RALEIGH, N.C. (WNCN) — Millions of us pay a few bucks every month to stream music on services like Spotify or Pandora.
For musicians, that’s generally a good thing — but then comes the age-old question of how they should be paid.
“We believe, as research scientists, that there is a potential there, and there is clearly some money left on the table,” said Sasa Pekec, a professor of decision sciences at Duke University’s Fuqua School of Business.
“We tried to apply our math knowledge to try to see what the economic relationships and mathematical modeling could provide as a guidance there,” he said.
A survey by a trade group that represents the recording industry finds 78 percent of internet users who responded say they use streaming services to listen to music.
What their modeling does, Pekec says, is bring into balance the two main ways streaming services compensate artists:
— In what’s called a pro-rata system, the service collects all advertising and subscription revenue earmarked for artists into one pot and then pays each one based on his or her share of all the streams. For example, if Beyonce accounts for 5 percent of the streams in a month, she gets 5 percent of the payout.
— The opposite of that is a user-centric system, which bases those payouts on what each individual user listens to. For example, if you listen exclusively to Dexy’s Midnight Runners, then all of your subscription money earmarked for artists goes to to that single band.
Most streaming services use the pro-rata system, even though critics argue it most benefits the largest artists at the expense of smaller ones.
Pekec says the answer is “not so much about a particular formula.”
“It’s like, you know, 20th century classical economics,” he said. “But then all these things, when they get applied to the large markets of today, get really complicated to analyze.”
So which way is the best?
That might depend on who’s listening, they found.
If the users listen to lots of music, then paying the artists based on their share of the streams — the pro-rata approach — is the way to go.
But if there are artists who are popular with people who don’t listen much — low-consumption users, they’re called — then the user-centric system is the way to go.
And that leads to an even bigger question. How do the researchers get Spotify and Pandora to listen to them?
Pekec says the streaming giants are “aware of the paper, and that’s the point of science.”
“What really drives the proper way of compensation is these models,” he said. “Sometimes the optimal way of doing things might not be the way that like industry grows into.
“Even though you know something is better, there is so much of, basically, friction that you need to change to kind of implement those rules, they might not be realistic,” he added.