing for fur­ther research, from the point of view of both con­sumers and right holders.

“The consumer-​oriented user-​centric mod­el is clos­est to the ‘fair trade idea’ in which the author gets the com­pen­sa­tion for the use of their art. It would be com­fort­ing to know that the songs I lis­ten to and their authors ben­e­fit from the ser­vice I pay for. Transition to the user-​centric mod­el would, from artists’ point of view as well, ensure the diver­si­ty of music in the stream­ing ser­vices and enable the prof­itabil­i­ty of all gen­res. Eventually, I believe the whole music field would ben­e­fit from the tran­si­tion to the user-​centric mod­el”, says Mikko Von Hertzen, musi­cian and songwriter.

The study was car­ried out dur­ing April-​October 2017 by Dr Pradeep Durgam of Aalto University. The writ­ing of the report and some fur­ther analy­sis was done by Consultant, Dr Jari Muikku of Digital Media Finland.

Spotify pro­vid­ed the research mate­r­i­al, which con­sist­ed of pre­mi­um users’ lis­ten­ing times in March 2016. The user data was whol­ly anony­mous and was only giv­en to the researcher Pradeep Durgam. The study con­cerned only the so-​called pre­mi­um user ser­vice, and the researcher did not have infor­ma­tion about the com­pen­sa­tion paid by the advertisers.

The study was guid­ed by a steer­ing group formed by the Finnish Music Publishers’ Association, the Finnish Musicians’ Union, the Finnish Society of Composers and Lyricists and The Society of Finnish Composers. The Study was part­ly fund­ed by The Ministry of Education and Culture

Inquiries

Jari Muikku, Digital Media Finland
jari.​muikku@​digitalmedia.​fi
Tel. +358 (40) 719 7480

Lottaliina Pokkinen, Finnish Musicians’ Union
lottaliina.​pokkinen@​muusikkojenliitto.​fi
Tel. +358 (40) 861 3231

More about the dis­tri­b­u­tion models

In the pro rata mod­el, the com­pen­sa­tion of the right hold­ers is cal­cu­lat­ed month­ly by divid­ing the lis­ten­ing times of the track by the lis­ten­ing times of all users of the ser­vice, and this amount is mul­ti­plied by the total rev­enue (col­lect­ed month­ly fees).

In the user-​centric mod­el, the com­pen­sa­tion of the right hold­ers is based on the lis­ten­ing times of indi­vid­ual users. It is cal­cu­lat­ed by divid­ing the num­ber of lis­ten­ing times of a track by a sin­gle user by the num­ber of total lis­ten­ing times of the user. This amount is mul­ti­plied by the month­ly fee paid by the user.