Spotify’s Conundrum: More Subscribers, More Problems
Spotify has grown its stock price 57% this year, but it’s fighting with publishers, upsetting some employees and will soon be the subject of a British Parliament inquiry.
Spotify’s Oct. 29 third-quarter earnings call was full of good news. The service now reaches 320 million monthly users with 144 million paid subscribers (up from 299 million and 138 million in the previous quarter, respectively), and its advertising business “returned to growth” after a pandemic-related decline. “There’s a significant pent-up demand for Spotify around the world,” said co-founder/CEO Daniel Ek, “even in places where our service has yet to launch.”
The rest of the month wasn’t so sunny. Two days earlier, podcaster Joe Rogan had right-wing conspiracy theorist Alex Jones on his Spotify-exclusive podcast; Jones ranted about how Bill Gates was trafficking in vaccines that spread polio (which he’s not), angering Spotify staffers who had already spoken out about previous Rogan episodes that they considered transphobic.
It’s a rare public relations problem for a company that consumers tend to love — and it raises questions about whether Spotify considers itself to be more of a platform for creators (like YouTube) or a distributor that exercises some editorial control. The company’s $100 million multiyear deal with Rogan suggests the latter, as does Ek’s comment about the matter on the earnings call: “We obviously review all the content that goes up.” (Spotify did not comment for this story.)
These questions come at a time when Spotify is facing increased criticism from musicians who can’t tour about the service’s low per-stream payouts — roughly $0.0038 to the label, and just a fraction of that to artists, according to the new Union of Musicians, which recently launched a campaign called Justice at Spotify — and publishers and songwriters with whom it is in a federal court dispute over royalties. They’re not limited to the United States, either: A British Parliament committee plans to hold hearings as early as December about how streaming services pay. “We need to examine how appropriate the economic model is,” says Kevin Brennan, a member of Parliament who serves on the Select Committee for Digital, Culture, Media and Sport. “My starting point is, it can’t be fair if the people making the music are reporting getting such a small share of the proceeds.”
So far, Spotify has managed to shrug off most criticism from creators: The creators popularized the monthly subscription business model that revived the recorded-music business, and it’s one of the biggest sources of revenue for rights holders, paying out $1 billion per quarter this year. The pandemic has made these issues more urgent, however, and the Rogan controversy will present new challenges. Even platforms like YouTube and Facebook have struggled to balance free speech (and the need for an audience) with some degree of corporate responsibility, and Spotify could have a tougher time ahead. Two years ago, in response to the #MuteRKelly movement, the company said it would no longer add certain artists’ music to its playlists — then reversed the decision within a month. Now, the company could find itself in a no-win situation: Rogan’s fans have complained about Spotify not uploading past episodes with far-right guests Milo Yiannopoulos and Gavin McInnes.
This isn’t a music-business issue, but it will give industry critics ammunition. “It’s hypocritical for the employees at Spotify to be concerned about the content in podcasts but to be silent about the company’s efforts to devastate songwriting,” says David Israelite, president/CEO of the National Music Publishers’ Association. And as Google and Facebook have seen, PR headaches can add up to major migraines.
In the long run, Spotify may have to get used to being seen as less of a startup and more as one of the “ultimate capitalist monsters,” like Google and Facebook, says Jim McDermott, a longtime major-label executive who is now a digital-marketing consultant for artists. “It’s about making a profit for their shareholders.”
This article originally appeared in the Nov. 7, 2020, issue of Billboard.