There is a narrative that keeps getting repeated by Spotify apologists and propagandists. It goes something like this, “The problem is not that Spotify pays too little to artists it’s that record labels are not paying the artists their fair share of royalties from Spotify.” Ha! When the gross payable is half a cent or less we think this has a lot more to do with Spotify than labels.
But this idea that labels are the problem pretty much means that Spotify ignores or otherwise feels that any artist not signed to a major label is unimportant in this conversation and that’s too bad.
We don’t know how many artists and small DIY indie labels aggregate to Spotify via Tunecore and CDBaby for example but we suspect it’s literally THOUSANDS of artists that are not signed to major labels (or ANY label). These are artists who are collecting either 100% of their Spotify royalties directly (Tunecore) or collecting those royalties after a 9% dist fee (CDBaby).
When Spotify shifts the blame for low royalties they are ignoring and invalidating all of the artists not signed to major labels, or any label. There are no industry middlemen taking Zoe Keating’s royalties from Spotify. The per stream rate is just incredibly, horribly bad.
There are high profile artists such as Zoe Keating and others who echo the sentiments of artists across all strata’s of the business. The economics of Spotify are just unsustainable from the top down at present rates.
Everyone knows that record labels advance massive amounts of money to develop the careers of those artists signed. These advances are recouped from monies earned in royalties. One can argue about the recoupment mechanics but it doesn’t change the fact that with so little money being generated by Spotify the problem is much greater then the labels.
It’s also interesting that in all the talk of democratization and empowering musicians how little of it appears to be actually happening.
99.9% of Tunecore Artists Make Less Than Minimum Wage…
If the Internet is working for Musicians, Why aren’t more Musicians Working Professionally?
We’ve detailed numerous times how at the top end of the food chain, the Spotify math just doesn’t work and would require more subscribers paying $9.99 a month then any other mature premium subscriber business has achieved to date.
Here’s some context for the chart above. Netflix only has 36m subscribers in the US, no free tier, and massive limitations on available titles of both catalog and new releases. Sirius XM, 26.3m in the US as a non-interactive curated service installed in homes, cars and accessible online. Premium Cable has 56m subscribers in the US paying much more than $10 a month and also with many limitations. Spotify… 3m paid subscribers in the US after four years. Tell us again about this strategy of “waiting for scale.” Three Million Paid… Three…
* 3m Spotify Subs Screen Shot
* 26.3m Sirius XM Subs Screen Shot
* 36m Netflix Subs Screen Shot
* 56m Premium Cable Subs Screen Shot
* $7b Music Business Screen Shot
And, just so everyone is clear, we’re not giving the labels a free pass either. But Spotify’s divisive punt to blame the labels for their own bad business model isn’t fair. We’ve reported on the 18% equity stake the labels took as part of their licensing agreements. That’s an 18% equity stake that we’re pretty sure the artists won’t participate in at the time of an IPO or sale (should there be one).
The larger issue in this conversation however is that if Spotify and on demand streaming services can not generate the same or more revenue then transactional sales, then the model is a net negative for artists. This has nothing to do with labels and everything to do with a flawed business model. Removing the free Ad-Supported tier after a limited time is probably the first, best and most obvious immediate solution but not the only one that should be addressed.
Spotify can not hide behind their bad math by shifting blame to labels when so many artists are getting their royalties from Spotify directly without labels.
Spotify Must “Adapt Or Die” : Pricing For Sustainability
Five Important Questions For Spotify from Artists and Managers
Streaming Is the Future, Spotify Is Not. Let’s talk Solutions.
The Trichordist 
Regarding the equity that the majors got from Spotify – in exchange, arguably, for a deal designed to result in relatively lower royalty payments – it seems like, at least for some artists, the labels could be seen as having breached a fiduciary duty.
I know that courts have in the past ruled that there isn’t generally a fiduciary relationship between labels and artists, but I believe that those rulings were not in the context of 360 deals. The switch to a 360 deal (particularly if the label has active rights to exert control over the artist in various ways) changes a material fact so that finding a fiduciary relationship actually makes a lot of sense.
“The larger issue in this conversation however is that if Spotify and on demand streaming services can not generate the same or more revenue then transactional sales, then the model is a net negative for artists.”
On a per artist basis, we already know that interactive streaming throws off far less revenue than recorded music sales. The entire “the labels are at fault” is a distraction in the debate. Note, I’m not giving the labels a pass here, but rather dealing with the forest fire that threatens to demolish the industry.
Until interactive music streaming functions more like Netflex and less like Pirate Bay, we are in jeopardy of destroying what little remains of the music business.