Those 'Fake Artists' on Spotify? Epidemic Sound CEO Oscar Höglund Says There Was 'No Special Deal'

Toru Yamanaka/AFP/Getty Images
Daniel Ek, Spotify Co-Founder/CEO

After four months of quiet, Epidemic Sound CEO Oscar Höglund has finally spoken out at length in response to allegations that his company was promoting “fake artists” on Spotify’s playlists, and undercutting licensing fees and royalty payouts to traditional labels.

A production music company based in Sweden, Epidemic Sound was catapulted into controversy in July 2017 when Music Business Worldwide published a list of 50 “fictional” artist names that racked up more than 520 million total streams across multiple Spotify mood playlists, including Peaceful Piano, Ambient Chill and Deep Focus. The initial list of 50 has since grown to several dozen, raising tensions with major labels who accused Spotify of trying to cut content costs at the expense of more public-facing artists and songwriters. As of press time, the mood playlists in question still delegate anywhere from 15 to 65 percent of their real estate to Epidemic artists.

In an interview with Music Ally published yesterday (Nov. 20), Höglund denied that Spotify was commissioning tracks directly from Epidemic for a discounted rate -- a situation that would position Spotify as an exclusive B2B client of the production music company.

"We got in contact with all of the streaming services, and the one that was quickest was Spotify," said Höglund. "There was nothing exclusive about it: they were just fast, and we uploaded our music. No special deal, no back door, no nothing. We just uploaded our music." The CEO also revealed plans for Epidemic to expand its distribution to five to ten more streaming services by January 2018.

Moreover, claimed Höglund, these “fake” artist names are tied to real composers making a viable living -- as much as five figures a month -- off a model that is less traditional but no less legal. According to Höglund, Epidemic  pays composers around £1,500 to £2,000 upfront per track for 100 percent of the rights, plus a 50/50 split on Spotify royalties atop the upfront fee.

The agreement largely seems to be an exchange of recurring revenue for reach: outside of Spotify, Epidemic’s distribution network spans over 300,000 YouTubers, including 85% of all the world’s multi-channel networks and 20 of the top 100 accounts, and generates 20 billion monthly streams across YouTube and Facebook.

Yes, Epidemic’s business model is sound, and reflects a wider reality about how the sustainability of music revenue varies widely across different contexts: public royalty statements on sites like Royalty Exchange suggest that production music for film and TV pays much more consistent royalties over time than hit radio singles or pop catalogs.

In his interview, Höglund criticized incumbent rights holders for not mirroring Epidemic’s level of transparency and efficiency in their contract negotiations. “How does YOUR model work?,” he asked, addressing traditional labels and publishers. “And you get this ‘Well, it’s complicated, it depends, there’s this black box and this data and we don’t know really…’ response. How much does the label take? ‘Well, we don’t want to talk about that really because it varies a lot…’”

Despite his seeming transparency, Höglund glazed over the most serious accusation in the controversy, namely that Spotify was matter-of-factly steering a high volume of listeners to music for which they paid lower fees. Even if Spotify had no malicious intention, the fact remains that not all content costs are the same -- as a Spotify rep told Billboard, "it's a marketplace" -- and that the major-label and established indie content for which Spotify presumably pays a premium is losing out on some of the service’s most popular playlist brands.

For example, in February 2017, Spotify’s Ambient Chill playlist, which has over 505,000 followers as of press time, switched out 16 tracks by established electronic acts such as Brian Eno and Bibio for 28 songs by Epidemic Sound artists, according to Chartmetric. Eight of those tracks were removed from the playlist on April 15, 2017 for unknown reasons, but that still left a 38 percent share of the playlist dedicated to Epidemic’s roster at the time. According to TrackRecord, that share has since ballooned to 65%.

Critics claim that by prioritizing Epidemic’s catalog on playlists like Ambient Chill, both major and indie artists (as well as other unknown artists) end up making less money per stream due to Spotify’s pro rata royalty payout model. In fact, in the aggregate, major labels don’t perform that well on mood playlists anyway: for instance, according to Chartmetric, the big three account only for 4 percent of Ambient Chill, 6 percent of Deep Focus and less than 1 percent of Workday Lounge.

There are a few notable exceptions: Warner Music alone owns a whopping 41 out of 62 tracks (a 66 percent share) on Reading Chillout, Universal Music owns 18 percent of Calm Vibes and the major labels collectively own 49 percent of Peaceful Piano. Spotify renewed its licensing deal with Warner Music in August 2017 -- just months after the fake-artists fiasco first blew up, which likely put pressures on the service not to squeeze out major-label content with other offerings.

A harsh reality that emerges from this debate is that Spotify and its competitors are fundamentally tech companies that commodify and product-ize music -- and arguably prize those content owners who can tailor their products to the platform at hand. As a Spotify rep told Billboard, "all of our playlists are performance-based. The user experience comes first."

In this vein, Höglund argued that Epidemic Sound's success on Spotify is simply a matter of beating other legacy content owners at their own game, by leveraging Spotify's unique features and strengths for what they're truly worth. “We don’t have any legacy, we’ve come from a new world, and we’re creating a new premise for how we think it should work," he said. "We’re utilising all the latest technological advances and services out there to make something super-efficient in terms of getting music out there, and getting people paid. If you compare that to the old world, it’s like night and day. And there is nothing fake about it.”


THE BILLBOARD BIZ
SUBSCRIBER EXPERIENCE

The Biz premium subscriber content has moved to Billboard.com/business.


To simplify subscriber access, we have temporarily disabled the password requirement.