Five Important Questions For Spotify from Artists and Managers

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.

RELATED:

A Tale of Two Pirates? Daniel Ek (uTorrent) and Kim Dotcom (Megaupload)

 

A Detailed Explanation on Why Streaming Has Failed…

 

Streaming Isn’t Saving the Music Industry After All, Data Shows…

 

Sorry, Streaming Isn’t Saving the Music Industry In 2014…

Pandora: money trumps morality, ran ads for anti-gay group.

Screen Shot 2014-08-15 at 1.12.23 AM

 

Above Pandora CFO Mike Herring shows how down with the gays Pandora really is!  The link goes to a custom Pandora radio station for “Oakland Pride Radio.”   Wow that’s really going out on a limb there Pandora! I bet some of your best friends are gay! I wonder what Oakland Pride thinks of Pandora using them as a prop to excuse their donations to an anti-gay demagogue?  And what will they say when they find out Pandora ran ads for “Speak Up University?”   

 

When I worked for Pandora, I took my job seriously. My title was “Listener Advocate”, and, as a listener myself, I tried to bring the opinions of the listeners to the company. Of course, most of our job was helping people to be able to simply listen to the online station, sort of minimal tech support. However, there were several legitimate things that we initiated meetings with management about, and many times these were met with new ways to word our responses to ameliorate listener concerns.

After I had been there for about a year, and had responded to many complaints about specific ads, we started hosting tons of ads for Meg Whitman, who was running as the republican candidate in the California gubernatorial race, 2010. She came from being CEO of Ebay, (then to Hewlett-Packard afterwards) and was rich as hell, and apparently spent more of her own money on the race than any other political candidate in history ($144 million, $178 million including donations). The company was thrilled to take her money and run her ads all the time, which of course generated complaints, which I thought a lot about, and then brought them to the company.

I advocated on behalf of establishing a rule that we take ads only selling goods and services, and nothing dogmatic (i.e. politics or religion.) The company’s party line was that we would accept any advertising that ran on “major mass media”, ignoring the fact that the term “major mass media” is essentially so vague as to be meaningless. For example, we explicitly stated that we would not accept advertising about pornography or gambling, while Clear Channel, which is obviously mass media, ran billboards advertising gambling casinos all up and down the state.

I had several conversations with Joe Kennedy and Tim Westergren about this. Joe basically heard me out and then dismissed me. With Tim it was more difficult. One thing that I pointed out to him was that when we played political or dogmatic ads, it reflected on the company’s political stance. He absolutely did not believe that, he said “TV stations always run advertising for all political parties”. I said, “yes, but we see television companies as being driven only by money, so we distrust them implicitly.” Tim, as well, refused to believe that his public political action had any bearing on how the company was seen by the public-at-large. I thought that this was very short-sighted of him, and said to him that simply because he was very visibly active in politics, for example asking our listeners to advocate on the company’s behalf vis-a-vis royalty rates or other congressional mandates, that anything political that the listener hears on Pandora would be viewed with the inherent politics of the company in mind.

I brought up the hypothetical situation of running ads promoting Proposition 8, which was on the California ballot at that time, which was opposing same-sex marriage.

Tim blew me off on this, adding cryptically “I’d love to argue about this, I’m a student of Chomsky!” If he actually were, I would think he would currently be living in some sort of nightmare of cognitive dissonance. Anyway, I still advocated the idea of only advertising goods and services, and questioned the whole idea of trying to be parochial to “major mass media”. If we wanted to be a shining light in the field of “radio”, we should make our own rules, we absolutely did not have to be mini-Clear Channels. I tend to think that making our own rules about such things would work out better in the end, both internally and externally.

I didn’t realize at the time how the lip service we gave to being “pro-music” and being “about music” was covering that fact that it was, indeed, in the end, all about money, and only about money. Being moral has nothing to do with business, especially if you are in the United States, and, it seems, especially if you in the tech world. One of the engineers came by my desk and mentioned that the Meg Whitman ads were paying dollars where other paid nickels, so she was gonna get those ads placed in any case. (She lost that election, regardless.)

It was the following year that the company held its IPO and became a publicly traded entity. Then it got really bad. While Joe Kennedy claimed “an IPO is just another round of funding”, being even more beholden to the investors started to become evident. The advertising and programming choices became even more suspect, listeners began wondering what was happening. And along with the political things, came advertising that was even weirder. We got many complaints about “Speak Up University”, who appear to be a support group for “straight Christians”, but a little more research into the Speak Up organization proves it to be essentially and anti-gay hate group, among other things.

