What’s happened?
This year, two significant music markets – France and Canada – have slapped new taxes on the revenues of music streaming services.
The reaction from music streaming companies has been visceral. They decried the Canadian tax as “discriminatory” and hinted at plans to fight the new regulation, while in France, Spotify raised its subscription prices to offset the tax and pulled its funding from two French music festivals.
Within the music industry, the idea of taxing streaming services is somewhat unnerving, given that the music industry as a whole is downstream from the digital service providers who bring music to listeners, and streaming is a low-margin business.
In addition to paying upwards of 60% of revenue in royalties to rights holders, streaming services already pay a value-added tax (VAT) or sales tax in many jurisdictions, and in recent years, many countries have instituted digital service taxes (DSTs).
But while those taxes are broadly applied – to every business that sells, in the case of VAT/sales taxes, and to all digital businesses in the case of DSTs – a tax specifically on music streamers is something of a novelty.
Yet, this past spring, two congressional lawmakers proposed a similar US tax on music streaming — much larger than the Canadian or French taxes.
So is this the beginning of a new wave of taxes targeting music streaming (and by extension, the music business as a whole)?
To answer that question, it helps to examine what France and Canada are doing and the political context in which those taxes are occurring. That can give us some idea of whether or not such taxes are likely to multiply — and where.
France’s music streaming tax
France announced a tax on music streaming services at the end of 2023, to take effect at the start of 2024. Originally set to 1.75% of a music streaming service’s revenues, it was eventually scaled back to 1.2% of revenue.
The tax applies to music streaming services like Spotify, Deezer, Apple Music and YouTube Music, both on revenue raised through subscription fees and revenue raised through ads sold on free tiers.
Its purpose is to raise money for the Centre national de la musique (CNM), a quasi-governmental body established to coordinate various programs supporting music creation in France.
The CNM runs several programs, such as the Fonds pour la création musicale (FCM), which supports music creation and distribution; the Centre National de la Chanson, des Variétés et du Jazz (CNV), which supports live music and entertainment; CALIF, which supports independent music retailers; and the French Music Export Office, which aids “made in France” artists in gaining audiences abroad.
French Senator Julien Bargeton, who first proposed the tax in 2023, described it as a way of protecting French culture at a time when the digitization of music had turned the traditional music business upside down and is increasingly dominated by foreign companies and musical trends.
If “our cultural heritage as well as our contemporary creation are no longer those to which we have access, we are changing the world drastically,” he said.
The streaming services weren’t happy. Jeronimo Folgueira, then-CEO of homegrown DSP Deezer said that, “although the intentions are good, this is the worst possible outcome that will backfire and have negative consequences for the entire music industry in France”.
Deezer had initially suggested that it would hike its subscription prices in reaction to the tax, though it has since walked that back. (The company has, in any case, hiked its subscription prices globally more than once in the past few years.)
Spotify, on the other hand, did indeed raise its subscription prices in France in reaction to the tax.
Antoine Monin, the Director General of Spotify France, described the tax as a “monumental strategic error, which goes against the issues of economic, cultural and European technology”.
Spotify also began “disinvesting” in the French music sector, specifically by withdrawing its financial support for two festivals, the Francofolies de la Rochelle and the Printemps de Bourges.
It seems that Spotify wants this to be a Pyrrhic victory for the French government, to whatever extent possible: what the French government gains on the one hand, it loses on the other.
That said, when the tax was set at 1.75%, it was estimated it would bring in EUR €20 million to the CNM annually. Thus, we can calculate that at its current rate of 1.2%, it will bring in around €13.7 million. It’s unlikely that Spotify can disinvest that much from France’s music scene.
Canada’s (more heavy-handed) music streaming tax
More recently, Canada’s telecom regulator – the Canadian Radio-television and Telecommunications Commission (CRTC) – announced a new rule that will require music streaming services operating in the country to hand over 5% of their revenues to a variety of funds aimed at developing Canadian content.
Along with a similar tax on video streaming services like Netflix, the CRTC expects the new levies to bring in CAD $200 million (USD $146 million) per year.
