WHAT’S HAPPENED?
Swedish music production company Epidemic Sound stands out from the crowd, though maybe not quite for the reason it would like to: Since the company’s founding 15 years ago, it has drawn criticism from many corners of the music industry, primarily for its business model.
Epidemic offers “royalty-free” music to content creators – from YouTube channels and TikTokers to TV broadcasters and companies creating promotional materials – on a subscription basis, with the cost of using that music not linked to how often it’s heard.
That sets Epidemic apart from conventional record labels. Unlike labels, Epidemic doesn’t sign exclusive contracts with artists, provide them with an advance, and collect and pay out royalties on the music artists create.
And it’s able to offer royalty-free music because it pays a flat fee to its music creators for every track created. Unlike record labels, who buy the rights to artists’ music for a set period of time, it owns the full rights to any music it commissions in perpetuity, and is under no obligation to pay royalties for its use.
Notably, Epidemic does collect royalties on music that it distributes to music streaming services. And in those instances, the company says it splits those royalties 50/50 with the commissioned artists. However, Epidemic’s numbers suggest that music on streaming services like Spotify and Apple Music is a small part of its overall business.
Now, in its latest annual report, released on April 10, the company has revealed details on how it pays artists.
In 2023, artists commissioned by Epidemic were paid an “upfront fee” of USD $1,500 to $8,000 per track, depending on “the complexity of the track, customer demand, the artist’s role, and their comparative experience,” the report states.
(Epidemic notes that composers, producers, and studio musicians “all go under the all-encompassing phrase ‘artists’.”)
That payment is up from $1,200–$6,000 in 2022, Epidemic noted.
Additionally, the company splits royalties from streaming services 50/50 with artists (though, as we explore below, it makes no mention of the royalty rates it receives from streaming services).
The company also offers a “quarterly soundtrack bonus” that’s distributed proportionally “based on popularity among our users.” In 2023, the bonus pool was $2.5 million, up from $2 million in 2022.
Epidemic didn’t provide numbers on how many artists participate in this pool, but we can make a back-of-the-envelope estimate based on the numbers it did provide.
Given that Epidemic reports 2.5 billion daily views of videos featuring its music on YouTube and TikTok, and 40 million streams per day on streaming services, that’s a total of some 229 billion streams/views every 90 days. A $2.5 million bonus pool would work out to 0.0011 cents ($0.000011) per stream/view, or 1.1 cents per 1,000 plays, excluding other uses of Epidemic’s music.
“At the end of 2022, we distributed streaming revenues and the quarterly bonus to session musicians exceeding industry standards.”
Epidemic Sound
Epidemic also notes that since 2021, all its active artists have “the opportunity to participate in our long-term incentive program [which] enables them to take part in our value creation as a company,” though it didn’t offer details.
It also said that, “at the end of 2022, we distributed streaming revenues and the quarterly bonus to session musicians exceeding industry standards.”
Epidemic said it paid out “additional royalty payments of nearly $1 million through our new Music Ambassador Program. This program invites selected creators and tastemakers to market our music via their YouTube channels in exchange for a revenue share.”
Finally, the company said that artists who work with Epidemic earn an average of “over $50,000” per year, and that “top earners” make “more than $200,000 per year.”
The company stresses that its payment model means “fewer intermediaries diluting [artists’] revenue,” in an apparent reference to record labels and collective management organizations (CMOs), with whom Epidemic doesn’t work.
The company stresses also that its “remuneration model provides financial stability and predictability,” and in his opening note to the report, CEO Oscar Höglund described Epidemic as “one of the best-positioned [companies] to explore building a system that holistically supports artists and content creators, harnessing AI’s capabilities while keeping artistic authenticity, integrity, and fair remuneration at the core.”
WHAT’S THE CONTEXT?
Whether or not Epidemic offers “fair remuneration” has been the subject of some debate. At times, its business model has drawn the ire of artists’ groups. In 2019, for instance, the European Composer and Songwriter Alliance (ECSA) criticized Epidemic for its “100% buy-out contracts – where music creators sell their rights to a piece of music in exchange for a lump sum”.
Calling the practice “harmful” to composers and songwriters, ECSA called on “all our fellow music authors [to] refrain from signing any agreement which results in giving up all their economic rights forever, while not even being given credit according to his/her right by law”.
The line about “not even being given credit” referred to the fact that some broadcasters who licensed music from Epidemic simply credited “Epidemic Sound” for the music, and not the actual composer.
The question of proper attribution also became an issue on Spotify, when it was noticed some years ago that numerous tracks from Epidemic were appearing on the streaming platform – and getting prominent positions among Spotify’s feature links with pseudonymous artists’ names.
That led to concerns among some music industry execs that Spotify may have been promoting Epidemic’s content because it was getting it for a flat fee. If that were the case, then Spotify would have been incentivized to prioritize Epidemic’s music over that from traditional labels, because it wouldn’t have to pay out royalties for every stream.
