July 20, 2011
Yesterday, I appeared on the WNYC’s Soundcheck with John Schaefer to debate Time Out New York’s Music Editor Steve Smith on the subject of Spotify and the rise of on-demand, cloud-based music streaming.
You can stream the segment here
My basic points are that services like Spotify, while advertised as being a viable alternative to illegal pirate websites and a great way for fans to find new music are, in reality, not all positive for artists and raise some important issues. In real terms, the royalties that are actually paid are laughably low. And the notion of cloud-based music poses a threat to an important royalty stream called the Mechanical License.
“Ben, I heard your discussion vis Streaming. I don’t have any answers but can say that my 10000 mp3s were paid for(usually very cheaply via emusic). I use itunes essentials to sample new artists(discovered you here)I use mog for discovery, then buy. I like owning my music. I play lastfm a lot.
I have no idea whether my approach is fair to the musicians, I hope it is. Anyway, I am a fan.”
Don
HI Don
Thanks for the post. Sounds like you’ve got a good system for discovering new music AND supporting the stuff you like.
I can break it down pretty simply like this:
Downloading music (where you get an actual file that you keep on your computer, ipod, etc.) or buying a hard copy of a CD involves paying a mechanical royalty, a portion of which goes directly to artists. This kind of royalty is MUCH bigger than the fractions of pennies for what we call “on-demand streaming” where a file is not actually downloaded but instead is streamed in real time.
One concern that musicians and song writers have is that more and more people will choose to stream on-demand INSTEAD of downloading mp3s or buying CDs, thereby cutting of that mechanical royalty stream. Consumers like you, who discover new music through social media and streaming services and then go BUY what they like, are not the norm.
It’s too early to say for sure what impact services like Spotify will actually have on artists. But my educated guess is it won’t be good.
One part of the answer is buying music directly from artists. This is a hugely positive thing. I’m thankful that the label I’m on allows me to sell my records myself directly from my site (see the “music” page). But my site is not where people look first. Until it is, it will remain a small part of my overall sales.
Spreading the word about music you dig is also positive. Spotify, Mog, Last.fm are all good for spreading the word…..But new technology is always a double-edged sword.
The fear: money for creative music, especially stuff on the fringe, might get sliced too thin.
hmm, get over it. Im in the djing business myself and I make music to share freely with everybody. I make money performing.. dont we all?
Titanic
Your tone is a bit aggresive, which is surprising coming from a musician. I’m curious to know why it bothers you that I would be concerned about the impact on-demand streaming will have on the music industry. Like you, I make most of my living performing live. But a significant proportion of my livelihood comes from writing new music, recording it and trying to monetize what is, in essence, my intellectual property. I think sometimes we take intellectual property (IP) rights for granted. But they really are the backbone of innovation and industry, a fact the founding fathers thought fit to include in the Constitution. The rights of a creator to own and control (to a certain extent) their inventions are vital. In my case, these rights have so far allowed me to pursue a life as a professional musician and eek out a living. Whether you care or not, the original music you create is equally protected in this country. You own it and can choose to give it away if you want (that is, if you are actually creating new music as a DJ, instead of, say, just using other musician’s music). I, however, do not choose to give my music away without restriction. Although there are quite a few places online where my music is streamable for free (including this website), there are limits to how and where I want my music to be available.
But let’s backup and clarify a few things. Websites like Spotify and Rhapsody use a percentage of revenue model, where music publishers and copyright owners get a percentage of the revenue regardless of how much revenue there is. In other words, royalties are not actually based on a set rate-per download but rather a flexible royalty that changes monthly. WTF!?
In typical real-world cases this rate comes to about .005 of 1 penny per on-demand stream.
Spotify and its supporters will argue that the more subscribers, the bigger the pool and the more income there will be. This sounds suspiciously like “Trickle down economics” to me (and we all know how well this has worked for the middle class during the last 30 years).
In reality, this model actually reduces the royalty rate when the subscriber base plays more music.
For example: If a service has one million subscribers and each subscriber pays $5 per month then the pool is [$5 x 1,000,000] = $5,000,000
If there were 25,000,000 songs played by the service (each subscriber played 25 songs) in a month that’s 5,000,000/25,000,000 = $0.2 per play.
If each person played 100 songs that’s 5,000,000/100,000,000 = .05 cents or half a penny per play. As I mentioned above, the real-world number for most composer/publishers comes out to .005 cents per play. I know this from talking personally to several indie label CFOs and asking them to give me some actual numbers from their Spotify statements. The point is, the more plays overall, the lower the pro rata payment to the composer/publisher. The actual royalty is dependent entirely on the revenue of the service.
So why do the major publishers (Universal, Sony, Warner, and EMI before the merger) license their catalogs to Spotify? Part of the reason why is because they were paid large cash advances and minimum payments per stream. Indie composer/publishers like myself are offered no such incentives.