(It’s a fallacy to think that any dominant culture would need support in the face of abused minorities, the same way that there is no such thing as “masculinism” battling the tenets of feminism: feminism strives for equality; being against it is being for the current inequality of all people, regardless of gender. Nonetheless, there is so much misunderstanding of it that people are duped into thinking that they should be against it because somehow it promotes more power to one side (women in this example,) instead of simply promoting equality. One would think that the anti-gay marriage proponents believed that allowing it would make it mandatory—or Worse!)

I brought this up to the management, again. This, surely, was a moral line we should not cross in our blind acceptance of money for political or dogmatic advertising. This slightly stirred things up, partially because my team had several gay members, to say nothing of those who were simply trying to advocate morality and refused to accept that there was any difference between people regardless, and hence advertising that is divisive or hateful in any way should be avoided. We never really got closure on this, as the advertising sales people were the cream of the business crop, in their own little money-driven world, and couldn’t be bothered so much with whom they sold to, so long as they sold time or web space.

I realized at this point that the entire area of “customer service” within Pandora was backwards. The listeners were not the customers, the advertisers were. The listeners got music in exchange for listening to ads. That was the deal. Again, music was irrelevant, we could have been pumping sausage through a pipe into their mouths all day long, in exchange for watching ads. But the public perception of the company was still that it was somehow “pro-music and musicians.”

I tried to accept this all, but still had to speak out when we ran ads for “Minnesotans for Marriage”, another anti-gay hate group opposing gay marriage in Minnesota. And, looking around, our very team was segregated: the gay contingent was off to one end by themselves…This time was the last straw for management, I was brought into a meeting and told to “stop questioning decisions that had been made by the company”, that is, get with the program or get out. They said “you have some tough decisions to make”. The next day I was told to clean out my desk. Many people asked me about whether I wrote this article after I was fired (I didn’t, but it is all true.) Take a look.

http://www.buzzfeed.com/reyhan/tech-confessional-how-pandoras-ipo-changed-every

Losing my job was bad, of course, that always is, and it makes one a pariah in the tech world to simply care about the morality of what is done. I wrote this a year later: http://jsegel.wordpress.com/2013/03/21/pandora-now-a-year-down-the-road-from-me/

(To repeat some of that blog entry, when I was told by the new over-manager  “you can’t keep questioning things that the company has already made decisions on”, I replied that of course I have to keep questioning! What if people hadn’t kept questioning during the civil rights protests in the 1960s? He became really angry and reared up and said, you can’t compare these things to racial issues! I said, “uh, yes you can, I’m talking about civil rights, this ad is for an anti-homosexual group…?” When I left that day and went to a yoga class, I spoke with an expert: none other than Angela Davis was a student in the same yoga class that I went to in Oakland. She was fairly adamant that I was on the right track!)

In the past two years, Tim Westergren has proven that all he really cared about all along was the money, he and many of the other upper management and investors have been cashing out millions of dollars in stocks all the while lobbying against royalty rates to pay for the music that supposedly the whole Pandora concept is based on. And as he, and the company, become more and more politically involved, it reflects more and more on the company as a whole.

Now it has come out that Tim and Joe and others even donated to the radical right wing anti-gay congressman Jason Chaffetz. Presumably, they simply did this to throw money at him to sponsor IRFA, the “Internet Radio Fairness Act” (a very Orwellian name!) Of course doing so supports him in his entire agenda. So, they really don’t care? Or is the company based in such a sense of pseudo-morality that these people like Tim are actually supporting Chaffetz’ anti-gay agenda? How could we know?

If it is that, then this company is sick at its core. If it is only about money, then the company is amoral. That same sort of amorality and hypocrisy permeates the rich industrialists of the world, see here for example regarding the Koch family.

In any event, the Pandora bosses have made out like bandits already, so I doubt they care what happens. Maybe the company will wither, and in its withering prevent similar IPO-based “funding”.

We can only hope that they are replaced by music streaming companies that really care about music.

 

-post by Jonathan Segel

CCC-NYC : International Fete de la Musique day

We’re looking forward to seeing coverage from the event in NYC yesterday.

Google-owned YouTube’s new streaming service has rates so low it will put many indie labels and hardworking artists out of business.   According to the CEO of Merlin (rights licensing organization), “the service that pays the least is the service that’s the most well funded and run by the biggest company in the world: their figures are by far the worst, whether you measure them on a per-stream basis or a per-user basis.”

Support Artists’ Rights by demanding that Google and others:

1.Stop using the copyright reform process to attack artists rights.

2.Cease brokering ads to the corporate black market.

3.Support sustainable pay models for the cultural creators on whom its profits depend.