However, Spotify clarified to MBW at the time that it pays royalties “for all tracks on Spotify,” and Epidemic said it does split royalty income from music streamers 50/50 with artists ) although it has no obligation to do so, given that it fully owns the rights to that music).
What wasn’t entirely clarified was how large those royalties were. If Spotify secured a “discount” rate for Epidemic’s songs, that would effectively reduce the total royalty pool that Spotify pays out to all artists, which it pays out proportionally to all artists/rightsholders, according to the number of plays of each song. (Spotify recently tweaked that model, demonetizing tracks with fewer than 1,000 plays in the prior 12 months.)
For these reasons, Epidemic’s business model is seen by many as a threat – both to the way that musicians have traditionally made money, and to the way that record labels and music publishers monetize their songs today.
And yet, the jury’s still out on just how successful Epidemic’s business model really is – and therefore just how much of a threat it may be.
DOES THIS BUSINESS MODEL ACTUALLY WORK?
Broadly speaking, we can define success for Epidemic in two ways: Popularity and profitability.
On the popularity side, we can’t measure Epidemic’s success the way we would a conventional record label or music publisher, because Epidemic is a “music-as-a-service” business, and not “music as entertainment.” So looking at the traditional measures of popularity – number of Top 40 hits on the Billboard charts, etc. – doesn’t work in this case.
But Epidemic has provided a variety of numbers in its annual report to give us a clue. The one that stands out the most? As mentioned above, videos featuring Epidemic’s music are viewed 2.5 billion times daily on YouTube and TikTok.
A year earlier, Epidemic reported 1.5 billion views daily on YouTube – but that seems to exclude TikTok, so we don’t have an apples-to-apples comparison.
Additionally, Epidemic reports there are now 26 million YouTube and TikTok videos featuring its music, and tracks uploaded to streaming services get 40 million streams per day.
All of that suggests solid uptake by music consumers – both listeners and content creators. An indie record label would be proud of numbers like this.
“[Epidemic is] one of the best-positioned [companies] to explore building a system that holistically supports artists and content creators, harnessing AI’s capabilities while keeping artistic authenticity, integrity, and fair remuneration at the core.”
Oscar Höglund, Epidemic Sound
Now to profitability. From this perspective, Epidemic looks somewhat less successful.
For the second year in a row, the 15-year-old company reported a positive EBITDA in 2023, coming in at SEK 24.8 million (USD $2.34 million at the average exchange rate for 2023), nearly nine times the EBITDA it reported in 2022.
But its operating profit came in at SEK -486 million (-$45.8 million), which is a considerably large loss, given its net sales came in at SEK 1.477 billion ($139.3 million). Net sales grew 25% YoY, and yet the company still couldn’t eke out an operating profit.
Epidemic blamed its operating loss on asset depreciation – fair enough, but if at this stage in the game, it still isn’t pulling out a profit, maybe it’s not charging enough for its subscriptions?
(Notably, the exact same argument could be made for Spotify, which has yet to report an annual profit since it went public, and avoided price hikes for most of its existence, until last year.)
Epidemic charges EUR €11 per month for a “personal” account, that allows its music to be used on one monetizable channel per platform, and €25 per month for a “commercial” account that allows up to three channels per platform, plus unlimited use in digital ads. Prices vary for “enterprise” accounts that allow for use on TV, video on demand and commercial streaming.
The question is, how competitive will Epidemic’s music be if it raises prices to a point where it can reliably turn a profit? At that price level, would it still maintain an advantage over conventional licensing of music? To borrow a line from The Eagles, we’ll find out in the long run.
A FINAL THOUGHT…
Despite the protestations of artists’ groups and some music industry insiders, there is a debate to be had over just how “unethical” Epidemic’s business model really is.
While a flat fee per work may be unusual in the music business, it isn’t in other creative fields. Many freelance journalists, graphic designers, and other creative types sell their work, including all future rights, for a flat fee. If that’s acceptable for written work and images, why not music?
Nor is Epidemic’s use of pseudonyms on its streamed music an open-and-shut case of unethical behavior. Setting aside the fact that pseudonyms are common in music (Jay-Z, Eminem, Lizzo) there are many reasons why artists working for Epidemic would want their material to appear under a fake name.
Here’s one that easily comes to mind: A young artist, early in their career, dreams of becoming popular in a particular genre, but the music they’re creating for Epidemic is in another genre altogether. While they may want to pay their rent, they may not want the Epidemic music to be associated with their future career.
The reality is that technological change frequently upends the business models of traditional industries – something one would think the music industry is well aware of, given its own experiences with the chaotic shift from physical to digital music. Epidemic may be a sign of further shifts to come in the digital age.
But until the company can show that its business model can be consistently profitable, it’s likely not worth losing much sleep over it.
