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Why Streaming Nelly’s Music Probably Won’t Pay His IRS Bills

By
Dan Reilly
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By
Dan Reilly
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September 16, 2016, 2:27 PM ET
Ottawa Bluesfest
OTTAWA, ON - JULY 16: Nelly performs on Day 8 of the RBC Bluesfest on July 16, 2016 in Ottawa, Canada. (Photo by Mark Horton/Getty Images)Mark Horton—Getty Images

Earlier this week, TMZ reported that rapper Nelly owes $2,412,283 in federal taxes and, as of 2013, $149,511 to the state of Missouri. SPIN posited that, based on Spotify’s publicly announced royalty rates of artists getting paid $0.006 and $0.0084 per single stream, that he’d need 287,176,547 streams of his 2002 hit single “Hot in Herre” if he’s lucky enough to be on the high end of the payout system. On the low end, he’d need 402,880,500 streams.

According to USA Today, “Spotify is reporting that streams of Nelly’s songs … have increased by 200% this week over peak hours compared to last week.”

Nelly’s publicist declined to comment, and representatives from Spotify and Apple Music (AAPL) didn’t return requests for statements as of press time.

With all due respect to SPIN‘s Brian Josephs, the math is off because an artist would have to be completely independent—no label, manager, any other contracted representative, co-writers, producers, sampled artists, etc.—to collect that streaming payout without giving away a good portion of it. Even if Nelly got the best deal in music history, he’s still giving up a portion of those fractions of a cent.

“The general rule of thumb is for every million streams you get, you make about $4,000 or $5,000 of actual cash, and that’s divvied up,” says Andrew Farrior, Marketing Director of Street Execs, the management company of rappers such as 2 Chainz and Young Dolph.

The label, management, publisher, attorneys, distributors and, possibly, many others all get a percentage based on whatever agreements were made with the artist at various stages of their career. Based on his clients’ experiences, Farrior says an artist with the stature of Nelly probably takes home 18% of the revenue generated by a song. And that’s depending on whether or not Nelly signed a good deal with Universal, because in many cases artists agree to an unfavorable royalty split in return for a multi-million dollar advance, or signs over a regrettably large cut to a manager. The upfront money runs out, and then the artist realizes they’re barely getting much of the revenue their work generates.

“I’m not being cheeky in this analysis. I would tell you that I would estimate that Nelly’s streaming revenues are very low, if not zero,” says Paul Resnikoff, the founder and publisher of Digital Music News, which covers the streaming industry and has seen the payout statements for numerous artists. “The reason there is a huge pass-through problem, which means that the payee is the major label, so Universal Music Group collects that revenue. They’ve negotiated their own upfront advances and other guarantees that are definitely not shared with the artists. The major problem that’s emerged in this system is that the artists have been receiving little to no cash, even in the presence of very heavy streaming numbers.”

With “Hot in Herre,” Nelly also has three co-writers: The Neptunes, the production duo of Pharrell Williams and Chad Hugo, and go-go artist Chuck Brown, whose 1979 single “Bustin’ Loose” was sampled throughout. “Best-case scenario, he maybe gets 25%,” says Farrior of Nelly’s payout for being a writer on the song.

It’s possible that he doesn’t even see that much if whomever represented Brown knew that the sample would be included on a hit song. After all, Nelly was a huge deal at the time, having sold millions of copies of his 2000 debut album Country Grammar.

“If you look at ‘Changes’ by Tupac, to clear the sample they had to give away 75% of the publishing [to Bruce Hornsby] because they knew the sample pretty much made the instrumental,” Farrior says. “I don’t see [Brown’s reps] accepting anything less than 50%. If they did, they regret it to this day.” With all that in mind, Farrior estimates that Nelly sees 15% to 18% of the publishing royalties.

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When it comes to streaming, Nelly’s representatives or the people in charge of the streaming services would need to be ones to publicly reveal how much money he’s getting, and they’re not very forthcoming on that front. For the services, imagine the uproar it would cause if they publicly revealed what they were paying everyone, like a business revealing everyone employee’s salary. It’s murky at best, and Farrior says that the payout rates change on a seemingly daily basis.

Resnikoff, in the course of going over the financial records of multiple artists and labels, has found that the numbers vary drastically from company to company, as well as country to country. “I’ve mostly seen $0.005 as an average, half a penny payout per stream, and oftentimes lower,” he says. “The math is totally opaque. It’s not really clear why it fluctuates. It could be how much the advertisers in that region are paying. There are all sorts of little factors that go into it.”

Based on his examination of an independent hip-hop label’s financials in the summer of 2016, Resnikoff found that they were getting an average of $0.006111 for song streams by paid Spotify subscribers, but only $0.001348 from listeners who used Spotify’s free, ad-supported version. With Apple Music, streams from paid subscribers generated $0.0119 for the artist, while listens from people using the three-month free trial came out to just $0.001703.

If Nelly fans really want to help, there are better ways than streaming.

“The best thing fools could do for Nelly is buy his stuff off iTunes,” says rapper and writer Kool A.D., formerly of the group Das Racist. “That still gets the artist the most money.”

For more about why Spotify needs to pay artists more money, watch:

Fellow hip-hop act Astronautalis says he makes a few hundred dollars a month via streaming on his back catalog because he owns all of the publishing rights to it and doesn’t have to split anything with a label. “I live off of the money I make from tours, and use the streaming money to keep the lights on,” he says. “We are all pretty much forced to look at it like, ‘Well, this is better than what we get paid from Pirate Bay.” Asked what his Spotify royalty rate is compared to their publicly revealed payouts, he says, “I’ve never done the math. My abacus doesn’t go to the thousandth decimal place.”

So, based on what we know and what people decline to reveal, it’s unlikely that streaming “Hot in Herre” is 402 million times is going to pay off his tax bill. If the $4,000 per one million streams rate that Farrior and Resnikoff say is standard for major and indie label artists, that amount of song plays would generate $1,608,000, after which multiple parties would take their cut. Sure, it might help to blast Nelly on Spotify, Apple, Tidal, etc., but it’s probably better to support him via iTunes, and perhaps that’s why his official website prominently features a button to buy his 2013 album M.O. from Apple rather than a link to Spotify. And you can still support him by going to see him in concert—he has multiple shows lined up through the fall, including several with TLC.

Maybe buy a t-shirt while you’re there. It can’t hurt.

About the Author
By Dan Reilly
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