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Music streaming services tackling unfair royalty payments as Spotify entry looms

Graphics by Cho Sang-won
Graphics by Cho Sang-won

By Park Ji-won

Korean music streaming services are looking for ways to improve an inadequate royalty payment system for artists, as Sweden-born international streaming service provider Spotify is expected to launch its business in Korea in the near future.

Vibe, a music streaming service of the nation's largest search engine Naver, recently announced that it will seek a major reform in its payment of royalties in a way to more benefit artists.

The firm said it will pay royalties based on the number of streams per user as a proportion of total songs each user played, which is new model in the industry.

Most streaming services distribute 65 percent of revenue earned from users' monthly payments after a 35 percent service charge has been deducted. For example, if a user paid 10,000 won ($8) per month for the monthly streaming price and played only one song, 65 percent of the user's fee, or 6,500 won, will go to the creators of that played song. Out of 6,500 won, the music production company takes 48.25 percent while the composers and recording artists take 10.5 percent and 6.25 percent, respectively.

Firms such as Kakao's Melon and KT's Genie, which have more than 60 percent combined market share here, are known for distributing 65 percent of total revenue to artists based on the number of song streams as a proportion of total streams.

This means the as the total number of streams increase, the less money popular artists earn per song (as the size of the denominator become larger) which, at the same time, benefits popular artists accounting for the majority of the total streams.

In addition to the changes to Vibe, SK's FLO said it will eliminate its real-time chart which has been renewed every hour, as it has a negative impact in the music industry by prompting unnecessary competition. Instead, it will show a daily chart based on data accumulated within the last 24 hours while recommending songs in each users' front page based on an algorithm that analyzes each user's preferences.

Officials of the two firms cited that the reason behind their transformations is to create a better environment for underrated artists by improving the system which has been favorable to famous artists or fraudulently accrued streams.

"Streaming service providers like Melon own its management and distribution companies at the same time, meaning they are satisfied with the current payment system as they benefit a lot when their big-name artists like IU under their label become popular in the streaming services no matter what. The more people stream or consume their popular artists, the more providers can take money from it," an official of Vibe who insisted not to be named said.

"(Naver hopes) Vibe's new payment system can pave a beneficial pathway for indie artists who had been marginalized by the current unhealthy system," the official added.

Swedish Spotify's inroad into the Korean market and the rise of YouTube Music are also prompting the streaming firm to change its old-fashioned system.

Spotify has reportedly established its Seoul office in January to begin its business here. It is known to be having negotiations with music distribution companies and rights holders to stream their music through Spotify. As its service is not dependent on a company-led chart, but uses its own recommendation algorithm based on user preferences unlike other homegrown streaming services where people find what they want to listen to by themselves, Spotify is largely expected to draw popularity among the users who want to listen to similar songs they like which is now common thanks to other streaming services like YouTube or Netflix.

However, considering the fact that Apple Music wasn't able to have a meaningful market share here for years after failing to introduce popular Korean songs, critics expect that Spotify would have the same fate unless it secures Korean music content.

Meanwhile, YouTube Music has been rising as more people use YouTube's premium service which includes both video and music service. Though companies didn't reveal exact data, according to insiders, more people are quitting homegrown streaming services and shifting to using YouTube and it is becoming one of the major threats to Korean music-streaming services.

Fake streams distort industry

Streaming data and relevant figures have not been disclosed to the public, which has been a major problem for the industry as it enables the streaming service providers to take the royalty in favor of themselves by monopolizing the market. Most artists didn't know the exact amount of money they should receive monthly or on what criteria the payments would be based and thus found it hard to claim their rightful share.

By taking advantage of the loophole, fraudulent stream counts have been prevailing. In 2019, officials of leading music streaming service provider Melon's affiliate LOEN Entertainment were charged with siphoning off about 4.1 billion won in 2009 by establishing a "ghost company." They are also suspected of rigging user data so as not to pay royalties worth around 14.1 billion won.

Also, considering the fact that unpopular musicians have been able to enter the top 10 chart out of the blue, which is one of the major ways to boost streams and thus royalties for artists, many suspected that there are a group of people who are profiting from "assisting" artists take top chart rankings and the streaming service providers may have a hand in such practices.

But it is hard to regulate such fraudulent acts under current law. Even though many, including large entertainment companies and artists, have been raising allegations about the existence of chart rigging for years and have filed a suit against those alleged companies, not a single organization has seen punitive action.

There is a law on music industry promotion which stipulates a 2 year jail term or a fine of 20 million won for those found to make purchases with the intention to raise sales of albums or who have other people buy the album for the same purpose, but industry officials say that it is not actually working because it is difficult to find evidence to show such "unfair" practices. For streaming companies, fake streaming accounts could be considered as "customers" as well.

Mixed reaction over new payment system

Artists showed mixed reaction over the new royalty distribution systems. Some said that it is better compared to the existing system in terms of benefiting artists.

"For creators, the new ways to directly benefit artists is way better than the current system which is basically a cartel between large streaming and distribution companies," a 22-year-old songwriter, who didn't want to be named, said.

However, some were skeptical about the change as there is no change in the distribution rate and royalties the artists, especially indie artists, would receive in general.

"Of course, the moves of Vibe and FLO are better than that of Melon and Genie. However, those streaming firms would still take 35 percent and production companies would have 48.25 percent, meaning creators will still receive a very small amount of money in the market which is basically a monopoly," a 32-year-old indie singer who insisted not to be named, said.

"Unless the firms reveal their streaming data, as Amazon Music did recently, the market would only benefit large companies, not artists."