Compared to France, Canada’s new music streaming tax is more heavy-handed, and is likely to attract more active resistance from music streaming services.
That’s not only because it’s more than four times as large as the French tax, as a proportion of revenue, but because a significant amount of that money will be going to what streamers can reasonably see as their competition.
Under the CRTC plan, fully 2% of streamers’ revenue will go towards funds that support traditional radio broadcasting: 1.5% to “a new temporary fund supporting local news production by commercial radio stations,” and 0.5% to the Community Radio Fund of Canada.
To be fair, a chunk of the French tax will also be going to streamers’ competitors (brick-and-mortar independent music retailers), but Canada’s tax is more egregious: The amount allocated to radio stations is more than the entire French tax.
Not only that, but the rules exempt music streaming services that “are not affiliated with a Canadian broadcaster.” (Notably, Canadian vertically integrated media companies that own broadcasters were among the biggest lobbyists pushing for the Online Streaming Act, the legislation that made these rules possible.)
Right now, there doesn’t actually seem to be a Canadian music streaming service, but part of the government’s plan may be to incentivize the creation of just such a service to compete with the global giants – at least one associated with one of Canada’s broadcasting giants.
Little wonder, then, that the Digital Media Association (DiMA), which represents Amazon Music, Apple Music and Spotify, among others, called this a “discriminatory tax,” and that Spotify declared that Canada had “chose[n] the past over the future by demanding that streaming services pay a protectionist subsidy to radio.”
Could these music streaming taxes spread to other countries?
The first thing to understand is that Canada and France are somewhat unique politically. They have long been known for having particularly strong streaks of cultural protectionism.
Canada, next door to the US and its unstoppable music, movie, and TV industries, has long fretted that its own cultural industries could be drowned out by Hollywood and has long taken steps to prevent that.
The country’s new tax on music streamers extends a policy that has existed for decades into the digital world. The policy requires broadcasters to offer a minimum amount of Canadian content and pay into various funds supporting Canadian cultural creation.
The same is largely true for France, where the CNM argues that the new music streaming tax is an extension of a tax charged on variety shows and music concerts, in place since 1993, to fund the creation of French music.
France, too, has fretted over the years about its declining cultural influence, at home and abroad, and has especially feared the encroachment of English on the French language. Take for instance, the French government’s decree, some two decades ago, that the word “courriel” be used instead of the English-sounding “email.”
France collects various taxes to support its cultural industries to an arguably extreme level. In 2019, French cultural industries generated revenues of $49.2 billion (€43.3 billion), supported by a government cultural budget of €17 billion—equal to more than a third of the revenue generated.
To be sure, there are a number of other countries which have implemented similar taxes to support their local cultural industries – but most of them focus on film and TV, not music. For instance, among European countries, Denmark, Portugal, Romania, Spain and Switzerland have all implemented some form of “Netflix tax,” charging a fee on video streaming services to fund local film/TV production.
Media markets like the US and UK, which have long been “net exporters” of culture, haven’t been susceptible to this type of cultural protectionism – largely because it’s never been considered necessary. The same can be said of countries like China and India, which – by the sheer size of their populations – are in little danger of being culturally “overrun” by content from other countries.
Though these countries’ governments fund cultural industries in a variety of ways, those funds tend to focus on less-commercial cultural productions (classical music or modern art) or are meant to fund a very specific initiative (the UK’s BBC TV licensing fee).
That said, music streaming is a relatively new activity, and how governments choose to approach streaming revenue is still evolving.
A massive Spotify tax in the US?
The music industry is well known for having many “starving artists” — musicians who barely manage to eke out a living, if at all. These artists stand in stark contrast to the high-earning celebrity artists at the top of the cultural ladder. For every billionaire like Taylor Swift, there are dozens of small acts struggling to survive.
That problem has been exacerbated – or at least highlighted – by the rise of music streaming.
Many artists have argued that they aren’t making nearly enough from streams of their music, something noticed even by high earners like Snoop Dogg, who asked last year: “Can somebody explain to me how you can get a billion streams and not get a million dollars?
