The music industry is divided over streaming – and headed for a collision
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Publishers and songwriters question why labels should get a much bigger share when a track is played on Pandora or Spotify

Publishers and record labels are heading for a collision over the huge difference in streaming royalty rates between master recordings (labels) and publishing (songwriters), with publishers and songwriters questioning why record labels should get five to 12 times as much as the writers when a track is streamed.

At the heart of the issue appears to be how important the songwriting is to an artist's success. Record labels maintain that the division of royalties is fair, as they have to invest more money in marketing, PR, recording costs and tour support (though the latter two expenses are recoupable against the artist's royalties).

Publishers and songwriters, however, say that labels are able to do 360-degree deals with artists where they get a share of merchandising, concert tickets and brand partnerships – but songwriters can only make money from the actual recordings. PRS collects a small share of ticket revenue, which gets split between all the songwriters that wrote the songs in the set, though it's less than what the credit card companies get from each transaction.

Songwriters also point out that, unlike sales of CDs and vinyl, labels don't have to pay for pressing the records and physically deliver them to the shop when it comes to digital sales. Also, there are no returned, unsold records that the labels have to foot the bill for, so surely the songwriters should get a bigger "slice of the pie" from digital music services – not less, as is the case with Pandora (songwriters get about $90 per 1m streams, 12 times less) and YouTube (varies, but in general a songwriter who's written 100% of a song makes about $90 per 1m streams, while a label can make $1,000 to $4,000 per 1m streams) .

One publisher claimed Lucian Grainge, the head of Universal Music Group, said at the PRS copyright tribunal between the labels and songwriters in 2006 that he considered songwriting to be a part of the recording process and so did not warrant a separate royalty.

Björn Ulvaeus of Abba would surely disagree. At the recent 40th anniversary of the group winning Eurovision, he voiced serious doubts that they would have had the same success if they started out today. "We broke through during the golden age of copyright," he said. He and his co-writer Benny Andersson were more interested in writing great songs than going on tour, but did not start out as fully formed hit songwriters, he explained. It took years of trial and error, fine-tuning and studying other songwriters. And, once they became successful, they'd still write every day, nine to five – and only end up with 12 songs a year.

Ulvaeus said he doubted spending all that time on writing songs would be possible in a world where Spotify is the main source of income (it's responsible for about 70% of revenue from recorded music in Sweden), as they would have had to spend much more time touring in order to make a living.

Abba's songs are still largely responsible for Sweden being one of only three net exporters of music in the world (the other two being the US and the UK) today, though those from contemporary hitmakers Max Martin and Jorgen Elofsson also play a part.

There are a lot of misconceptions about how songwriters make money from their music. One of the most common is that songwriters sell their songs to artists. While that is sometimes true in a handful of Asian countries, where copyright enforcement is almost non-existent, in the west they only get paid in micro-payments (royalties) when a copy of the song is sold, streamed, played on the radio – and, if they're really lucky, used in a commercial.

But, today, songwriters are feeling more marginalised and undervalued than ever – not only by music streaming services, but by record labels – and it's moving towards a breaking point.

Instead of supporting songwriters in their quest to get fair remuneration from big corporations such as YouTube, the major labels put pressure on songwriters' collecting societies to accept ridiculously low royalty rates.

Recently the US on-demand digital radio service Pandora won a court case against the American songwriters' collecting society Ascap, in which it claimed it couldn't afford to pay the society more than 1.85% of its revenue as it already pays record labels 49%. Meanwhile Pandora's founder has been cashing in stock at $1.2m a month for quite a while.

Both the PRS (UK's songwriters' society) and Sweden's Stim accepted very low royalty rates from Spotify to help the service to get off the ground. Meanwhile, the major labels acquired shares in the service and large upfront advances that exceeded the royalties they would have earned from usage.

When Spotify issue its IPO, expected later this year, those labels and the venture capitalists behind the service (including founder Daniel Ek) can cash in – as songwriters (and artists) have virtually subsidised them for five years while they've been building up to their big payday, expanding the service worldwide (which, by the way, is why it hasn't made profit yet).

But what can songwriters do about it? In the US, nothing, as they are not allowed to refuse the use of their music (incredibly, when it comes to songwriters, the US is far more socialist than Sweden was, even during its social democrat days). But here in Europe, they could organise into a united "no".

As one publisher said: "When you have nothing to lose, you have everything to gain. What we get paid by these streaming services is so insignificant that losing it won't make a difference."

As Ulvaeus concluded at the Abba anniversary, it all starts with a great song. Without it, it doesn't matter how much money you sink into promotion, no one will want to come and see a concert of awful songs – and certainly not use a service such as Spotify. And great songwriting is not part of the recording process, it's a craft that demands serious investment in both money and time. © Guardian News and Media 2014