Graphics by Cho Sang-won
Graphics by Cho Sang-won

By Park Ji-won

Korean music streaming services are looking for ways to improve an inadequate royalty payment system for artists, as Sweden-born international streaming service provider Spotify is expected to launch its business in Korea in the near future.

Vibe, a music streaming service of the nation's largest search engine Naver, recently announced that it will seek a major reform in its payment of royalties in a way to more benefit artists.

The firm said it will pay royalties based on the number of streams per user as a proportion of total songs each user played, which is new model in the industry.

Most streaming services distribute 65 percent of revenue earned from users' monthly payments after a 35 percent service charge has been deducted. For example, if a user paid 10,000 won ($8) per month for the monthly streaming price and played only one song, 65 percent of the user's fee, or 6,500 won, will go to the creators of that played song. Out of 6,500 won, the music production company takes 48.25 percent while the composers and recording artists take 10.5 percent and 6.25 percent, respectively.

Firms such as Kakao's Melon and KT's Genie, which have more than 60 percent combined market share here, are known for distributing 65 percent of total revenue to artists based on the number of song streams as a proportion of total streams.

This means the as the total number of streams increase, the less money popular artists earn per song (as the size of the denominator become larger) which, at the same time, benefits popular artists accounting for the majority of the total streams.

In addition to the changes to Vibe, SK's FLO said it will eliminate its real-time chart which has been renewed every hour, as it has a negative impact in the music industry by prompting unnecessary competition. Instead, it will show a daily chart based on data accumulated within the last 24 hours while recommending songs in each users' front page based on an algorithm that analyzes each user's preferences.

Officials of the two firms cited that the reason behind their transformations is to create a better environment for underrated artists by improving the system which has been favorable to famous artists or fraudulently accrued streams.

"Streaming service providers like Melon own its management and distribution companies at the same time, meaning they are satisfied with the current payment system as they benefit a lot when their big-name artists like IU under their label become popular in the streaming services no matter what. The more people stream or consume their popular artists, the more providers can take money from it," an official of Vibe who insisted not to be named said.

"(Naver hopes) Vibe's new payment system can pave a beneficial pathway for indie artists who had been marginalized by the current unhealthy system," the official added.

Swedish Spotify's inroad into the Korean market and the rise of YouTube Music are also prompting the streaming firm to change its old-fashioned system.

Spotify has reportedly established its Seoul office in January to begin its business here. It is known to be having negotiations with music distribution companies and rights holders to stream their music through Spotify. As its service is not dependent on a company-led chart, but uses its own recommendation algorithm based on user preferences unlike other homegrown streaming services where people find what they want to listen to by themselves, Spotify is largely expected to draw popularity among the users who want to listen to similar songs they like which is now common thanks to other streaming services like YouTube or Netflix.

However, considering the fact that Apple Music wasn't able to have a meaningful market share here for years after failing to introduce popular Korean songs, critics expect that Spotify would have the same fate unless it secures Korean music content.

Meanwhile, YouTube Music has been rising as more people use YouTube's premium service which includes both video and music service. Though companies didn't reveal exact data, according to insiders, more people are quitting homegrown streaming services and shifting to using YouTube and it is becoming one of the major threats to Korean music-streaming services.

Fake streams distort industry

Streaming data and relevant figures have not been disclosed to the public, which has been a major problem for the industry as it enables the streaming service providers to take the royalty in favor of themselves by monopolizing the market. Most artists didn't know the exact amount of money they should receive monthly or on what criteria the payments would be based and thus found it hard to claim their rightful share.

By taking advantage of the loophole, fraudulent stream counts have been prevailing. In 2019, officials of leading music streaming service provider Melon's affiliate LOEN Entertainment were charged with siphoning off about 4.1 billion won in 2009 by establishing a "ghost company." They are also suspected of rigging user data so as not to pay royalties worth around 14.1 billion won.

Also, considering the fact that unpopular musicians have been able to enter the top 10 chart out of the blue, which is one of the major ways to boost streams and thus royalties for artists, many suspected that there are a group of people who are profiting from "assisting" artists take top chart rankings and the streaming service providers may have a hand in such practices.

But it is hard to regulate such fraudulent acts under current law. Even though many, including large entertainment companies and artists, have been raising allegations about the existence of chart rigging for years and have filed a suit against those alleged companies, not a single organization has seen punitive action.

There is a law on music industry promotion which stipulates a 2 year jail term or a fine of 20 million won for those found to make purchases with the intention to raise sales of albums or who have other people buy the album for the same purpose, but industry officials say that it is not actually working because it is difficult to find evidence to show such "unfair" practices. For streaming companies, fake streaming accounts could be considered as "customers" as well.

Mixed reaction over new payment system

Artists showed mixed reaction over the new royalty distribution systems. Some said that it is better compared to the existing system in terms of benefiting artists.

"For creators, the new ways to directly benefit artists is way better than the current system which is basically a cartel between large streaming and distribution companies," a 22-year-old songwriter, who didn't want to be named, said.

However, some were skeptical about the change as there is no change in the distribution rate and royalties the artists, especially indie artists, would receive in general.

"Of course, the moves of Vibe and FLO are better than that of Melon and Genie. However, those streaming firms would still take 35 percent and production companies would have 48.25 percent, meaning creators will still receive a very small amount of money in the market which is basically a monopoly," a 32-year-old indie singer who insisted not to be named, said.

"Unless the firms reveal their streaming data, as Amazon Music did recently, the market would only benefit large companies, not artists."


Park Ji-won jwpark@koreatimes.co.kr


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