Musician’s POV: Five Things Spotify (and others) Could Do Today to Level the Playing Field for Independent Artists

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.

Musicians POV: Spotify Isn’t Good for You (Part 4 of 5)

This is Part 4 of a 5 part post read Part 1 here, Part 2 here and Part 3 here

See also “Streaming Price Index: Pay Rates as of 12/31/11″

Fair Play for Artists

Spotify’s business model is actually the kind of extraordinarily short sighted economics that you see from people who don’t understand the business they are in.  Take Walmart for example.  They drive a hard bargain, but they are not trying to leverage themselves off the back of thieves.

Walmart doesn’t say to its suppliers that Walmart is better than the alternative of being robbed blind, but will only make the benefit so incrementally tiny that the supplier will go out of business at that rate.  This is the commoditization rate, or what we call “less than zero” pricing.  This sounds just fine to someone whose salary is guaranteed by venture capitalists, but makes no sense for the artists—and they are leaving Spotify in droves.

Walmart knows that they succeed when their suppliers succeed and the consumer succeeds.  The pricing that Walmart pays to suppliers is based on buying power and a mission of offering consumers low prices, meaning that everyone in the chain takes a little less and truly does make it up on volume.  That method is not for everyone, which is why you don’t see just every brand in Walmart.

Spotify’s valuation is based on a business model that is inherently unfair to artists, producers and songwriters.  This accounts for its low conversion ratio—it’s a couple points away from a pure pirate service and has failed miserably in the one thing it had to do to justify its existence: convert free to paid customers.

And even if it did succeed, that would be the worst possible world for artists, because there is little difference in the functionality of a top tier Spotify service and buying a download from iTunes–aside from the price paid to the artists, producers and songwriters, of course.  There is even some evidence that suggests that fans who were buying downloads are shifting to Spotify’s free service and substituting away from paying for downloads legally to a free legal service–the exact opposite of how Spotify has sold its service to artists as the “piracy buster”.

Next: Part 5

See Part 1 here, Part 2 here and Part 3 here