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This payments and distribution platform used by Frank Ocean and Childish Gambino is fighting the music industry's 'starving artist' culture

This payments and distribution platform used by Frank Ocean and Childish Gambino is fighting the music industry's 'starving artist' culture
This payments and distribution platform used by Frank Ocean and Childish Gambino is fighting the music industry's 'starving artist' culture
Distribution and payments start-up Stem is simplifying royalty accounting to get musicians paid.
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  • Music revenue is forecasted to reach $131 billion by 2030. Even still, many smaller artists struggle to get paid.
  • Stem, a distribution and payments platform used by Frank Ocean and Childish Gambino, is trying to change that.
  • "There's a lack of infrastructure and tools to support the modern music industry," Stem's CEO told Insider.
  • See more stories on Insider's business page.

When you listen to your favorite musicians, accounting is probably the last thing on your mind.

Number-crunching may be the least sexy side of the music business, but for Stem CEO Milana Rabkin Lewis, it's the key to an industry-wide revolution.

"One of the unfortunate things about the music business is that getting paid isn't a given," Lewis told Insider. "There's this notion of the starving artists ... that when you work in music, you're not necessarily doing it for the money."

After five years working at United Talent Agency, one of the best artist management companies in the country, Lewis realized the traditional agency model wasn't working for the majority of rising artists.

"The major label system is really designed to drive superstardom," she said. "Anyone can make a song ... they're not able to provide this sort of machine that makes superstars every single one of them, so a lot of artists are frustrated."

On Spotify alone, nearly 60,000 songs are uploaded every day. That's almost one song every second, the streaming platform reported in February.

While the number of superstars has increased, so has a growing pool of mid-sized artists - musicians who still rely on streaming and touring revenue as their main source of income. Without the backing of large labels, many artists are jumping through hoops for each paycheck.

"Getting people paid wasn't as big of a problem when there were a bunch of major labels that controlled the whole entire business, and there were 40,000 songs released a year," she added. "The volume was manageable for humans to be doing the accounting flow."

Spotify, which has 155 million paying subscribers, generally pays between $.003 and $.005 per stream. Artists need about 326 streams to make $1.

In April, Apple Music said its streaming royalties pay double what Spotify pays, though in reality, it's difficult to accurately tell.

According to Spotify, 13,400 rights holders are making over $50,000 a year - the median salary in the US - from Spotify streaming royalties. Artists who made more than $100,000 per year totaled 7,800, while 1,820 made more than $500,000 per year.

Converting an indie song played one morning in a coffee shop to cash in the pocket of the songwriter, singer, and producer is a lengthy and complicated process that entails different licenses, rate calculations, and publishing deals. For independent musicians, all this accounting is left up to them.

"Royalty accounting has been made to feel complex and burdensome," Lewis said. "It scares most independent managers, artists and labels, to the point where they punt handling it so no one gets paid."

Stem is trying to change that. Its automated distribution and payment software allows creators to get paid 3-9 months sooner and saves business managers roughly 15 hours of administrative work per month.

On Stem's platform, producers, songwriters, vocalists, and promotional partners can split earnings according to personalized percentages and receive payouts on the 15th of each month.

Through "Scale," a feature launched last year, artists and independent labels can also request advances in the form of a revolving credit line provided by the company's financial arm.

"The economics are way more favorable to the artists," Lewis told Insider. "They get to keep anywhere between 80 to 95% of the profits, whereas it's kind of the reverse if they're working with a major label deal."

Last month, Stem launched "Recoup Rules," an automated accounting option that enables managers to pay out expenses such as marketing or promotional costs before splitting the monthly revenue.

"I know it sounds unglamorous, but until now it's been a serious pain point for all artists and especially independent ones," a Stem spokesperson said.

Stem's platform has attracted a number of artists, including independent performers and big names like Frank Ocean and Childish Gambino, according to news reports, funding documents, and a press release.

Alex Goot, a singer-songwriter and multi-instrumentalist whose YouTube channel GootMusic has more than 800 million total views said Stem has helped him run his own business.

"I'm an artist who buys a ton of cover licenses, but all of those expenses come directly out of my pocket. With Recoup, I'm now no longer losing that initial capital," he said.

Lewis told Insider that the value proposition of a major label isn't what it used to be, causing many artists to operate independently.

"More and more artists are doing things on their own because they don't need to give up a percentage of ownership to a major label anymore," Lewis said.

Read the original article on Business Insider
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