Battle of music: How the streaming business model penalizes individual genres

ABSTRACT

Streaming is the most important revenue source of recorded music nowadays. Consequently, there is a major de bate about the currently applied revenue distribution of the streaming services. We compare the current pro rata system of streaming companies like Spotify with an alternative user-centric model that may lead to substantial differences in payouts. Using a large survey of 3.326 participants we are able to empirically quantify the imbalance of the current streaming business model and give concrete managerial implications for labels with respect to the two competing payout systems. We find that the current pro rata system is cross-subsidizing genres like Hip Hop Rap (HHR) and Electronic Dance Music (EDM) with nearly €200 million per year just on Spotify. In a pro rata system, a cross genre subsidization takes place, when genres differ in their total consumption time (streaming minutes per week), song length (in seconds), and the average revenue per user in this genre. Depending on the genre portfolio of individual labels this results in a cross-subsidization between labels and is also changing the way new music is produced and marketed today.

MICHEL CLEMENT FACTS

Michel Clement is Professor for Marketing and Media at the Institute for Marketing, Hamburg Business School, University of Hamburg, Germany. He is Dutch citizen. He is also director of the Research Center for Media and Communication at the University of Hamburg. Professor Clement holds a doctoral degree in marketing from the Christian-Albrechts-University at Kiel and worked three years in various management positions for Bertelsmann in the media industry. His research focus is on media management, new technologies, customer relationship management, and blood donation management.