An interesting aside – the majors were also offered a percentage ownership in Spotify for agreeing to license their catalogs (I think it was 6% each). The cynic in me envisions this scenario:
1. Spotify hits the market as a hot new internet company. Like Zipcar, LinkedIn and other new companies it’s valued at a huge markup, despite the fact that it has yet to make any money. But it does have the major catalogs and that’s very attractive and exciting.
2. Two years from now, Google or some such monolithic corporation buys Spotify for a cool $200 million, despite the fact that it still hasn’t made any money. What they’re buying is the software, the user experience, the cache of the name and the database of subscribers, which is what they really want after all. Universal, Sony and Warner each take their 6% ($12,000,000).
3. NONE of this money goes to the composers/copyright owners unless they happen to own shares in Sony. You can’t own shares in Warner because it’s a private company, owned oddly enough by Access Industries (http://www.accessindustries.com) a huge U.S.-based industrial group which also has many holdings in the chemical, natural resources, and real estate sectors.
Starting to get the picture Titanic?
We’re tiny fry in this huge and twisted cluster-fuck of a corporate world. The game is rigged and the only way an indie musician can hope to succeed is to try to control their own work, connect directly with fans and encourage those who love original music to support the work of the musicians who make it.
Hey, I thought of a new tag line for Spotify.
Spotify: At Least It’s Better Than Stealing
What do you think?
Yeah Ben!
Very well spoken. As a musician myself, I agree with your points and your idea the WE are the best hope for our scene. I use Spotify much like Don above, mainly for research. If I am curious about an artist, I’ll check them out there. If I’m learning a tune, I’ll go to Spotify to find versions that I like. What I suspect is the difference is that once I find something I enjoy, I purchase it. Either at iTunes, a “Brick and Mortar” store (Jazz Record Mart, anyone?) or I will search the artist out online or in person. We have to support each other!!
All the best and keep up the good fight!
Greg
Hey Ben. I came across this article. Seems like you aren’t alone in your thoughts on spotify. Pretty interesting.
http://venturebeat.com/2011/11/19/spotfiy-stholdings-labels/
Thanks Matt. Yes, I heard about this label group pulling their catalog from Spotify. They join Bob Dylan, Coldplay and a bunch of other labels and artists who are either pulling their titles or not licensing them to begin with. Part of the argument that supporters of subscription-based, on-demand services like Spotify use is that these companies are just reacting to the current business climate and illegal download culture. As an “alternative to stealing” they offer copyright holders and their licensors some small revenue stream.
For an increasing number of artists and publishers, myself included, this is not a good enough reason to buy into the model.
But let me take a minute to address the bigger picture. What artists are dealing with is an entire generation of listeners who assume that music is like water – you turn the tap and it just comes out. Free. Easy. [UPDATE: as an ironic and I think disturbing aside, Spotify founder and CEO Daniel Ek has just used almost this exact term when describing their service. He said "We want music to be like water – available everywhere, available seamlessly,” Reference article here] They feel strongly that sharing music is their RIGHT. Like it or not, this is a part of the modern culture of music ‘fans’.
But what they fail to understand is that music, like water, is NOT free. Someone’s paying for it – municipal government / tax dollars, in the case of water and a music-maker’s time and production costs in the case of music.
For all you music stealers out there: don’t equate artists / copyright owners with large corporations. They are not always one-in-the-same. The vast majority of artists who choose to pursue music as a profession are themselves small businesses. Don’t try to rationalize illegal downloading by telling yourself you’re just sticking it to the man. Really what you’re doing is slowly eroding the middle-class lives of countless artists and the other small businesses and industries that surround the creation of new music.
Again, I think this problem runs very deep and we, as artists have to find new ways of negotiating the constantly changing terrain of how music is published and find alternatives to what is clearly a broken system. Spotify is not an alternative I can support.
Hi Ben, as a creative musician who depends on all my various musical activities (performing, education, releasing music) to generate income, I couldn’t agree more with your points. Selling my own music is not the biggest slice of my overall yearly income pie, but it has been a valuable part of it. I agree that we should focus on developing a fanbase and inform our supporters that by purchasing our music, they are directly supporting our livelihoods and thus giving us the opportunity to create more music. I’m completely aware that piracy exists and there’s little I can do to stop it. However, I can control my music and not allow companies like Spotify, or any streaming sites for that matter, to pretty much give my music away for free, and be just a very slight step above stealing. There’s so much to this issue but thank you for speaking out about this.
Hi Ben
The first commenter, Don, nailed it. Regardless how one finds music, to own a copy means to pay for it. At its core, the decision to keep something, to own it, simply demands fair compensation. You don’t walk into a store and walk out with a cart full of goodies without paying. Or, you’re a thief.
But if you listen to music that’s playing in the store, you don’t directly pay for that. But the store should.
The increasing number of options, even on demand, to listen to music “for free” seems to appeal to people who either have not thought this through, or perhaps they themselves like to work without compensation.
Thank you for sharing via this website your experiences as well as your great music.