READ THE FULL POST AT THE CCC-NYC:
http://ccc-nyc.org/2014/06/support-artists-rights-this-saturday-june-21st/

Songwriters Are Losing $2.3 Billion A Year Due To Outdated Government Regulations | BuzzFeed

Right now a byzantine system is in place that not only dates back more than 70 years but also differs depending on the distribution platform. Traditional radio stations, for instance, pay royalties to the composer of a song, but not to the artist or band performing it — known in industry parlance as a performance right — if they are different. Sirius XM only pays royalties for songs released after 1972. Pandora does pay government-mandated royalties to songwriters but has been aggressively lobbying regulators to lower the rate in recent years. Use of music in both professional and user-based content on YouTube and other websites and in TV shows or commercials is yet another category of music licensing, with the difference being that it is free-market-based and not subject to government oversight.

READ THE FULL STORY AT BUZZFEED:
http://www.buzzfeed.com/peterlauria/songwriters-are-losing-23-billion-a-year-due-to-outdated-gov

YouTube’s Attack On Indies Gets Strong Response From WIN, But It’s Time For Artists To Take Action | Hypebot

YouTube/Google and Amazon Are Using Their Power Against Creatives

If you’ve been watching the last 15 years or so of web development, you’ve seen a relatively wide open field of entrepreneurial potential gradually get taken over by major corporations in a manner similar to what occurred in industrial societies beginning in the late 1800s. They may be dropping fewer bodies than did the industrial giants but close-to-monopoly digital land grabs by companies like Google and Amazon have put them in a situation where they seem to feel that any terms they name are acceptable if they have the power to force compliance.

Amazon’s current battle with Hachette is but one example of how they’ve used their dominating position in book and ebook retail on the web to have their way with companies that are often struggling to survive.

YouTube’s dominance of the web video space sets up a similar near-monopoly situation in which they’re willing to use their position to behave in monopolistic fashion and force non-compliant entities into line.

READ THE FULL STORY AT HYPEBOT:
http://www.hypebot.com/hypebot/2014/06/youtubes-attack-on-indies-gets-strong-response-from-win-but-its-time-for-artists-to-take-action.html

YouTube steps up row with indie labels by confirming imminent video blocks | Music Ally

This story is taking on a lot of dimensions of what it might be and what it might mean, Music Ally tries to get some late breaking insight. Of particular note is the comment by Radiohead manager Brian Message, read on…

“YouTube executives argue that they cannot offer music on the free service without it also being available on the paid service as this would disappoint its subscribers,” as Billboard puts it.

Meanwhile, you had the BBC suggesting that indie videos uploaded to YouTube via Vevo would still be available, while only “videos which are exclusively licensed by independent record labels, such as acoustic sets or live performances” will be taken down.

Clear as mud, then. Radiohead manager Brian Message was asked at Music Ally’s transparency event last night whether he thinks YouTube will follow through on the threats: “I quite hope that they do! It would be quite interesting to see what happens next!” – not as flippant as it reads in print, but more an admission that it’s only once blocking start happening that the industry will know exactly what YouTube is threatening.

This dispute is bad for everyone: for labels and artists, for fans, and particularly for YouTube, for whom accusations of bullying indie labels will be hard to brush off.

READ THE FULL STORY AT MUSIC ALLY:
http://musically.com/2014/06/18/youtube-steps-up-row-with-indie-labels-by-confirming-imminent-video-blocks/

Swimming Against the Stream: Musicians Fight for Their Worth in the Internet Era | SF Weekly

The cops were getting lots of calls. Drivers were worried. There was a woman walking down the road — the narrow part of Highway 1, just north of L.A. And she was pushing a baby carriage.

When the cops found her, it turned out she was not a crazy person. She wasn’t even a mother.

She was a musician on a mission.

The woman was Suzana Barbosa, a longtime Toronto singer and leader of the band Lumanova, who had lately become fed up with the state of the music industry. She’d had it with the paltry amounts paid to songwriters and performers by streaming services like Spotify. She’d had it with our culture’s preference for glamorizing starving artists instead of paying them decently.

Barbosa was so fed up with the music business that she decided to walk some 400 miles, from Los Angeles to the Google campus in Mountain View, to publicize what she sees as an existential threat to the world’s independent musicians.

READ THE FULL STORY AT THE SF WEEKLY:
http://www.sfweekly.com/2014-06-04/music/beats-apple-unsound-spotify/

Merlin on YouTube music payouts: ‘Their figures are by far the worst’ | Music Ally

“The ironic thing is that the service that pays the least is the service that’s the most well funded and run by the biggest company in the world: their figures are by far the worst, whether you measure them on a per-stream basis or a per-user basis. I tend to get myself in trouble when I talk about that company…”

Hence his desire not to name them directly, but quote instead from an interview with Billy Bragg conducted by Music Ally earlier this year. “If we’re pissed off at Spotify, we should be marching to YouTube central with flaming pitchforks,” said Bragg – Caldas read this quote out before delivering his own pointed follow-up. “I can’t say Billy’s right, but I can say that he’s not wrong,” said Caldas.

