Guest post by Chris Castle
We’ve talked about piracy, but now let’s change that conversation to talk about the “New Boss” licensed services. One of the problems for artists selling their music, films or books in the legitimate digital space is getting a fair deal from the New Boss distributors. And that is exactly what they are–digital distribution requires artists and labels to outsource what are essentially manufacturing and distribution functions.
That’s fine if it creates efficiencies, but what it also has done is create a huge dodge for the “New Boss” who tries to say that any problems that artists have with them is a problem with the “Old Boss” who made the deal the artists don’t like.
That gloss doesn’t work for independent artists, though, because there is no “Old Boss” to point the finger at. Even if there were, the Old Boss is usually a union signatory under a collective bargaining agreement that allows a negotiation team to air grievances directly with the labels. That doesn’t happen with the New Boss. There’s a reason why Senator Rockefeller said that the big tech companies (pretty clearly meaning you know who) were worse than the monopolist Standard Oil (which was run by John D. Rockefeller, Senator Rockefeller’s great grandfather).
As far as we know, there is no New Boss who is a union signatory. In fact, the old joke goes that tech companies know so little about unions that they think collective bargaining is venture capitalists setting a target’s valuation. For example–YouTube refuses to be audited by independent publishers. That would never happen at a record company–they might take an edge in other ways, but if they ever denied an audit right there would be a revolt. In fact, the New York Attorney General sued major labels over “unclaimed” royalties and California has laws about transparency in record company statements thanks to Don Henley. The sheer indifference and arrogance from the New Boss companies is startling and leads to one answer–they do it because they can get away with it. And nothing says Internet Freedom like getting away with it, right?
Nowhere is this indifference to artists more apparent than in subscription services. (We have some thoughts on a la carte download services, too, but that’s a subject for another day.)
We tried to think of five things that Spotify (and their competitors in the subscription business) could do today to level the playing field for independent artists. These are things that wouldn’t cost them much, but that would be very helpful to artists making less than say $2500 a year from the service. Leave a comment if you have other ideas or if you disagree. (And you’re welcome, Spotify, Rhapsody, Napster, Google this is free market research for you.)
1. Remember, nobody ever negotiated royalty terms with independent artists, it was just presented as take it or leave it. Make the royalty rate more fair and transparent in two ways: First, stop deducting out of pocket costs for advertising sales commissions (and all other advertising-related costs) off the top from independent artists. Spotify and the others shoud eat those costs out of their revenue share rather than making independent artists bear 50% of these costs. Second, pay artists a per-stream minimum across all your products.
2. Spotify can start linking from Spotify’s internal artist profile page to places that actually might help the artist, like artist websites or tour information. As Zoë Keating said “I wish Spotify would do more to facilitate the connection between listeners and artists — i.e show that the artist is playing nearby, or add links to buy music.” We think she’s got a great point and we’re sure that most artists would be happy to reciprocate with a link to Spotify.
3. Promise to pay each independent artist on the service a fixed amount of money as a bonus if Spotify goes public or is sold. $5,000 each sounds good to us, and if Spotify has a $1 billion valuation now…. They will certainly be able to afford it if their valuation is high enough for a firm commitment underwriting (aka IPO). This promise will not cost Spotify anything right now and won’t slow down its growth–which seems to be the most important thing to Daniel Ek. Spotify would only pay it at the liquidity event, i.e., when they have the money. Remember–sharing is caring.
4. Let independent artists sign up for Spotify for free. Either give the artists access to upload their music, or cover the costs of forcing artists to use an aggregator by grossing up their royalty split. Please don’t charge us to make you rich.
5. Contribute something to music education foundations, like Instruments A Comin’ (Tipitina’s Foundation) or to a musicians health care organization like the Health Alliance for Austin Musicians. Would this really be so hard? Start with 1% of revenue, even 1/2% of revenues. And please don’t set up your own charity so you can have parties and give yourselves awards every year. We already have those. Save the money on the back patting and give it to people who are already doing the good works. It would make a big difference in the lives of the next generation of artists and to families. Good PR for Spotify, too, you could use some.
It feels good to do some good. If that’s not enough reason, think of it as preserving your supply chain.
The Trichordist 
A suggested refinement for item # 3.
Irrespective of whether a label goes through an aggregator or not, Spotify or other such streaming service could encourage “best practices” by tying a liquidity payout or stock option award to each label affirming that they pay out a minimum of 50% of net royalties received to the artist.
That said, a per artist bounty I find unrealistic as it brings us back to the possibly apocryphal 92% of titles on iTunes without any paid downloads. So, it needs to be based on market share … which then leads to my biggest bug bear … stream(s) pumping and outright fraud as to who is receiving the payouts currently, because it is certainly not us.
These are very good points, I personally like the idea of the cash payout for independent artists because it avoids legal twists and turns regarding stock ownership. But if I understand your point correctly on the 50% royalty payout, you are (or are you) saying that the major label stock ownership would be tied to a certification that the label had paid out 50% of (1) its Spotify revenues including (2) the proceeds from any Spotify liquidity event to the artists that are (a) signed to the label and (b) available on Spotify?
