This is Part 2 of a 5 part post on Spotify–read Part 1 here
A Billion is Cool
To be clear—no one artist would own any of the shares, but by signing up for Spotify they would have a right to the proceeds from the sale of these shares based on being a participating artist. This is because each artist—particularly new artists—on an ownership basis is as important as any other artist. The artist stockholders would then have a say about royalty rates based on their board seat, a minority voice to be sure, but a voice nonetheless. A seat, by the way, that should be held by an artist, not a manager or lawyer as the “artist representative” but a bona fide artist.
Here’s an example:
Daniel Ek transfers a number of shares equal to 18% of the outstanding shares of the company into an escrow account. The sole purpose of the escrow account is to sell the shares on a liquidity event. When the liquidity even occurs, the proceeds of the sale are received by the escrow agent (such as an unrelated bank) and are distributed to each artist whose tracks were continuously available on Spotify after the date the escrow was created through the date of sale. If artists removed their tracks during the period, they’d lose their right to the escrow funds. All these payments would be made to the artists directly but the artists could not force a sale prior to the liquidity event. (That would likely be too complex from a securities law point of view.)
So if 18% is worth $720,000,000 and the sale occurred today, and assuming there are 200,000 qualifying artists on Spotify, then each artist would be entitled to $3,600 (less some administration fee for the true transaction costs). Even though this money would be paid off contract (a meaningful concept to unrecouped major label artists), it still does not amount to much.
Now—this is not a particularly exciting number. Even if you allocated these funds based on aggregate streams by artist, you would essentially be letting the major labels off the hook with their own artists to share any of these proceeds with them, and even then it is unlikely that this calculation would result in a life-changing amount of money comparable to the return to the venture investors.
So another way that Spotify could do this is to agree to pay out a certain amount of money to each participating artist that would be something in the range of $25,000 to $50,000 each.
Because you know what’s cool? A billion is cool.
Next: Part 3
See also: Part 1