If artists and managers were to find themselves in a room in the coming weeks with representatives of Spotify there are some questions which should probably be asked and some issues which should probably be raised.
Spotify is working hard to convince musicians that they are not the enemy. We appreciate that the service is legally licensed. We also recognize that the major labels have a different relationship to Spotify than most artists ever will as it has been reported the major labels collectively have at least an 18% equity stake in the company.
What is particularly troubling about these equity positions (same for the Beats sale to Apple) is that we don’t know of any artists who benefit from their work being used as the leverage for the labels equity participation.
So with this in mind here are five questions artists and their managers could ask Spotify…
1) At what scale and price point is Spotify actually sustainable for artists?
Daniel Ek says it’s 40m paid subscribers, but that math just doesn’t work. 40m Subscribers x’s $84 per year = $3.3b in annual global revenue to artists and rights holders (assuming they really are paying out 70% of gross). Here’s the simple math* : 40,000,000 x’s $84 = $3,360,000,000
* 10 a month per subscriber, x’s 12 months = $120 per year per subscriber. $120 per year per subscriber paying 70% to rights holders is $84 per year per subscriber.
The current domestic record business is bottoming out at about $7b annually.
When confronted with this fact, “Investor and Artist In Residence” D.A. Wallach recently responded publicly that “Itunes has more than 40m users.” Ok, fine. We showed you our math, how about you show us yours. Once that’s out of the way, let’s ask the second question…
2) When do you think Spotify can realistically achieve a sustainable scale for artists?
Given that Netflix only has 36m subscribers in the USA and that there only 56m premium cable subscribers in the USA why does anyone really think Spotify will have more than that anytime soon? Spotify is reporting only 10m paid subscribers, and that’s for the entire world. Sirius XM as a mature business, which is installed in homes, cars and is also accessible via the internet only has 26.3m subscribers across all platforms.
Does anyone really think that Spotify is going to ramp up to over 80m paid subscribers in the USA alone anytime soon? We’ve detailed this math before, it’s not pretty and it’s right here.
3) Why not publicly show the full tables of equity participation’s and the distribution of payments, including the rate of pay to all stakeholders? If Spotify is really paying out 70% of revenues, let’s see where it is really going and who is getting what share.
We already know that majors (and possibly Merlin) are getting preferred rates. Say what you will about Apple but everyone knows that take a flat 30% across the board. It’s a transparent business. If Spotify wants to talk about transparency and openess, they should lead by fully disclosing this information.
4) Why should artist trust a business created by the same person who profited massively from the illegal distribution of artists work, without compensating them?
According to Wikipedia, Daniel Ek the CEO of Spotify was also “CEO of µTorrent, the world’s most popular BitTorrent client with more than 100 million downloads.” uTorrent makes its money the same way The Pirate Bay does, by monetizing the distribution of infringing works with advertising revenue.
5) Why not publicly and vocally join the fight against Ad Funded Piracy? Why not publicly endorse and support legislation (like SOPA) that would stop illegally operating businesses like uTorrent from destroying the lives of creators?
Well, this should be pretty obvious given that the CEO of uTorrent is now the CEO of Spotify. We all know there is a lot of money being made in the distribution of music online. Unfortunately that money is not being paid to artists in a meaningful and sustainable way. In the case of uTorrent artists don’t see a penny. Spotify paying fractions of a penny to artists per play is functionally of little difference to most artists.
The simple truth is that the fundamental problem with Spotify and other businesses like it, is that the cost of goods is grossly undervalued. In other words, the only way that streaming really works is to increase both the price of subscriptions and the number of paid subscribers. Of course we understand the appeal of having musicians subsidize their business, but in a word that is just unsustainable.
One last point… Stop with the misleading press and stories about Spotify growing the transactional business. It’s not. It’s not going to. Spotify is cannibalizing the transactional business into accelerated decline without replacing the revenue that is being lost. If this trend continues we’re knowingly pursuing a death spiral from a current $7b annual business in the US to a $3b annual business.
It’s not that complicated, it’s just math.