Blaming Spotify is Just too Easy
by Gigi Tsakiris, Tribe Warrior
The advent of music streaming services has consistently created an immense distortion regarding opinions, prevalence, perseverance, and of course the effect music streaming services have had on the current state of the music industry.
Prior to the inauguration of such services, the industry as a whole was held on a saturated stance, experiencing huge losses in revenue, and had no means of producing any alternative model that would coincide with the needs of music consumers. With that said during those times most music consumers had inadvertently been conditioned to generally acquire music through pirated websites without having any conscious consideration of the repercussions their actions would have towards their favorite artists, and presumably the industry as a whole.
From the music consumer’s standpoint, many purported to ignorance with actions that would result in the music industry losing over $40 billion dollars in revenue. This is in part due to the fact that since the only legal option to acquire music was by means of purchase, once Napster entered the music market and offered music for free, that frame of thought of “buying” unfortunately went out the window. For a couple of years people generally owned music by either purchasing a CD, digital single/album, or torrenting from a pirating website. The disruption to that form of conduct was incurred by the disturbance brought by technological advancements supporting music streaming services. For some time, these companies have made it their mission to try and solve the piracy issue that has blatantly botched the music industry. Their efforts have now become a trend, and more and more companies are starting to follow and accept the streaming model.
So far in, one general consensus towards streaming services can be concluded: music streaming services have provided the means to recreate the distribution model, and to an extent have constructed a presumable sustainable business model that will hopefully prove to help bring our industry into accelerated fruition. It should be noted though, that many of these music streaming services have received immense scrutiny on multiple media publications, most commonly providing a churlish commentary reprimanding an unjust ideology towards these services. For some reason, it feels as if many have overlooked the fact that these streaming companies have entered an industry where most often than not, everything is working against you. It is extremely difficult to get record labels, music publishers, PRO’s, artists, let alone music consumers to accept any innovative model without some sort apprehension. This on its own, makes it extremely difficult for any company to claim its space within the industry, and to evolve sustainably. With regards to music streaming services, all of them are heavily dependent on Record Labels, and Publishers as they hold the keys to the world’s music library catalogues. Their permission to utilize any song that is copyrighted and represented by such entities, restricts the ability for that music to channel any sort of lucrative revenue stream. Music streaming service companies are however trying to create a path where artists won’t need to be restricted, and won’t have to be conveyed in receiving such low royalty payments.
One particular streaming service though, that has unfortunately received a gratuitous amount of criticism through multiple media sources is Spotify. To date, most of the criticism alludes to the idea that Spotify is ripping artists off with its low royalty payments, functions under an unsustainable business model, and is currently stuck between battling off two tech giants who have always had a dominant foothold within the music industry: Apple and Alphabet (parent company of Google and thus YouTube). With regards to Spotify’s royalty payments, the splits are dispersed according to contractual agreements. For instance, Record Labels - who represent producers, performing artists, session musicians, and master recordings- keep 73% of royalties paid to rights owners by streaming services. This means that whatever is being collected by the labels, more often than not, the company keeps the majority stake, and the artists who are bound to whatever contractual terms they have set with their respective record label receive an incremental amount of that royalty split. Music Publishers on the other hand - who represent songwriters, composers, and musical compositions - are only subject to receiving 10% of royalties paid to rights owners by Spotify. That 10% is also split according to the terms of the agreement between the songwriter/composer and the Music Publisher. It is no wonder that artists are furious with Spotify, but the issues that arise are still held within the agreements put in place between Labels, Publishers, and their clients (musicians). Contextually,, it could be concluded, that the culprit for such low royalty payments cannot be directly attributed to Spotify, it simply is just easier to blame Spotify. Spotify, as of now, has less then 20% of revenue collected to work with, making it extremely difficult to profit, and thereby imposing the reality as to why Spotify has not been able to turn a profit since its inception.
To date, Spotify has received over $1 billion in financing with an additional $1 billion in debt financing in order to fulfill its IPO offering. This of course puts enormous pressure on Spotify. For instance, once Venture Capitalist start investing, the company needs to proceed into making itself appear substantial, progressive, and most importantly lucrative. Furthermore, the company has also had to compete with other businesses who already have a strong executive team working for a notoriously high salary. In order to appeal to such professionals, Spotify has to compete with their salary. This could be one way of justifying the reason why Spotify pays such hefty salaries to its employees - in order to be the best and compete with the best, you need to acquire the best, and sadly, nothing speaks better than money. What’s more, is the fact that Spotify keeps getting attacked on its low royalty payouts. There is no disputing that fact, however, when we take a look at YouTube, their payouts are just as low, if not lower. Further, the amount of revenue that YouTube receives annually cannot even equate to any other streaming service in the world - $9 billion in advertising revenue - but again, YouTube payouts to rights holders still remains minute. There has been several claims made by YouTube regarding a $3 billion payout to the music industry, but out of that $3 billion we do not know the time frame, nor how much of that money lands into the hands of the artists. This has been an ongoing issue that has been in place since the inception of our industry.
What must not be forgotten though is the fact that without Spotify, the current state of the industry would not be where it is today. Without Spotify, Apple would not have had the urge to rethink its iTunes store strategy and create its own streaming service. YouTube would have never indulged in its efforts to create its streaming service and to start compensating artists for their work. Yes, there have been many other notable companies that have entered this industry - Kobalt, Downtown Music Publishing, Song Trust, Pledge Music, to name a few - that have provided ethical, moral, business models but in terms of creating a viable means to distribute and access music, Spotify has been one of the frontrunners into making this become a reality for our world, and most notably solving the issue of piracy.
So where are we at now? Apple Music has a growing user base of over 14 million and is in talks to acquire Tidal. The reasoning behind that is simple. For starters Tidal has one of the strongest artist backing, and if Apple succeeds in acquiring Tidal, it will have its golden ticket for exclusive artist releases which will include Kanye West, Beyonce, Daft Punk, Lil Wayne, Madonna, etc. The acquisition of Tidal could also potentially help Apple expand its user base, and put itself in line with Spotify. With regards to YouTube, the streaming service still remains untouchable, and Spotify is still left to battle its way through the industry in order to keep itself afloat. These music streaming companies, regardless of competition, have one intention in common: provide unlimited legal access to the world’s sounds. However, in order to progress, and create a fair system where everyone can be fairly compensated, all intentions need to be aligned on all levels. As of yet, this has not happened, and the services who are trying to create a sustainable system for artists, keep getting reprimanded, when in reality, we should be finding solutions, working together, and stop putting continuous blame on others. Moving forward, a probable solution could be either renegotiating antiquated contractual agreements, which more or less is impossible - reason being that Record Labels, and Music Publishers are adamant about their exclusive terms and deals, and show no interest in changing their approach to such deals. Other solutions could be creating a transparent business model that is based off a minimum pay-out that musicians and composers perceive as fair. However, we also have to take into account that each musician/composer is subject to their own opinion regarding fair compensation and creating a standardized system that fits a general conscious will prove to be challenging, but not impossible.
We still have a lot of work ahead of us, but with the help of streaming services such as Spotify, Apple Music, Tidal, Pandora etc., we could finally create an ecosystem, that benefits all parties involved: businesses, artists, and music consumers.