Is there a revenue stream in streaming music?

"Spotify tends to appeal to the more engaged music fan, where discovering new music and selection are really critical," Crupnick said. "That's a smaller audience, whereas YouTube tends to be ubiquitous among teens and twentysomethings but not as much among older audiences."

How these services pay artists varies as well. Internet radio sites such as Pandora operate under a government compulsory license, meaning that royalty rates are fixed, and a company generally need not seek permission from a rights holder to play any music. (Songwriting payments go through a performance-monitoring agency such as ASCAP or BMI; payments for the recording artist are collected and distributed by SoundExchange.)

The royalty formulas contain many moving parts, but at this point Pandora's rate for the artist usually amounts to about one-tenth of a penny per stream, with the money split 50-50 between the artist and record label, which results in the artist receiving about .05 cents per stream. The songwriting royalty, calculated as a percentage of the company's revenues, is generally lower. iTunes Radio's royalties have been reported to be a bit higher than Pandora's.

In contrast, U.S. broadcast radio, which reaches many more people per spin than individual Pandora streams, offers zero royalties to performers but about 4 percent of total revenues to songwriters.

With Spotify playing songs on demand rather than as part of broader radio playlists, its per-stream reimbursements to artists are higher than Pandora's. Spotify's royalties are not government-controlled but rather result from direct license agreements between the service and the music's rights holder, generally the label. Although those terms are not public and may vary from deal to deal, Daryl Friedman, the Recording Academy's chief advocacy and industry relations officer, said musicians have told him their Spotify royalties often work out to about a quarter or third of a cent per play.

Given YouTube's wide variety of partnerships and programs — which might involve setting up channels and/or sharing ad revenue — plus the un-countable number of videos that make unauthorized use of copyrighted materials, its payouts are even harder to pin down. Maxcy said the company won't reveal specific figures, but it has paid more than a half billion dollars in royalties over the past couple of years. (Parks said by the end of this year, Spotify "will have returned a billion dollars to rights holders.")

Much of the debate over online music services has focused on royalties or lack thereof. As Cracker/Camper Van Beethoven frontman David Lowery put it in a blog headline: "My Song Got Played on Pandora 1 Million Times and All I Got Was $16.89, Less Than What I Make From A Single T-Shirt Sale!"

"Right now we don't have enough revenue coming into the system to show up as real money for the artists, and artists are concerned," Friedman said. "Today it's producing crumbs for artists and songwriters. Whether those crumbs will add up to bread in the future is the question."

The royalties issue hits home for musicians who, over the past decade and a half, have seen music sales plummet from $14.6 billion in 1999 to $7.1 billion in 2012, according to the Recording Industry Association of America. Even as many see the emergence of iTunes, which generally pays the rights holder 70 cents on the dollar, as a positive development, downloaded-music sales (often of individual tracks rather than albums) have not compensated for the decrease in physical-product sales.

Some musicians view the current dynamic as another meet-the-new-boss-same-as-the-old-boss scenario as companies valued in the billions of dollars plead poor when it comes to sharing revenues with the creative people who provide their content. At the same time, Spotify and Pandora continue to report losses each year, and Pandora contends that it is paying out too much in royalties to sustain its business, which is why it has pushed for passage of the Internet Radio Fairness Act. That bill, which in effect would lower royalty rates, could not overcome opposition by labels, publishers and musicians to gain passage when it was proposed in Congress last year, and it has yet to resurface.

Pandora's position is that it currently must pay out such a high percentage of its revenues in royalties that it can't turn a profit, and Internet radio hasn't yet exceeded 10 percent of all radio listening.

"You have one company that owns about a 75-percent share of the market," Pandora co-founder Tim Westergren said, referring to his own company. "That's not a healthy sign. That's a direct consequence of the rates being too high …. The problem is that the cost of growth encourages us to grow more slowly."

The counterargument is that Pandora has chosen to maximize its subscribers, the bulk of whom pay nothing, instead of maximizing revenues through increased ad and subscription sales, so musicians shouldn't have to foot the bill for this strategy.

"Maybe they should go out of business if they need to lower their royalties any more," Lowery said. "Here's a case where Pandora probably needs to increase their paid subscribers instead of relying on an ad-supported model to create more revenue. What they've done instead is turn to the government and ask songwriters and artists to give them a handout."

As for YouTube, Bloodshot's Warshaw said "the payment on that is dramatically low. A lot of people are using that as their primary source for music, so that is a hair above piracy."

Lowery likened YouTube to "a shakedown service" in requiring artists to sign a contract in order to have say over — and be compensated for — their work that appears on the site.

Maxcy said YouTube and its content providers make money from the ads that appear with videos, so rights holders must sign up with YouTube to get that process going. "We won't monetize any content on our platform unless we have a license from the artist," Maxcy said.

But are those who harp on royalties seeing the forest for the trees? After all, the big record-store chains have folded, terrestrial radio stations' playlists have constricted, and satellite radio has yet to grow popular enough to fill the void.

"It's like, 'Wow, I can be found on Pandora? I can be found on iTunes? I have a chance to be discovered, (whereas) K-Rock is never going to play me,'" Crupnik said, adding that the streaming services are catering to the industry's more valuable consumers. "The Spotify user is spending about 80 percent more than average on stuff: CDs, digital downloads, concert tickets, merchandise. The Pandora person, because it's a broader audience, I think it's about 30 percent more than average."

Chicago-based soul singer-songwriter JC Brooks said because these services are among the few outlets for new music discovery, "they can use that to bend you over a barrel" and pay low royalties, but he still looks to them for their promotional value.

CHICAGO

More