Spotify – what the labels are doing right


I'll start this blog post with a disclaimer, I'm a Spotify fan boy. I have been ever since I first started using it in 2008 and I've built a business around it.

In case anyone has missed the news this week, some indie labels and distributors have decided to pull their songs from Spotify and all streaming music services because they think that the revenue earned from Spotify etc. is too low and cannibalises sales of their music from places like iTunes. One of the most vocal voices speaking out against Spotify was Blu Mar Ten, a UK production trio. They posted a link to fuckspotify.com on their Facebook page which contains the following message:

Dear Spotify,

Just a quick note to thank you ever so much for offering artists, musicians and songwriters everywhere the chance to preserve our credibility by offering us (spelled: dictating to us) royalty rates that even a crack-head would turn down. We really don't like getting paid for our music, and thanks to you and other apps like you, we won't have to be bothered by it.

Love & Kisses,

Every musician and songwriter in the world.

It later turned out that one of the Blu Mar Ten trio, Leo Wyndham was or still is a director of iTunes Europe. Yeah right, let's not give them too much credibility then. You can read more about the whole Blu Mar Ten debacle here in much more detail.

Then there was independent artist Jon Hopkins who tweeted this yesterday:

Then this...

Apples and Oranges

Jon seems aggrieved that he received £8 for 90,000 Spotify plays. However his mistake is to compare a Spotify play against a Radio 1 play. Radio 1 has approx 11,000,000 listeners so if you do the maths that's 0.0000045p per listener. Spotify pays 0.000088p per stream (listener) according to Jon's own figures above. So by Jon's own maths, Spotify pays more.

Another factor at play here is the deal that the artist has in place with the publishers and record labels. Not all are equal so it's impossible to calculate what an average pay per stream/radio play per artist will be.

Cannibalisation

As well as the issue of the royalties the other issue seems to be that some artists and labels worry that by having their music on Spotify means they will lose out on legal downloads and physical sales. Coldplay decided not to offer their latest album Mylo Xlyoto on any streaming services. On release it broke the record for first week digital album sales, with more than 80,000 downloads, although it's worth noting that Amazon discounted the download of the album to just £3.99 during the week of release. Despite that, surely with sales figures like that it shows justification for not releasing it on streaming services then? Well no because the week after the Coldplay album release, Florence + The Machine released their new album, Ceremonials on all streaming services and it sold 94,000 copies in it's first week, knocking Coldplay off the number 1 spot. So did having the album available on Spotify actually help with sales? Hard to tell but that's certainly a theory.

Scaling

The way the Spotify model works is that they pay artists and labels a percentage of advertising revenue as well as monies made from their paying subscribers. The beauty of this is that as Spotify scale and their user base grows, so does their revenue and so will their payments to artists, labels etc. So to pull your music from Spotify now is in my opinion really short sighted. If we look to Sweden for example almost 9 out of 10 of 16 to 25 year olds (85%) are on Spotify and half (55%) listen daily. Sure the Swedes have a better broadband infastructure than us and there is a lot of pride for Spotify as they are a Swedish company but nonethless that is one hell of an impressive figure. 2 years ago the labels in Sweden were making more money from Spotify than iTunes. Yes, 2 years ago.

What are labels doing right?

Although the press lately has been about labels that are moving away from Spotify I thought I'd highlight what some of the labels are doing well and how they're embracing Spotify and the playlist culture.

PIAS

The indpendant licensing, distribution, sales and marketing group have, it's fair to say bought into Spotify and playlists. They have this page on SMP where we showcase all of their playlists in one location. They have even promoted it via an advertising campaign on Spotify itself.

PIAS Digital GM Will Cooper also had this to say about Spotify:
"PIAS have supported Spotify since their launch, and we are genuinely excited to see their expansion into new territories. We continue to closely monitor the revenues generated and their impact, both positive and negative, on other revenue streams for our artists and labels. Spotify’s success in helping drive overall music revenues in Sweden suggests that streaming services should be given time to prove themselves."

Now That's What I Call Music

Now Music is the most successful compilation album brand in Europe. They called us in for a meeting last year and explained that although they know who their traditional audience is, they realise that consumption of music is changing and wanted to do something about it. As a result they've produced playlists of all 79 Now albums to date and published them on SMP. They even have their own UK Top 20 playlist that they update weekly to keep things fresh inbetween Now releases.

We also have EMI Music US and UK, Sony Sweden, Sony CMG UK, Ed Banger Records, Warner Bros. Records and a load more labels invested in Spotify by way of high quality playlists.

