The 'Zero Effect': Do New Consumption Charts Penalize Compilation Records and Artists Who Window?

03/31/2015 04:23 pm ET | Updated May 31, 2015

The number of plays from some music streaming services are now being included with sales results to rank releases in various music industry "charts" -- the standard reference point for success in the commercial music business. What are these new "consumption charts" actually measuring? Do the consumption charts overstate records available on streaming services relative to those that are not?

The Zero Effect

We can't tell exactly how consumption chart makers weight streams versus sales in the chart ranking until that weighting formula is made available publicly. However, it's pretty clear that if you are not on streaming services at all -- meaning you have zero streams -- you will be penalized in the chart compared to records that are on streaming services even if you outsell them. This is what I call the "zero effect."

Compilation records like Ministry of Sound's iconic titles, movie soundtracks or the NOW records typically are comprised of pre-existing tracks that are licensed for the compilation. Those licenses exclude streaming rights. Many if not most of the pre-existing licensed tracks are already available on streaming services, so any increased streaming activity due to the compilation accrues to the benefit of the owner of the pre-existing recording and not the compilation producer. So your compilation record gets no credit for these streams, either in royalties or in the consumption charts.

Neither will you get credit for streams if you voluntarily withhold your record from streaming services in a practice called "windowing" (meaning you treat streaming as an exploitation "window" that comes after higher revenue opportunities have flattened out). For newly released records, windowed titles may not be on the streaming service at all.

Yet as we will see, comparing records with sales only and zero streaming to records with both sales and streaming can show some sizable differences in chart position. Those differences usually are to the downside even if the zero effect records outsell the competition.

This would seem to create a chart bias toward records that appear on streaming services "day and date" with their commercial sales release.

So how much can the new "consumption charts" be relied upon as an industry-wide measure of success?

Taylor Swift, NOW and the Zero Effect

In order to test for an answer to that question, I picked the consumption chart for the first chart week of Taylor Swift's October 27 release of her 1989 juggernaut to try to measure how the consumption chart reacted. The choice was admittedly cherrypicking, but with a purpose: Taylor's sales were historically significant and her reported streaming should have been somewhat muted given Spotify's well-publicized decision to reject Taylor's record on the artist's terms. This would potentially yield good benchmarks for testing the consumption chart at the margins, as well as the more bread and butter titles below the top 10. (You can look at a spreadsheet for the consumption chart data.)

Based on data for the week ending November 2, 2014, Taylor Swift's first week sales were so strong it probably doesn't matter that her streams were somewhat lower. At No. 1, she outsold the No. 2 NOW 52 title by 10:1, and NOW 52 outsold the No. 3 Sam Hunt album by 10:8-but Sam Hunt had 4 million streams that punched up the chart position. NOW 52 had zero streams because it is a compilation record.

No Stream Credit for Compilations and Soundtracks

Remember -- compilation records and soundtracks do not get credit for streams because they usually have no streaming rights. This is true even if the music services allow playlists -- or possibly create playlists themselves -- using the compilation or soundtrack brand in the metadata with the track listing of the underlying tracks. These playlists work because the individual tracks are already available on the service. (This is the kind of free riding that was the heart of Ministry of Sound's recently settled lawsuit against Spotify.)

The "zero effect" is much greater further down the chart, however. In the same week of November 2, Frozen: The Songs, a compilation record, got credit for zero streams and 10,723 albums sales for a chart position of 49. Blake Shelton sales were lower than Frozen's at 8,735 albums but Blake got credit for 930,928 audio streams for a chart position of 44. The same week Iggy Azalea sold 4,947 albums but got credit for 5,060,617 streams for a chart position of 25. In other words, Frozen will never have any streams and got a much lower chart position than Iggy in spite of selling over twice as many albums that week.

If you compared titles based on album sales alone, the Guardians of the Galaxy zero effect soundtrack would have entered the chart at No. 25, not No. 40, Sam Smith would have been No. 15 instead of No. 6, Bob Seger would have been No. 23 instead of No. 34. Another zero effect compilation is Now Disney 3 that would have been No. 40 instead of No. 59, and U2's Songs of Innocence would have been No. 64 instead of No. 94.

Seasonal records such as Christmas albums are also penalized. The Nov 2 chart showed that based on album sales alone, Home Free's Full of Cheer would have entered the chart that week at No. 66 instead of No. 104. While the title had 26 streams, that was a sufficient penalty to cost the record 38 chart positions.

Which is More Important, Sales or Streams?

Conclusions? Charts are relative beasts to begin with, and the consumption chart won't keep a phenom like Taylor Swift from dominating the top position even if she had zero streams. Measuring streams probably isn't enough to have much of an effect on the top 10 or the top 5. But for records that are compilations, soundtracks, seasonal or other specialty titles that either aren't allowed a streaming audience based on contract, are windowed, or haven't found that audience yet for another reason, the consumption chart penalizes high sellers that are not credited with streams by streaming services.

If chart position matters to your record, then this should be of concern to you. Sales versus streaming is a controversial topic, but some would say that the more streaming, the lower the sales. Without getting into cause and effect on that issue, it certainly can be said that the lower the streams, the lower the chart position -- unless you are a phenom at the top of the chart. And how often does that happen?

Show Me the Money

From a profitability perspective, artists whose records sell but don't stream may well be thankful. If that trend continues, then it would also stand to reason to question the benefit of chart position as a selling tool. (Particularly if the consumption chart does not distinguish between very low value ad supported streams and relatively higher value subscription streams.)

But then we hear about services like YouTube routinely deleting billions of fake plays in its video playlists during December. If this same phenomenon is repeated in streaming services used to measure chart position.... not to imply that anyone in the music business would ever try to rig the charts. Perish the thought.

So what is it all about? Sales or streams?

Given the rate at which at least the major labels are rejecting "free" streaming, it looks like the marketplace is answering that question in favor of sales.

If enough records are simply not available on free streaming services for whatever reason, how relevant will the consumption chart actually be?