pro rata and user centric distribution models: a ......5 (14) pro rata and user centric distribution...

DIGITALMEDIAFINLANDOY|digitalmedia.fi

FinnishMusicPublishers’AssociationFinnishMusicians’UnionFinnishSocietyofComposersandLyricistsTheSocietyofFinnishComposersProRataandUserCentricDistributionModels:

AComparativeStudy

30.11.2017JariMuikku

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ProRataandUserCentricDistributionModels30.11.2017


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.

pro rata and user centric distribution models: a ......5 (14) pro rata and user centric distribution...

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