Universal Music have also launched Digster, their repository of high quality curated Spotify playlists. And of course Warner Music has Rhinofy. The message is clear, the major labels know that Spotify is here to stay and is going to play a big part in how we listen to music in the future so they're investing in it.

What's next?

Just this week Spotify launched in Austria, Belgium and Switzerland. It's no secret that it's looking to expand into Australia and New Zealand and beyond too. Since they integrated into Facebook it's been reported that they've added 4 million users. Spotify haven't release any new user figures officially for a long time but my conservative estimate is that they'll be above the 20 million mark by now.

With those figures it's not unfeasible that before long they'll reach 100 million users and beyond. Especially if they carry on with their plans to bundle the service with telecoms and cable tv companies etc.

I recently asked a senior record label exec in Norway why they place so much importance to Spotify playlists. His reply was "We have to….people are consuming music via playlists here in the Nordics." His response adds weight to the argument that a la carte downloads ane even albums to some extent are on their way out and users are moving to playlists as their primary way to consume music. Just look at this playlist from Sony Sweden, it has 95,000 subscribers and every week they update it to include their latest releases. That's how they're now promoting new releases and getting music to the masses.

One of the reasons why I love Spotify and use it as my only way to listen to music is because of it's pure simplicity and ease of use. I know I'm not alone in this too. So what effect will it have on the labels and artists in the future if they don't have their music on Spotify? Simple, it won't get discovered or played. I don't use iTunes or any other mp3 download services so if it isn't on Spotify then it doesn't exist for me. So surely some royalties from streaming are better than none?

UPDATE: I've just seen this brilliant article from Kudos Records, another independent distributor. It's well worth a read, but here's some highlights:

Spotify is their number two digital account in most of the territories where it exists in terms of actual turnover. In Scandinavian countries it is their number one source of income (physical or digital). Spotify has not cannibalised their traditional sales

Artist compensation: Kudos have discovered that the artists who have been complaining about revenue from Spotify seem to be on a points deal with their record labels, in which they earn less than 10% of digital income. This is a record label issue, not a Spotify issue.



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22 Responses to Spotify – what the labels are doing right

  1. Sean says:

    ‘Spotify scale and their user base grows, so does their revenue and so will their payments to artists, labels etc. ‘

    Could you explain this please? Nothing I’ve read or heard from Spotify suggests anything of the sort. It’d be nice to be wrong on this, so please dig out the statement. I’m skeptical that even if they say they’ll increase payments, that they would. They won’t even disclose the payments they make to artists, or whether they make higher payments to major label artists than indies. All hidden behind convenient Non Disclosure Agreements.

  2. Andy Brown says:

    Interesting article, I think most artists see Spotify as a awareness raising tool, rather than an income generator, however some seem very bitter with regard to royal payments. I suspect they fall into the artists that are struggling and want to go back to the simple world of getting a record deal and then not having to worry about marketing themselves. Sadly that world is over and musicians need to find other avenues to promote their music if they want to survive. Spotify is one of them and like it or not, it’s a growing market. I stil by lots of music that I discover via streaming and then go to the gigs but without streaming whether it be spotify or Last.fm I may not have heard the band.

  3. Sam says:

    Think there are a lot of people assuming that someone who listens to a track on Spotify would buy it if it wasn’t available on there. Pulling your music isn’t necessarily going to result in more sales. There is a huge amount of stuff I listen to on Spotify that I would never buy. I’d never buy a Now compilation but I might stick the playlist on. Also independent artists should consider how people are exposed to their music, you might have to hold out for a hell of a long time for the one play on Radio 1. But if I’m curious about an artist I’ll look for them on Spotify, if I like them I’ll probably buy their album, go to their gigs and suddenly they’re making more money out of me than just Spotify plays. You need to be where your potential fans are, and right now that’s probably Spotify. Anyway it wasn’t so long ago people were complaining about the cut Apple takes from iTunes, was it?

  4. Matt says:

    I think Sam’s point about artists getting paid for plays by people who would never consider buying their records normally is very important.

    I normally have no interest in the Mercury Music prize, after each year hearing the odd track in the build up, certainly not buying anything just because it was nominated, and generally hating most of what I heard. This year I took the time to stick all the albums (or at least the ones with the nouse to have them on Spotify) on my phone from Spotify and listened to the whole of every album.

    I was right, it was mainly garbage; but the point is the artist will have received payment (however small that amount may be) that they would never have received if they’d not been on Spotify.

