Week ending March 23rd: All Streams Are Not Created Equal: Why YouTube’s Plan To ‘Frustrate’ Viewers May Delight The Music Biz
YouTube’s Global Head of Music, Lyor Cohen, says his strategy to improve royalty payouts to music rights holders is to “frustrate” and “seduce” YouTube’s non-paying active users to become paying subscribers.
His plan? More ads on the free, ad-supported service. The idea seems to be that more ads to wade through, the more attractive an ad-free monthly subscription becomes to users.
YouTube is hands down the most-used music streaming platform in the world. So any moves it makes is significant. But this is particularly meaningful because the difference between ad-supported and paid/premium streaming is a real hot button topic in the music industry. That’s because it has real consequences on royalty payouts.
Many people don’t realize that music rights holders are paid differently for subscription-based streams vs. ad-based streams, even when both are on-demand.
For instance, rights holders receive between $0.004 to $0.007 on YouTube from users who pay a monthly fee. This is the “all-in” rate, divided between the sound recording and the musical composition.
But they only earn between $0.002 – $0.003 from free-tier users supported by ads.
That means royalties paid on 1 million streams from paying users range from around $3,000 to $6,000 for the sound recording, and $800 to $1,500 for the composition.
But 1 million ad-supported streams contribute only about half that–$1,750 – $2,500 for the sound recording, and $450- $650 for the composition. [READ MORE]
And now for this week’s other headlines:
- RIAA 2017 Report: ‘Fragile Recovery’ Continues as Revenues Rise 16.5% and Streaming Soars (Variety)
- Study: Music Piracy Grew 14.7% in 2017, But Positive Signs Exist (Billboard)
- Blurred Lines Did Infringe On Marvin Gaye Song Rules US Appeals Court (Music Business Worldwide)
- After Spending $250M On Carlin, Round Hill Music Is Hungry For More (Music Business Worldwide)
Week ending March 30th: Songwriters: Don’t Let Tax Day Leave You Singing The Blues
Tax Day this year is April 17. The days leading up to this date can be a flurry of stress and difficult decisions for anyone. This is particularly true for the artists and songwriters making a living in the music industry.
That’s because one of the most common tax mistakes artists make is simply not paying taxes on income made from their music. Artists often assume that (a) someone else is paying their taxes for them, as if it were a normal W-2 employment situation; or (b) they were paid cash and assume it won’t be reported to the IRS.
But self-employment tax is due if the artist earned $400 or more a year as an independent contractor. I’ve known several artists and songwriters that did not pay their self-employment taxes, and the result was that the IRS garnished their royalty payments.
This means royalty income bypassed the artist/writer and went straight to the IRS until the tax debt, penalties, and interest was paid in full. Willie Nelson is one of the most infamous stories, in which federal agents seized various assets to satisfy Willie’s estimated $32 million tax debt.
I’m no tax expert, so hiring a trustworthy and experienced accountant to help navigate the choppy waters of self-employment is good wisdom. Especially in light of the new tax law, professional tax guidance is worth the expense to avoid disastrous consequences.
But for now, here’s how you can prepare for Tax Day and avoid the same:
Pay estimated self-employment taxes throughout the year based on gross income.
Most of the creative workforce in the music industry is under independent contractor status. For example, an artist is not an employee of the record company or the concert venues they perform in. Therefore, the artist is responsible for their own taxes throughout the year, both income (based on tax brackets) and self-employment (FICA, Medicare, etc.).
If you wait to pay all your taxes for the year in your return, it can result in underpayment penalties. So many self-employed individuals pay estimated taxes. You pay these taxes every quarter on the following schedule (for 2018):
|Income Received||Taxes Due|
|Jan 1 – Mar 31, 2018||April 17, 2018|
|Apr 1 – May 31||June 15, 2018|
|June 1 – Aug 31||Sept. 17, 2018|
|Sept 1 – Dec 31||Jan 15, 2019|
The consequences of a payment not received or postmarked on or before the due date result in late penalty fees and interest tacked onto the original amount. And unless an artist can pay all of the estimated taxes a year in advance, the IRS is not cool with one lump sum tax payment for the year. The consequences of paying one lump sum on April 15th can result in more penalties and interest that can carry forward to the next tax year.
Save 25% to 40% of gross income, quarterly.
Since you’re responsible for estimated tax, setting aside 25% to 40% of your gross income for estimated tax payments is a good idea. If you’re expected to pay $1,000 or more a year in taxes, then quarterly estimated taxes are due. Plan ahead!
Keep good detailed records of all expenses.
Self-employed people typically file a Schedule C which lists all expenses of a self-employed business. If you’ve paid estimated tax throughout the year, it is much more likely you can break even or receive a tax refund based on the Schedule C expense deductions.
If you paid any other independent contractors $600 or more in a year (for example studio musicians, producers, mixing and mastering engineers), the IRS will require a 1099-Misc Form to qualify for those expense deductions. In other words, keep track of those big expense items, because you’ll need the documentation to get the deduction.
The most common mistake here (a) getting greedy with expense deductions; or (b) taking deductions without proper documentation.
An example of the first is trying to deduct your entire mortgage if you use only single room exclusively for business purposes (like recording and producing). You can only deduct a portion of your mortgage payment as a business expense. This portion is based on the room’s square footage relative to the entire house. You can’t just deduct the entire home mortgage. [READ MORE]