As the recorded-sales model makes a transition to access subscription business, much of the debate has centered on the “microscopic” payments services like Spotify pay to artists, labels and publishers.
That debate was rekindled July 14 when producer/musician Nigel Godrich slammed Spotify’s economics on Twitter. A longtime Radiohead producer and member of the bands Atoms for Peace and Ultraísta, Godrich announced that three albums — Thom Yorke’s Eraser, Atoms for Peace’s Amok and Ultraísta’s self-titled set — had been pulled from Spotify. The streaming model might work for catalog titles but doesn’t pay new artists adequately, he explained. “It’s an equation that just doesn’t work.”
Other musicians quickly chimed in. Thom Yorke reiterated Godrich’s comments and added that Spotify’s shareholders “will shortly be rolling in it.” ?Electronic artist Four Tet said he had taken his label’s catalog down from Spotify, tweeting, “Don’t want to be part of this crap.” ?
Godrich and Yorke’s comments were hardly the first time the royalties that Spotify and other subscription services pay had come under scrutiny. Labels and artists have been complaining about the miniscule per-stream payouts for years. Entire catalogs have been pulled: Citing the interest of its artists, heavy metal label Century Media took down its entire catalog from Spotify in 2011. “Spotify in its present shape and form isn’t the way forward,” a company spokesperson said at the time. Fan sentiment helped restore the entire catalog in 2012, however. Earlier this year, the label launched its own Spotify app.
?But few other instances of discontent had resonated so loudly. Thanks to the power of social media, Godrich’s comments were quickly shared and amplified. And because of his status in the business, his comments seem to have carried more weight than those of earlier critics. Media reaction was immediate — music trades were writing about Godrich’s comments Sunday afternoon — and lasted for days. Even digital executives, normally protected by their publicists, joined the conversation.
?Spotify CEO Daniel Ek quickly got involved. He took to Twitter to address Godrich’s comments and lay out Spotify’s case for its business model. Ek noted that “streaming is now a very big revenue source” in some countries. He noted that subscription services pay royalties differently than retailers: Spotify pays a royalty when people listen; retailers pay a royalty when people purchase. And he pointed to Daft Punk’s “Random Access Memories” and Jay-Z’s “Magna Carta…Holy Grail,” albums with strong sales that also set single-week streaming records at Spotify.
?Opinions on subscription royalties aren’t split down the middle with the creative community on one side and digital services on the other. Radiohead manager Brian Message told BBC that such new technology developments as Spotify are “a good thing” and give artists and fans a “cutting-edge” way to communicate.
?The Music Managers Forum, a London-based trade organization with 400 managers representing more than 1,000 artists, also threw its weight behind Spotify’s business model. In a post on its website two days after Godrich and Yorke made their comments, the MMF said it “embraces streaming” as a medium that gives consumers another way to pay to access music. “Everyone, including artists and fans in the new business, needs to adapt to the new world.”
?It would be hard to argue that Godrich and Yorke have not adapted to the new music business. After leaving EMI, Radiohead famously released its 2007 album, In Rainbows, through a “pay what you want” online offering. The band regularly streams live webcasts of in-studio performances, and through its website it sells a range of digital goods (in different file formats) and physical items like LPs and 12-inch singles.?
But Godrich and Yorke don’t necessarily think every new business model should be accepted without question. They are concerned about the new artists and small labels that need to earn a return on their creative works, and fear that a business model that treats every stream equally will end up favoring large companies with big, profitable catalogs. “Smaller producers and labels get [a] pittance for their comparatively few streams,” Godrich wrote. ?Spotify pays roughly 0.4 cents per stream regardless of the song. A rarely heard track on a $5.99 CD receives the same payment as a popular track that costs $1.29 at iTunes. Over time, and with enough activity, a song can generate a good amount of revenue. The 14 million streams Jay-Z’s “Magna Carta” received in its first week of release in the United States was worth $54,000 at 0.4 cents per stream.
?At the breakneck pace of 14 million streams a week, the album would need 1.7 years to generate Spotify earnings equal to the $5 million raised by Samsung’s giveaway of 1 million album downloads. Equaling the revenue generated by the 527,000 first-week album sales would take nearly 1.3 years. It would take 7.3 weeks to generate revenue to match the revenue from “Magna Carta”’s first-week track sales of 417,000. But, like typical albums, “Magna Carta” will slow and generate fewer streaming payments as the weeks pass. Streaming revenue will take years to match the revenue “Magna Carta” generated in just the first week.
?This difference in the timing of payments is a trademark of the subscription model. Purchases generate revenue immediately. Streams generate smaller bits of revenue over a period of time. This is extremely relevant for new artists. A catalog that has already recouped its expenses is under different pressures than a new release that’s deep in the red. ?The debate over Spotify is more complicated than comparing streaming and purchase revenue. The greater question involves the role of subscription services in the marketplace. Is Spotify a replacement for purchases? What, if anything, can subscription services do to create more revenue for artists and labels? ?
Three days after Godrich first tweeted, Spotify continued the conversation with a lengthy paper about piracy and streaming activity in the Netherlands. Written by Spotify director of economics Will Page with the input of numerous academics and professionals, the paper argues that withholding a title from Spotify does more harm than good. Page found evidence that titles unavailable at Spotify experienced more piracy and fewer sales than titles available on the service. One interpretation: Allowing people to legally stream music results not just in royalties but also in awareness and engagement that drive positive outcomes.
?The jury is still out on subscription service’s long-term impact on purchases. Music sales started falling well before Spotify launched. The decline in CD sales would be happening with or without subscription services. Download sales have peaked in some countries — such as Scandinavia, where subscription services are most popular — and have probably reached a plateau in the United States. Subscription services aren’t necessarily driving those changes. “So far I’ve not seen any cannibalization,” Ek tweeted. ?
Yet it’s not difficult to imagine a future, many years from now, in which most consumers stream rather than purchase. This is the future Godrich and Yorke are concerned about. ?Royalties may be unmovable. Tim Quirk, a former Rhapsody executive now with Google Play, tweeted that Yorke blames streaming services for the economy in which they operate. “Rates are a symptom, not the cause,” he wrote. Higher royalties would undoubtedly force services to raise prices — $9.99 per month for mobile access is the standard fee — at a time lower prices would the encourage greater desired by the industry.
?Services have more to offer than royalties: They can directly connect fans with artists, drive ecommerce and provide valuable data about their listeners. Such future services as Daisy, the yet-to-be-launched Beats Music streaming service, are likely to incorporate some of these features. “We have to be part of the solution, not part of the problem,” Daisy CEO Ian Rogers tweeted.