    The model is changing and the artists/labels need to either keep up or lose out.

  5. I agree with 95% of the article.
    Spotify is a great chance for a lot of talented but unknown bands to have an exposure and raise their audience. But there is a condition to that, it’s that the labels don’t cannibalize the playlists system relayed by huge playlists site. The risk is that quickly we fall back again in a system that only what the labels decide will be played. Then in that case I would understand some artists to not believe in any help for them to be on Spotify.

  6. Peter says:

    The comparison with Radio 1 and Spotify plays is a bit daft. But it is undeniable that Spotify, We7 and Last FM etc are not generating any significant income for artists. When those services increasingly replace CD or download sales, the situation looks a lot worse. Putting your music on Spotify doesn’t ensure exposure either, particularly as their dataset is so screwed – it’s not set up as a music discovery service. There’s a large amount of material of dubious provenance on there too (and particularly on Grooveshark, whose business model seems based on sticking material up without permission and pretending it was a mistake). Seems to me that the business practices of these services are at best, stinky and the usual offhand remarks that musicians should just suck it up or shut up are starting to get a little bit old.

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  8. Jason says:

    The issue is actually very simple.

    Some artists are pissed off they signed a contract that only delivers a small percentage of certain types of income to them.

    The moral of the story – Read something well before you sign and if you sign, then don’t bitch about it down the line!

  9. Richie Kelly says:

    Regardless of the arguments above I do think Spotify could do more to engender themselves to artists and help them make more from their craft. Why not offer them an analytics dashboard for example? This could show who was listening to their music, how often, where etc. The last one alone could be great for gigs – “Hey! We’re massive in Osaka! Let’s go play there!”. Appreciate Spotify is still relatively small and needs to maintain their focus, but this could be a good way to quell what looks to be a growing backlash from musicians.

  10. SpotiDJ says:

    First the problem is illegal downloading, now it is streaming… What’s next?

    Labels should read this:
    http://lefsetz.com/wordpress/index.php/archives/2011/11/17/cd-replacement-revenue/

    One brilliant quote:
    “The rights holders have done a good job of labeling the public as ungrateful thieves. But is this an accurate description? Almost definitely not. The public was fed up with past practices and angry because they could not acquire music the way they wanted to.

    The way you succeed in business is by staying one step ahead of the customer, knowing where the puck is going, not where it’s been. Streaming services are an example of this. Most people say they don’t want to stream…they’ve got so many complaints. But they’ll end up loving these services that are one step ahead of them.

    And what do artists and rights holders say? WE CAN’T MAKE ENOUGH MONEY! Let’s give the public less than what they want. Let’s force people to overpay for what they do buy. The end result of which is a vast underground economy where tracks are traded/acquired absolutely for free.”

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  14. tom mcrae says:

    Lots of interesting comments, many unsympathetic towards artists who signed to major labels. Fair enough, I can see the logic, but I signed to an Indie on different terms, found myself licensed to a major for 3 records, but thanks to the NDAs I’m not allowed to see true figures of pays per plays (not what’s on the statement) so despite recouping a publishing deal, I have absolutely no idea how far down the road I am to recouping my record deal. I’ve written to Spotify requesting details, they have not responded.

    I earn nothing from any of the streaming sites, all money goes to repaying outstanding debt to a major label, which is also a major share holder in Spotify. It is in their interest to have all facts and figures hidden behind non disclosure agreements, thus ensuring no artist ever “officially” recoups. Thanks to the lower costs of distribution on the internet, none of my records are physically available (at a higher price) in any stores, so there is very little chance that I or any other artist like me will ever recoup. Imagine if you were repaying a mortgage or loan, and the bank refused to tell you how much you still owed. That is my major grip with Spotify, and their hidden agreements with the labels.

    Until we are shown the true deals that the majors signed with Spotify, I shall endeavour to remove my albums from Spotify and rely on the support of fans at live shows and via my website shop to keep making music. Spotify has successfully duped fans into thinking it’s fair, or at least fairer than pirate sites. It isn’t, it is the new mainstream, great for the Gagas of this world who – thanks to economies of scale – view all record sales as a loss leader, but absolutely fatal for people who need genuine income from plays to survive.

  15. Jason says:

    Tom
    Sorry to hear your story but in essence you summarised your position yourself very well.