I hear your point about the per-artist bounty and artist who are not played. I think there are a large number that are unplayed (but remember Spotify is largely a free streaming service so that download percentage may not travel, even if you are right that it’s 92%), but that’s sort of beside the point. All of these services (not just Spotify) market themselves with vast numbers of tracks. Millions and millions, etc. We know from years of getting royalty statements that the Long Tail theory is not only meaningless, but fails to take into account the actual transaction cost of artists placing these tracks online–particularly if they are charged an upfront fee or flat distribution fee.
So there is some benefit to the service from having “millions and millions” in their marketing, and it’s not over reaching to expect a payout to all the artists if the bet pays off.
All of these suggestions are entirely fair and reasonable, but I fear that asking predators to deal fairly gets you just about the same thing trying to negotiate win-wins with zero sum entities ever does: bupkus. Bullies ONLY understand bullying. So, setting up artist owned “spotify” with all the suggestions and improvements may be the better approach than telling the big bad wolf how to better exploit the sheep. When all artists jump ship to a more creative and fair “artist owned ‘spotify’ ” then and only then would the bloodsuckers even THINK to consider the fair deal the artists seek and so deserve.
@patricia,
The fundamental problem is that this type of company is inherently UNPROFITABLE and they seek to minimize their losses by sticking it to the unfavoured ones, us, yet at the same time award preferential treatment to the favoured ones.
As with virtually any tech company, they burn through investors’ money on the way to what is hoped a big pay day, “the liquidity event”.
Spotify’s business model is based upon providing music at little or no cost. Given that, there is a certain difficulty for them to pay out to providers on the scale of an iTunes or even its little upstart cousin , Amazon mp3.
Indeed Spotify can only succeed by destroying the business model of iTunes in the USA or prevent it gaining traction in other territories. Its home country, Sweden is a perfect example of this.
For the Spotify boosters, show me one country where Spotify and iTunes co-exist as significant sources of income. Instead, I see plenty of European territories which exemplify perfectly the expression “Beggar Thy Neighbour”.
Would just add that the hucksters who promote these companies rarely are from the music business and their financial fate is only tied to growth rate and valuation, not revenues. This is how you get Bubble 2.0.
Indeed, “the liquidity event”. That sure makes the company artist-friendly! I’ve seen it firsthand. The entire build-up of ad sales for streaming companies is to convince VC to invest toward a payout, and then continue to lobby for lower and lower royalties and higher and higher ad revenue. Congress, I imagine, wants the companies to succeed, I doubt anybody involved in the making of statutory streaming rates in the last decade cared at all whether that $0.002 rate of 2012 was gonna make any artist some money.
All the financial pundits keep going back and forth on these issues of whether Pandora or Spotify will ever really pull a profit, while they applaud Verizon for getting rid of their unlimited data accounts and having all accounts be charged by tiered data levels. So… currently nearly half the people using these services are on mobile devices. “Monetizing” mobile (I hate that neologism – in fact I don’t like a lot of verbed nouns) is the big deal w/r/t ad revenue for these guys, obviously. But where’s the real money? Data usage. Music is ~35MB/hour on these services, btw, average.
I think: ISPs and phone companies should be paying. The streamlined services know every track played, just pay for them, and more than the performance royalty rate (that $0.002 I quoted above) and more than what Spotify, Pandora, etc pay to rights’ holders royalties, BMI/ASCAP/whatever – which is shit for other reasons*.
I did an interview a couple years ago for David Harrel of Digital Audio Insider
[ http://digitalaudioinsider.blogspot.com/2010/03/interview-with-jonathan-segel-of-camper.html ] where I said that royalty rates should be something like 100x higher than they are, or that advertisers should be charged 100x more for advertising on these services. OK, I know that’s unfeasible, but it would be fair.
Anyway. Transparency is always best (hear that, my former workmates?) and builds a better clientele anyway. Spotify, at the very least, should be clean and clear about what they pay to whom. Grooveshark was fairly upfront about their bad deal! (What about MOG? anybody know? they just got bought outright by an HTC-owned shell company. What does that tell you?)
*re: BMI/ASCAP, and transparency. The current deal for web-based streaming radio is based on a percentage of net. What is that percentage? dunno. I saw a newspaper article once say Pandora paid 5%. Uncorroborated. So why is this shit? Two main reasons, and these are the two things that ENRAGE me about BMI/ASCAP/SESAC, etc.
1) They don’t pay on every track played. They don’t even know every track played. They sample playlists, same as they did in the pre-computer days for college radio. One day per month, and that’s fine! Come on, guys, these services (and most radio stations) are computer based and lists are not that hard for a computer, really. It’s tiny amounts of data, comparatively.
2) When I first joined BMI in 1984 or so, they sent this lovely explicative brochure explaining how their rates worked, and how great it was that if you got played more, you made more per play! This made me mad then, as I thought of Madonna making 9 cents per every time one of her songs played after the first 100,000 times, versus my 6 cents for mine. (This was of course in the start of the current era where America really jumped headfirst into the rich-get-richer, poor-get-poorer trajectory, “trickle down” and all…) They still congratulate themselves on this, on their website. So… why on earth would any artist beyond the richest top few want this for their royalty collection agency? It’s horrible. Where is that “extra” money coming from? Why isn’t it going to the lower tiers of plays?
