It’s been another interesting month in the music industry as we all continue to adapt to life in lockdown. Spotify has once again been making the headlines, firstly through striking an exclusive deal for the Joe Rogan podcast and secondly through the growing unrest from musicians calling for the streaming giant to pay them more money to help them during this current crisis.
In light of this let’s deep dive into this debate, providing some background to the recent wave of unrest and some potential options which could lead to fairer royalty payouts to artists in the future.
First of all, it’s important to recognise that Spotify doesn’t pay artists or songwriters directly — they pay labels, distributors, publishers and collecting societies, who in turn pay some of this revenue to artists.
Secondly, Spotify doesn’t pay by the stream. You may see many figures floating around such as artists earning $0.00348 per stream but these figures are calculated based on the money that artists receive out of the deal. This does not factor in the cut that labels and other bodies take or the revenue in which Spotify retains, which is currently around 35% — which it puts back into growing the company, investing in research, new products and podcast deals.
A point which needs to be stressed is that calls from artists for Spotify to triple their royalty rates is not a viable solution. Spotify already gives 65% of its revenue to labels, publishers, etc, to triple the royalty rate from $0.00348 to $0.01044 they would have to pay out 195%. Simply not possible.
With this in mind there are alternative options and possible scenarios which could lead to an increase in income from the streaming platforms to the artists but all parties involved would need to come together to make this a reality. Here are a few of those options.
Moving to a user-centric payout model
The current ‘pro-rata’ system used by streaming services divides their royalty pool by each track’s share of streams in a given period. So, if Drake gets 5% of the streams, his rightsholders get 5% of the royalties. Which means that even if you have never listened to Drake’s music, he’s still getting 5% of your subscription fee.
However, under a user-centric model, the royalties from your monthly payment would only go to the artists that you have listened to. So if you only listened to, let’s say two artists that entire month, they would both get $5 each from your subscription.
On the surface this is a fairer royalties payment system and it would be a massive game-changer for independent artists, particularly as this system will promote a diverse and vibrant music landscape as well as support local creators and niche genres. While this all sounds amazing the big question is how likely is this transition to happen.
While the independent labels are onboard the majors haven’t been so forthcoming to accept these proposals and would need to in order for this change to come into effect. You won’t be surprised to hear that their reasons for hesitation over this transition are financially related. Their digital deals could no longer include per-play minimum guarantees, however, it is unclear as to how much of an impact this would have given the number of lean-back listeners on the platform who regularly listen to the editorial playlists. It is only the smaller artists with super fans who would be guaranteed to benefit.
Users paying more for their subscription
The standard subscription price for Western music streaming platforms is $9.99, it is unclear how this first became adopted as the norm by all but is certainly very clear why it has remained unchanged over the past decade. Platforms have been too scared to bite the bullet and raise their subscription through fear of losing users to their rivals. This hasn’t been helped by platforms willingness to roll out promotions after promotions on cheaper subscription sign-up deals. Spotify’s latest promotion — 3 months premium completely free — has seen the average revenue per user drop below $5 per month for the first time, a number which has been on the decline for years and will continue to do so.
Raising subscriptions across the board by 25% to $12.50 per month may frustrate some users but would be unlikely to see them cancel because they value the service. Netflix has been quietly and steadily raising its prices for the past few years and Spotify has previously tested inflated prices in Scandinavia. This could be a great first step towards putting more money into the royalties pool, subsequently benefiting artists.
Spotify paying a higher percentage of its revenues out
As mentioned at the beginning of this newsletter, Spotify pays out around 65% of its revenue to various sectors in the industry but could it pay more than this? For example, Bandcamp pays out 90%, so what’s stopping Spotify from increasing this to 75%, 80% or more? Spotify deems that it needs to retain 35% to invest in research as well as new products and services.
On the surface this seems hard to argue with, Spotify is a business after all and it has investors to keep happy. However, certain decisions have angered artists given the amount of money involved in some of these acquisitions — with a prime example being Spotify’s $100m exclusive deal for the Joe Rogan podcast. Another notable example is Spotify’s answer to fan-funding — their ‘Artist Fundraising Pick’, which has left much to be desired…
Fan-Funding playing a bigger role in Western music streaming culture
More than 50,000 artists are using Spotify’s new ‘Artist Fundraising Pick‘ feature, which enables them to raise money from fans for themselves and their teams, or for charities. The reactions and results from these artists have been far from positive though, as fascinatingly portrayed in this Vice article.
To summarise, the biggest issues they have with this feature:
“I'm not very inclined to tell my supporters to go there because I'd rather direct them to my website or Bandcamp page, where I have more control and can communicate with them directly if I want.”
“I'm not exactly sure where the donation button is, to be honest! I haven't seen it.”
“I think the button is designed poorly and fails to communicate clearly to fans that they can support the artists directly. It looks like a generic COVID-19 donation.”
“The donation information only appears on mobile, which excludes a large number of folks who are mostly using Spotify via their computers.”
“There's a lack of general ‘artist-to-fan’ communication through Spotify; there's no way to promote or personalize this new feature, aesthetically or descriptively.”
What artists would like to see moving forward is:
A ‘Tip Jar’ button next to every single or album release which says ‘Tip 15%, 20%, or enter your own amount’.
After you listen to the same song five times, a pop-up message with a virtual tip jar could appear.
The function would work a lot better if it were more explicitly a ‘Tip the Artist’ button instead of being labelled ‘COVID-19 Support’.
Time
It’s not all doom and gloom, even if none of these options are to be implemented to any extent in the coming year’s music streaming subscriptions are increasing month on month, year on year. Since 2016 Spotify has gained over 229 million new subscribers and 45.5% of its total user base pay for Spotify Premium. The more users, the more money is being generated, the more royalties are being paid in revenue. Taking this into account if this growth continues artists will be receiving more royalties over the course of the next few years.
This option may feel like a bit of a cop-out but I wanted to include a positive spin given that the alternatives are purely speculative at this point whereas this is far more tangible and supported by encouraging evidence of growth.
Quick Hits
To give fans another way to participate and show their love, Instagram has introduced badges that viewers can purchase during a live video.
Badges will appear next to a person’s name throughout the live video.
Fans who have purchased badges in Live will stand out in the comments and unlock additional features, including placement on a creator's list of badge holders and access to a special heart.
Badges will begin testing next month with a small group of creators and businesses and will expand across the US, Brazil, UK, Germany, France, Italy, Turkey, Spain, and Mexico in the coming months.
IG Live saw a staggering 70% increase in views from February to March 2020.
Starting this week IGTV are introducing ads in an attempt to support creators’ investment in IGTV by sharing advertising revenue with them.
IGTV ads will initially appear when people click to watch IGTV videos from previews in their feed.
The video ads will be built for mobile and up to 15 seconds long.
In the coming months, they will be testing various experiences within IGTV ads such as the ability to skip an ad.
IGTV ads will begin testing with a small group of creators and advertisers in the US, and will expand slowly over time.
Facebook has announced a new iOS app that brings together creators and fans to create, watch, and mix and match original videos, starting with music.
Collabs are three independent videos that are playing in sync. With the app, you can create your own arrangement by adding in your own recording or by swiping and discovering an arrangement to complete your composition.
Once you’ve created a collab, you can publish it for others to watch and mix and match further.
You can also share yours or others’ creations to Instagram, Facebook Stories, or any other platform.
This is an invite-only beta for US and Canada users at this time.