    [quote]I signed to an Indie on different terms, found myself licensed to a major for 3 records[/quote]

    You signed a contract and either didn’t understand what you were signing or did and didn’t care at the time. It seems that you are unhappy with the deal you did rather than unhappy with the payment rates, which, as you rightly said, you have no idea what they are.

    Get better advice musicians and don’t sign deals you don’t understand!!!

  16. tom mcrae says:

    Oh, no sypmathy please, I’m fine, but there is a fundamental injustice here. Nor was I ignorant of the deal I signed, I had extensive as well as expensive legal advice, which relied on label royalty statements being transparent. I can live with contract law, and the unlikely nature of recouping without a hit, but it requires transparency to even approach fairness, surely?

    I also don’t mind the “musicians have had it so good for so long they deserve to suffer” line of argument that pervades this whole debate. I’m a fan too, I feel screwed by labels on a consumer level. We all know it’s a changed world, we will evolve or die… maybe the world has enough new music, maybe it’s just for the hobbyists now. I didn’t ever expect to get rich from non-mainstream music, that too was a choice, I feel lucky to have the audience I do. But a small bit of me thinks if the world is changing to be more level, that should also be reflected in the transparency of Spotify’s dealings. Someone somewhere has to make the content for aggregator sites like yours to make money from the advertising they carry. How much is it by the way? I’ll add up my Spotify statements and see if I can plug the new album! ;-)

    All the best

    Tom

  17. Jason says:

    Tom,

    3 points – The first, and most important, is that it is Keiron not I, that owns the SMP site. I wish I had the foresight & wisdom to create it, but alas…

    The 2nd point – As to sharing advertising revenue from SMP to artists. Well I would argue it comes back to pushing lots and lots of listening streams on Spotify, for which musicians are rewarded. That is apart from when…..

    Point 3 – … they don’t understand what contracts and agreements they are signing.

    You say that for rewards to be fair, then transparency needs to be fair and open as well.

    I believe it is. You chose to sign up to a label (indy or otherwise) with agreed terms. Part of those terms seem to be that you give that label the rights, including streaming rights, to your music. They agreed to pay you £X for the streaming rights and/or as part of the overall deal.

    The Indy label did a deal with a large label to distribute the music in streaming format.

    The large label did a deal with Spotify.

    Now why on earth would Spotify need to tell you, some one who doesn’t have the rights to streamed versions of the music nor contractual relationship with them (and in fact is 3 contracts away) any financial information as to what they pay the large organisation they have a contractual relationship with?

    The bottom line is still the same. You signed paperwork without realising or not caring what you signed and are now, down the line, moaning about it!

    If you took legal advice, then that advice was either bad, short sighted or you ignored it!.

    As to the opening gambit o f “Oh, no sypmathy please, I’m fine” I’ll forget the sarcastic tone and simply say you won’t get sympathy from me, when it was you that was a fool in (as I said above) you signed something you didn’t understand

  18. tom mcrae says:

    Hmmm, I thought we were pushing around aspects of an argument, I didn’t mean to come across as sarcastic. The “no sympathy” was genuine, I tour the world, spend my days doing something I love – and am lucky enough to make a living from – I have a great loyal audience, many of whom I suspect would disagree with your assessment of me as a” fool”. But that’s the beauty of opinions, I guess. We should probably agree to disagree.

    All the best. Good luck with the blog, they really can contribute to general debate.

    Tom

  19. Jason says:

    Tom,

    Good luck to you too, especially as you’re a local lad to me :)

    As to the blog, this isn’t mine either – Yup, it’s Keiron’s again!

    I will say though, that as you’re not a fool, you are able to tour the world, have a great lifestyle and are doing it, while doing something you love, then the deal you signed, all that time back has worked out quite well for you.

    The streaming was obviously part of that deal so viva la Spotify :D

    Take care pal – Jason

  20. Dryland says:

    Interesting view point!

    Personally, I have just started using Spotify and the userbase is definitely growing there. I agree with your point that quitting now is short sighted.

  21. Elizabeth says:

    Actually, Spotify ruins the chances of the Indie artist to survive and ultimately supports the Big Label music that can afford to give away music. Ultimately, the indie artists who thought they could pay for their own recordings and make it out there will simply get other jobs and just stick to entertaining their friends on the weekends. It does matters that Spotify pays literally next to nothting ($1.36 for 50,000 airs?) and it does matter when people want everything for free. The new indie voices become silenced fast. IT’s happening now—so long live the big labels I guess…

  22. billy says:

    LOL i agree that some artists are mad just because they signed a dumb contract.

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