Agh. Ok. I’ll shut up now.
One word comes to mind when I think of Spotify’s business model…..”moral hazard”
Reblogged this on THE PLUGININ EXCHANGE.
Great points. I sure hope Spotify responds. They need to do something to reach out to the independent artists.
item #2 This is exactly the idea I had some time ago. I even started a little side project for this called Spoticonnect. The site is still there: http://www.spoticonnect.com Too bad that never attracted much attention.
Content IS currency. The “unsold” 92% is content generated by users. The ad rates are generated by the amount of users. The users and content providers don’t share in the profits and when all is said and done, it’s THEIR site. Without users and content Spotify, Fbook, Google are nothing. Their ads would not exist.
this is an excellent point and gives the lie to YouTube’s “don’t you want to monetize your content” shakedown. What YouTube will tell songwriters and artists is that they can either play whack a mole or they can monetize their content. Of course, “monetizing” means you get a share of whatever YouTube says they made and they won’t let independent artists or songwriters audit them. If you don’t “monetize” it’s not like they are taking down your music, they just aren’t paying you for it while they still enjoy the incremental traffic to YouTube without having to pay for it.
So on the one hand, they take your music and don’t pay for it at all and even profit from it due to increased traffic. On the other hand, they can decide what they want to pay for your music and there’s no way for you to know if you’re getting a straight count.
Trust me–none of the evil record companies would have ever dreamed they could get away with such shenanegans.
In a strange way, Google actually plays into the rock myth–play your ass off, get famous and die young. Dead artists are perfect for Google. Dead artists can’t defend themselves, and Google can sell signage at your funeral.
“They say sing while you slave and I just get bored, I ain’t gonna work on Maggie’s [or Zahavah’s] farm no more.” from “Maggie’s Farm” by Bob Dylan.
Hi,
Regarding (1):
“First, stop deducting out of pocket costs for advertising sales commissions (and all other advertising-related costs) off the top from independent artists. Spotify and the others shoud eat those costs out of their revenue share rather than making independent artists bear 50% of these costs.”
I’d never heard this before, and while not doubting this, can I ask the source(s)?
Paul Resnikoff
Digital Music News
Hi
I have read some very interesting ideas here. Some basic points I would like to see in the streaming services, Spotify or else:
– Transparency and fairness. The payment per stream may change depending on the where the income is generated (free-publicity or subscription), but it should be the same for all the artists. If the artist is more popular it will receive more. When an album is sold, the publisher/artist may define the sale price to entice the public or collect if established. In streaming service that concept does not make sense as the user is paying a fee that do not depend on the artist he listen to, so all the artists should be paid the same per stream.
– Minimum amount per stream guarantee. This minimum should take into consideration that the amount generated over a long period should be equivalent to the amount generated by one song sold in download. If we think an average song will be listen to around 40 times (sure there will be songs much more heard and other much less and a deep behavior analysis will probably give a solid number), the revenue per stream may be 0,0178€. One year ago, depending on the aggregator and its negotiation with spotify, they were paying per stream between 0,00068€ and 0,00132€. So between 14 and 26 times less than this targeted payment per stream that would guarantee on the long term the same income to artist and publishers that the download.
– Streaming companies should focus on constructing a solid business model, not one based on the fact that the content worth nothing. The situation now is that Spotify is focused on customer acquisition and all the rest is far behind in interest. Why? Because the owners want to show a high number of customers, sell the company and make quick, easy money for themselves and they don’t care of what happens with the company or the artists/publishers then. Not their problem. The result: the money is put on developing a great tool and offer content for free. Anyway, it has no cost, hasn’t it? If the streaming companies would have a minimum cost per stream to be responsible of, the will probably grow slowly, but it will be more sustainable on the long term for everyone involved. Please, more effort focused on income generation. Some ideas are easy to implement.
For free services with adds, I would advice streaming services to develop a tool that will allow artist / publishers / bars / venues / anyone to place easily and in an automated way ads targeted by – type of music – city/state – age. You have all the data…. currently you have to contact with a person to establish a campaign… so imagine the size the campaign has to be. Right now, it is frequent to listen to add that have absolutely nothing to do with your taste, you can be a metal fan and have constantly some Shakira ads. Does that make sense either for Shakira of for the listener? Where are the proximity ads?
Regarding the subscriptions services, a services bases on packages of minutes per months should work on time. We are pretty used, at least in Europe, to have the mobile operator charging us depending on the minutes we talk by phone. You buy a 300, 500, 700 minutes per month and you pay accordingly. If you need more minutes, you have to buy a bonus or pay a high per minute fee. Why not the same model for music?
Right now as the things are, the streaming services are cannibalizing the sales, without compensating for it. My advice would be that when you launch a new album/single, do not place it in Spotify until at least 3 months after the launching. And after that period, just put one or two songs of the album. If someone really likes the artist and want more, he will buy it. Use the streaming service just as a tool to drive sales.
Natalia Talayero
http://www.dejamedecirte.es