Again with the Bad Napster Analogies

As David pointed out, Merlin’s Charles Caldas has gotten himself sideways again over Spotify.  Well he’s nothing if not consistent.  Will someone just give this guy a CBE, please?  Maybe that will calm him down.

This time Caldas is reacting to statements by Lucian Grainge and Doug Morris that they’re taking a relook at their deals with Spotify on ad supported streaming.  Sidebar: Let’s not forget something–Grainge and Morris ARE REALLY LATE TO THE PARTY on questioning the value of the ad supported model.  So the fact that it took Taylor Swift to get these guys focused is the real story.

But Caldas wades steps right into it by giving a quote to the tech press:

“Treating consumers like children and telling them that everything they’ve enjoyed about these streaming services is going to be taken away because the biggest record companies don’t like it, that’s another Napster moment,” Charles Caldas, the CEO of Merlin Network, the global licensing agency for independent music labels, tells Quartz. “The major labels screwed Napster and screwed the market by killing what was potentially the biggest opportunity the industry could imagine in getting into the digital space early. If they follow through with this, they are going to do it again”.

So here’s a fact check–Napster may have had a license from AIM labels, but Napster did not have enough licenses to launch a commercial version of the Napster platform.  It also takes two to tango, so if there was any screwing of Napster, Napster was the one that got themselves in that position, so to speak.

Despite Daniel Ek’s connection to Bit Torrent, Spotify is nothing like Napster so Caldas is really reaching to jam Spotify into that box.  Almost all the labels and a bevy of independent artists have licensed Spotify as have songwriters.  Again, nothing like Napster.  If you have a license with a music service, that deal eventually comes to an end and then you get to decide if you like the deal and want to renew.  You also get to decide if you want to renew on the same terms or different terms.  And guess what?  The service gets to decide if they want to take your renewal terms.  If they don’t, you’re done.  The service has to get along without you.

We’ve long complained of Spotify’s absurdly low royalty rates.  Here’s how it works.  The major labels–and possibly Merlin–got extra goodies that they may or may not share with their artists like equity, breakage (unrecouped advances that don’t roll over) “technology fees” and other nonrecoupable payments.  And a royalty rate that is artificially low because all those goodies are not included in the value of the royalty rate.

When independent artists or labels (presumably that are not part of Merlin) license to Spotify, we don’t get those goodies, but we get the shit royalty.  So if Caldas wants to talk about “screwing the market”, we think this little structure qualifies.  And as far as we can tell Merlin went right along with it and still is.  To Merlin’s credit, many of the Merlin member labels have adopted the “Fair Digital Deals Declaration” to promote sharing of the “goodies” with artists.  There will be a time to discuss how the majors treat the pass through of the goodies, but that time is not today.  Everyone should be very clear that is a discussion that will be had the easy way or the hard way.

But make no mistake–they’re sharing because they got the goodies in the first place.  Just like the majors.  And we’re still taking the shit royalty because of it.

Here’s the larger point.  License deals eventually expire and according to Billboard and others, it looks like Universal’s and Sony’s  Spotify licenses are coming up for renewal.

Stop picture for a second–when Daniel Ek got into a public argument with Taylor Swift in October, he had to know with 100% certainty that he was publicly dissing the most successful artist on his biggest label partner over what was sure to be the biggest selling record of the year.  All because she didn’t like his deal.  How was that supposed to help him renegotiate with Universal on terms favorable to Spotify’s stockholders?


What Ek should have been telling his team was that Spotify needed to be in business with Taylor Swift PERIOD.  END OF DISCUSSION.  MAKE IT HAPPEN.  SCREW THE PRECEDENT.  But no, his strong move was to insult her publicly.  He should be summarily fired for this reason alone.  Which makes you ask, who’s in charge over there?

But back to the Universal and Sony licenses that Ek knew were coming up for renewal.  Here’s the issue:  Ek sold everyone on the idea that he could convert ad supported users to subscribers.  He has tried, but if you ask us, he hasn’t tried very hard.  You may disagree, and if you do, you leave your music on Spotify.  If you don’t, you pull it down.

Or you reach some compromise in the middle.  There’s no reason for people to get in a huff over this.  It’s nothing personal, it’s just business.

Here’s the interesting part.  When we look at the calendar and the history, it’s possible and maybe even likely that the major label deals are up before the Merlin deals.  If the majors get the terms they want–and they almost surely will, one way or another–Merlin labels may find themselves suffering under the old terms for quite a while.  We can’t know that for sure, but that might be motivating the invective.

What is hopeful about the Universal and Sony position on Spotify is that they are focused on the shit royalty.  Having raised that point, it’s probably not going to get lost with some under the table payment.  And far from “screwing the market” that could have the affect of boosting the market and boosting the actual royalty rate paid to all artists.

For the first time we’re hearing the majors talk about the royalty rates and not the “industry” payments.  Spotify is fond of touting the total royalty it pays out to labels and publishers, independent artists and songwriters.  For the individual artist, that “total” is a largely unpersuasive number, practically irrelevant.  What matters to us is what we get in our stocking.  Spotify is fond of trying to push the blame for low royalty rates onto labels, but we know better because we know what the independent artists get who receive the label’s share of the ad supported service.

And guess what–it’s still shite.

If there’s any screwing of the market going on, we know where it’s really coming from.

We said it before and we’ll say it again:  Lars was first and Lars was right.  So spare us the Napster analogies, Mr. Caldas.