Who Needs Music Labels? Last.fm Starts Paying Royalties To Unsigned Artists

Erick Schonfeld
Wednesday, July 9, 2008; 1:57 PM

Music-streaming service Last.fm is now paying unsigned artists royalties for every song played on its service. Since the company announced the program last January, 170,000 artists and small music labels have signed up for it and uploaded450,000 tracks.

What Last.fm is doing here is creating an alternative to the official royalty-collecting organization for musicians (i.e., SoundExchange). Last year, the royalty rates for music streamed over the Internet were raised, making it more difficult for ad-supported music startups to stay in business. Last.fm got bought by CBS, so it's not in danger of going under. And for any song owned by a label or artist who participates in SoundExchange, Last.fm continues to pay the going Internet radio royalty rate. But it is beginning to bypass Sound Exchange by giving new, unsigned artists an alternative.

By cutting out the middlemen (labels, SoundExchange), Last.fm claims that artists that sign up for the program will receive more than twice the royalty rate they would see if the same song played on commercial radio. That's because the money goes directly to the artist. (The total royalty, though, is less than what it pays SoundExchange). The royalty that Last.fm is paying unsigned artists is equivalent to 10 percent of the advertising revenues associated with their songs. Musicians get a quarterly check, and can withdraw the money once it reaches $10.

We're not talking a lot of money here, a few fractions of a penny per song. But as the online music industry grows, and along with it online advertising targeted at music listeners, these numbers in aggregate could start to become meaningful.

More importantly, it creates a direct economic link between Last.fm and up and coming artists that have not yet been discovered or signed by a label. The program is also appealing to tiny labels that don't participate in SoundExchange because they are too small or it is too much of a hassle. (Anyone who already collects royalties through SoundExchange is not eligible for the program). Of the 170,000 signups so far, 30 percent are labels. And daily artist account creation in general is up 60 percent since the announcement in January.

Since it is Last.fm's program, it controls the royalty rates it pays out, which it can adjust according to how much advertising revenues these songs generate. Now, does anyone actually want to listen to these songs and ill musicians shift over in massive numbers from the labels to this sort of direct arrangement? That is what will determine how disruptive this really is.

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