Spotify may be the reason we all start to buy music again
Yesterday, Spotify laid off approximately 17% of its workforce, citing macroeconomic trends and a drive for efficiency. Spotify currently controls 30% of the global streaming market with Apple Music and Tencent Music being the other big winners.
Like other streaming related services, Spotify has also raised prices over the past year. With the streaming market pretty much solved, there is fierce price pressure, not only with other paid players such as Apple Music, but also with piracy. In an interview with CNET, Kate Vale of Spotify Australia describes how many of the new customers that the service is trying to chase are, in fact, the pirates:
Until there’s free, legal and timely ways for people to download content, then they’re going to turn to illegal ways of doing it. At the moment in Australia we believe there are 2.8 million people that are illegally downloading music every single month. We believe that’s about 30 songs a month, a staggering 1 billion songs a year. If we can get even half of these people onto Spotify or legal services, it means there’s going to be money back in the industry which is good for artists, streaming services like ourselves.
So why are we so against paying more for music? Many artists (and fans of those artists) have complained that the payouts from Spotify are minuscule, especially with the recent changes to stop paying smaller artists anything at all. Digging into Spotify’s own data from 2022, we can see just how skewed revenue is on the platform:
- Spotify estimates that there are 200,000 “professional or professionally aspiring recording acts globally”.
- Of those artists, only 57,000 or 28.5% generated over $10,000 in total royalties to rights holders across recording and publishing on Spotify. All of this money would not go directly to the artist, as it still has to go through labels etc. Spotify states that we should multiply this number by four to account for all revenue streams of an artist, making the total income 40,000 dollars.
If we take a look at the data for who is earning their rights holders more than 10 million dollars on the platform, it is just 40 artists. Spotify notes that it has paid out 3 billion dollars over the last two years. If we assume an almost equal distribution (accounting for some platform growth between 2021 and 2022) perhaps we could say Spotify paid around 1.8 billion in 2022 alone? This would mean 0.02%[1] of artists are pulling in 22.2%[2] of the payouts, even if we assume that those 10M+ earnings are all earning just 10M, and not a penny more. If all 200,000 artists were paid equally, each artist would bring in about 9000 dollars[3]. Note again, that not all of those payouts are going directly to the artist, there are still processes in between.
This distribution is at least in part due to Spotify’s payout model, in which revenue is pooled and then distributed based on the percentage of the total. Wired has a great explanation of how this plays out in practice, using Apple Music instead of Spotify as an example:
To illustrate, imagine payouts are calculated monthly and in June 2020 Apple Music is paying out £100 to rights holders. If ten per cent (sic) of the total streams on the platform for that month were Ariana Grande songs, then Grande – or the rights holder for those recordings, which in this case is Universal subsidiary Republic Records – would receive ten per cent (sic) of the total payout pot, or £10. The same method applies to songwriters, although these rights are typically owned separately (and, again, often by a major label entity). This way of dividing payments means the most popular artists (those with the most streams) receive a chunk of revenue from users of the platform who haven’t played any of their songs.
Under this system, the Ariana Grande stan who pays £10 a month for Apple Music and plays ‘thank u, next’ on repeat all week also has a far greater influence on who gets paid what than, for instance, their dad who also pays £10 a month but only uses Apple Music to stream his favourite Paul Weller album to wind down at the weekend (sic). Effectively, the Paul Weller fan is supplementing Ariana’s income when the Apple Music cheque lands.
Even when people have over 100 million songs at their fingertips, we all still tend to gravitate towards the big players (or produce new ones through the viral nature of the internet), and play them often. Just check out many of the Spotify wrapped posts that have come out recently, and many will include highlights of artists played on repeat. Being a global phenomenon is fantastic, but it is hard to stand out in the crowd.
Along with much of the streaming world, Spotify isn’t necessarily interested in making sure that every artist gets a fair shake. Instead, Spotify is interested in one thing; margins. Spotify makes its money off of the gap between what it brings in as revenue, and what it must pay out for the rights to the songs on the platform. Prices can only be increased in line with the industry, or customers will flock to a bevy of near identical services. Unfortunately, this means a race to the bottom to produce content that is cheap to produce, widely popular, and brings in more frequent listens. For the podcast division, think less deep-diving investigative journalism and more daily talk shows. For music, this means more big stars that release smash hits. The more niche artists, as mentioned above with the example of Paul Weller compared to Ariana Grande, aren’t as valuable. This may have been part of the reasoning behind the decision to stop paying the smaller artists entirely.
My feeling is that we will get to a point where streaming platforms will either put too many ads into their service, raise prices too high, or a combination of both. A recent case with Sony and Playstation, in which content that was paid for was removed from users accounts due to licensing contracts, highlights how little control we have over our libraries on these platforms, and this may push people to begin to explore smaller artists and buy directly from them. For 11 dollars per month (the current cost of the individual premium plan in Canada), you can get approximately 10 songs that are both yours to keep forever without any recurring charges, and benefit the artist more directly. There are online music shops that will allow you to download the raw music file, so your entire music catalogue is not tied to a particular platform. Bandcamp for example, gives 80-85% of the revenue back to the artist or their label. This differs from Spotify, which pays out (nearly) 70%, and does not make payments directly to artists.
Having a marketplace that is so heavily skewed may improve efficiency for the provider, but at the cost of diversity in product. Sure, you may be able to discover 100 million songs on a single platform, but thousands of artists may not have a long term future in the industry if the trend of 80/20 consolidation continues. If Spotify is just starting to turn a profit now, how many more layoffs, payout cuts and revenue increases are going to have to be made until the service meets the expectations of investors? Do we really want to be locking our music in a platform with that future?
Taking back ownership of content and dealing directly with each other minimizes the value extraction that large corporations like Spotify are able to make. This also brings responsibility to us all not to pirate music and pay creators responsibly, but I believe that returning to the days of buying music is possible. One thing that is immediately noticeable is how much more appreciation there is for each track when we have a few hundred of our curated favourites to pick from. Through buying music, we each can better support the artists that matter to us, and collectively begin to rewrite the narrative for music consumption.
Notes
Header photo by Juan Di Nella on Unsplash. Released under the Unsplash license