This opens up a political opportunity, one recently seized on by two US House Representatives, Rashida Tlaib of Michigan and Jamaal Bowman of New York, who introduced the Living Wage for Musicians Act this past spring.
Under this bill, music streaming subscriptions would be hit with “an additional fee in an amount equal to 50% of the subscription fee charged by the service provider, except that such additional fee shall not be an amount less than $4 or more than $10.” Additionally, it would charge a 10% tax on ad revenue from ad-supported subscription tiers.
On a Premium individual Spotify subscription, which recently rose to $11.99 a month in the US, that would mean an additional fee of $6 per month.
By MBW’s calculations, this tax would bring in around $2.46 billion annually from Spotify’s subscriptions alone (based on Spotify’s US revenues of $5.69 billion in 2023, of which around 83% would have come from paid subscriptions). And that’s not including the other music streaming services.
On its face, Rep. Tlaib’s argument for the tax is fairly compelling: Given that artists typically earn between $0.003 and $0.005 per stream, she says one would have to rack up 800,000 streams per month to earn the equivalent of a $15-an-hour job. In other words, even a reasonably successful artist can only manage a minimum-wage life on their craft.
Frustrating the ‘artist-centric’ payment model
Yet this bill is likely to go nowhere, and not only because a 50% sales tax is unheard of in the American political context. There’s also the question of how these funds would be distributed. An artist would be paid a minimum of one cent per stream, on top of their regular royalties, up to a maximum of 1 million streams per month.
In other words, it would be a subsidy that diminishes the more popular an artist becomes and, proportionally, benefits the least popular artists.
This could actually frustrate the music industry’s efforts to move towards an “artist-centric” payment model, part of the point of which is to discourage the uploading of low-quality audio to music streaming services.
As of this year, Spotify no longer pays royalties to tracks that have less than 1,000 streams in a 12-month period. France-based streamer Deezer has implemented a similar policy, under which artists with fewer than 1,000 streams and 500 unique listeners per month earn a lower royalty rate than the rest.
The proposed law’s effective royalty rate of $0.01 per stream could frustrate the efforts of these streaming services to reward professional artists who provide most of the value to streaming services. For this reason, if this bill appears to be gaining support in Congress, we can expect the streaming services to oppose it, along with major music companies like Universal Music Group, the original champion of artist-centric model.
It would also gain active opposition from the corporate giants behind Amazon Music, Apple Music and YouTube Music, i.e. Amazon, Apple and Google.
A final thought…
Charging fees on entertainment services to fund cultural creation is really a product of the broadcasting era. Typically, where countries have introduced these types of fees on streaming – whether on music or on film and TV – such policies are adaptations of policies that were first implemented when cultural content was consumed primarily through radio and TV.
Of course, this is increasingly not the case anymore. In the age of digital distribution, there is a serious argument to be made that these types of efforts are no longer needed — especially when it comes to music.
One clear trend that has emerged in the age of music streaming is that, as music accessibility becomes almost completely global (for both listeners and artists), music tastes are becoming increasingly local.
We can see this in the massive rise in popularity of K-pop, Latin music, Afrobeats, East Indian music and other local music trends around the world.
This trend – which was given the name of “glocalization” by economist Will Page and data analyst Dalla Riva – is doing wonders for local music scenes.
A recent study of Luminate data by Page and Riva found that, in 2023, more than 80% of music tracks to reach the local top 10 in France came from local artists. (The same holds true in Germany and Italy.)
Meanwhile, recently released data from Spotify showed that Canadian artists are experiencing a boom in popularity thanks to their music being instantly accessible globally – 92% of all royalties generated by Canadian artists came from outside the country.
So do artists actually need the help of lawmakers and regulators? No doubt many will say they do – after all, who would say no to free money?
Yet the data shows that, far from being a threat to local cultures, the age of digital music presents incredible opportunities for these local cultures to thrive. Perhaps one day soon, regulators and lawmakers will catch up to the new reality.Music Business Worldwide