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Amazon's Contract Reveals Plans to Radically Lower Streaming Music Royalties

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By Rachel Bailey of the Sonicbids Blog.

[OpEd] Jeff Bezos’s online mega-store, Amazon, is the Walmart of the internet. In the two decades since its launch, it has positioned itself as the low-price leader of the web and expanded to become a clearinghouse for all manner of media, gadgetry, and other ephemera. But what many of Amazon’s customers don’t know is that they allegedly achieve those low prices through tactics that bully producers into agreeing to terms that compromise their ability to profit and stay in business. And now that they’re turning their eye toward music streaming, musicians have cause for concern.

In The New Yorker in February, George Packer detailed the ways Amazon has bullied and coerced the book publishing industry — squeezing suppliers for fees to ensure that their merchandise was easy to find on the website, demanding lower shipping charges, and withholding vital information about sales from the publishers. A close read of that story — in which Bezos was quoted as saying small publishers were “like a sickly gazelle” to the cheetah that is Amazon — now acts as a warning to musicians and music publishing: you’re next.

Let’s start with royalties. It should come as no surprise that Amazon doesn’t want to pay a cent more than they have to to the people who actually own the music they’re trying to sell. Their contract promises royalty fees to artists of “21 percent of the amounts expensed by Amazon Digital Servicing, Inc.” So, say a subscriber accesses a stream while using Amazon’s streaming service in a free trial-month period. The “amounts expensed by ADSI” in that case would be zero, meaning they wouldn’t have to pay the copyright holder at all, even though their music is there, free, and being listened to by an Amazon user. Perhaps Amazon, a behemoth that pulled $74.5 billion in revenue in 2013, can afford to give users a free trial period. But in a climate where musicians and other creative types are under more and more pressure to offer their works for free, can the musicians themselves afford it?

There’s also the problem that Amazon’s contract authorizes them to change their royalty rates at any time. So just because the contract says “21 percent,” that doesn’t mean they’ll always pay 21 percent. Just like variable-rate natural gas plans, which start off at a tempting price and then jump as soon as the weather gets cold, Amazon’s contract is designed to make sure they win every time.

US copyright law has its own suggestions about how copyright holders should be compensated for streaming rights. For 2014, it’s about $0.26 per subscriber, per month. So if Johnny Music Fan listened to 10 of a band’s songs in a given month (even if he accessed a few of those songs multiple times), that band (or whoever holds the copyright to their songs) would be owed $2.60 in royalty fees. Since Amazon’s streaming service hasn’t launched yet, we don’t know how much that 21 percent will work out to, but we have a feeling it will be far less than $0.26 per subscriber, per month.

The fact that Amazon’s contract with music publishers allows them to change the rate for royalties almost certainly means they plan to do so. And if they do, that probably means they’ll lower, not raise, the royalties they pay out.

In the event that Amazon drives royalties so low that it’s no longer profitable for music publishers to participate in the service, they’ve made quitting extremely difficult. The terms of their contract state that music publishers may only terminate their agreement with Amazon if they also remove their works from all other streaming services. That means if you license a song to Amazon and then decide you don’t like doing business with them, you have to take that song down from Spotify and similar services, or Amazon gets to keep using it, too.

So if you climb into bed with Amazon on their streaming service, baby, you better be prepared to sleep there for a long, long time.

Would that clause really be necessary if Amazon’s streaming service were a good product that offered music publishers a fair price to license their products? Or will Amazon simply bully music publishers into joining through peer pressure (all the other big publishers are doing it!) and the threat that opting out will make you obsolete, and then keep publishers there through the choke hold of that “If I can't have you, no one can!” clause? If there’s any lesson to draw from Amazon’s history, it’s this: enter into business with them at your own risk.


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This story appears courtesy of HypeBot.
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