READ THE FULL STORY HERE AT MUSIC ALLY:
http://musically.com/2014/04/30/merlin-youtube-music-payouts-charles-caldas/

RELATED:

What YouTube Really Pays… Makes Spotify Look Good!

Streaming Price Index : Now with YouTube pay rates!

David Pakman is Wrong on The Price Of Music (and streaming subscriptions)

Is there anyone left in the record business with common sense and a calculator?

David Pakman wrote an interesting piece asserting the problem with streaming services getting up to scale is a matter of pricing. He puts forth that $10 a month, or $120 per year is too much. He claims that the ability of these services to scale should be more in line with a monthly fee of $3-$4, or $36 – $48 a year to appeal to a broader base of the “average” music consumer. We think there are some serious flaws with this line of thinking not the least of which is that we can’t get the math to scale at $10 a month per user!

The first and most important error is that an “average” music consumer does not exist. Sure, you can average the total spending by the estimated number of consumers to find an average per consumer but no “average” consumer actually exists. Some spend many times the average, some spend far below it.

Pakman makes the assumption that music subscription services are over priced citing that the “average” consumer is only willing to spend $64 a year on music.  This completely ignores that the majority of highly active music consumers that have historically purchased much more than the average.

Those working in music distribution have always know that the most active consumers, contribute the greatest percentage of revenue to the total. In traditional terms this would be an expression of the classic 80/20 model where the top 20% of consumers represent 80% of the revenue. Conversely 80% of consumers only account for 20% of the revenue overall. This is of course an over simplification but it illustrates the point being made.

Here’s some simple math. Apple’s iTunes boasted 200 million users in 2011. Using Pakman’s own estimates at $64 per “average” consumer, the store should have generated a cool $12.8 billion in revenue. As we all know that’s not true, it quickly illustrates the problem with Parkman’s methodology of the “average music consumer.” Of course Itunes is not the only music retail outlet, and surely not all of those Itunes users were strictly music consumers. Again this is the problem with attempting to define an “average” music consumer to broader market economics.

Pakman also doesn’t fully account for the fact that while music prices dropped nearly in half from $19.98 compact discs to $9.99 downloads the volume of sales continued to decline. This is a decline that began with the introduction of Napster and has spread through the expansion of ubiquitous illegal file sharing networks such as the now defunct Kazaa, Grokster and Limewire.

The single greatest factor effecting both the price of music and the volume of sales, was and remains the illegally free supply of the exact same product available to consumers without risk, investment or consequence by those distributing it for profit without paying for the cost of goods.

But Pakman may have stumbled upon some other points of interest in his observation. First, is that the music business needs to learn how to window releases and build a transactional streaming model as the film business employs. We detailed this in our post “Spotify is not Netflix, but maybe it should be.” Second, there should tiered access on streaming services. A basic $4 a month subscription gets you the hits, say the top 200 current singles and the top 200 catalog albums. For $9 a month you get the hits plus all music more than a year old. For $20 a month you get everything available.

The narrow band thinking of music industry business people is stunning when we don’t need to look any farther than the film and tv industry to see a robust variety of different streaming products for different consumers needs and demands. The film and tv industry successfully window releases and have different pricing tiers based on access and there’s really no reason why these models would not, and can not translate to the record industry.

 

Merlin on YouTube music payouts: “Their figures are by far the worst” | Music Ally

No surprise to us…

“The ironic thing is that the service that pays the least is the service that’s the most well funded and run by the biggest company in the world: their figures are by far the worst, whether you measure them on a per-stream basis or a per-user basis. I tend to get myself in trouble when I talk about that company…”

Hence his desire not to name them directly, but quote instead from an interview with Billy Bragg conducted by Music Ally earlier this year. “If we’re pissed off at Spotify, we should be marching to YouTube central with flaming pitchforks,” said Bragg – Caldas read this quote out before delivering his own pointed follow-up. “I can’t say Billy’s right, but I can say that he’s not wrong,” said Caldas.

READ THE FULL STORY AT MUSIC ALLY:
http://musically.com/2014/04/30/merlin-youtube-music-payouts-charles-caldas/

RELATED:

What YouTube Really Pays… Makes Spotify Look Good!

Artist Revenue Streams : Streaming Marketshare By Volume and Revenue (includes YouTube and Spotify)

Streaming Price Index : Now with YouTube pay rates!