Spotify

Spotify Economics

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“Because as Spotify subscription numbers increase, so do payments. So, what DJ Khaled gets for a stream today is more than what Ed Sheeran got in the past.”

Ah, the nitpickers are out in force. I hate to interact with them, but I’m wary of misinformation being spread.

What I wrote above is loose language, you can even say it is presently technically wrong. Because the truth is PER STREAM PAYMENTS have been going down, not that that is written in stone, BUT STREAMS HAVE GONE UP so the resulting payment for a hit is higher.

My point is very simple. The greater the number of Spotify subscribers, the larger the pool of money to be distributed.

BUT THAT’S NOT GOOD ENOUGH FOR THE WANKERS!

First and foremost, Spotify does not have a per-stream rate. Never did, still doesn’t, and never will.

The per-stream rate is math done to interpret the modern world for those still living in the past. They’re used to percentage royalty rates on physical. For some reason, they can’t understand pool percentages.

FURTHERMORE, these same people complaining, and just like Daniel Ek said, it’s not the big artists who are complaining, who are rolling in dough from streaming payments, IT’S THE LITTLE ARTISTS! Which makes no sense, because if the per-stream payment is going down, that means more tracks/artists are getting paid, which is exactly what Daniel Ek said, once again:

“”Gone are the days of Top 40, it’s now the Top 43,000″ – referring to the fact that the streaming service’s ‘top tier’ of artists – those accounting for the top 10% of its streams – now number more than 43,000, compared to 30,000 a year ago.”


https://bit.ly/2XdO02h

Funny how those who lean left, the majority of the artists, those who believe the little musician should make more money from streaming services, nitpick just like those on the other side of the political spectrum do. They cannot handle the spirit of the statement, they have to cherry-pick and twist to make their point.

And to beat a dead horse, as Spotify increases in subscribers, more artists are sharing the wealth. Somehow that’s a problem? Because each and every stream might be worth less?

This is the basic rule of scale. Which, ironically, Spotify doesn’t have (scale, that is).

Let me explain…

These internet companies become more valuable because more people use them. And the cost of acquisition per customer drops, because users tell other users, people want to get in on the game. And costs can be spread over more people, therefore lowering them per user.

Spotify becomes more valuable as more people use it. That’s why its stock is high (along with the venture into podcasts).

However, Spotify still has to cough up approximately 70% to music rights holders no matter how big it gets.

Going back to the past to explain this to the brain dead…the reason record companies were so profitable in the past is because recording costs were a set figure. And, as a record caught fire, fewer marketing efforts were needed to sell each subsequent album. So, doing little more than pressing and shipping the product, at a certain point almost everything was profit. Sure, you can amortize the costs over each and every album shipped, but most records’ costs are never recouped anyway.


Once again, it’s sad to have to describe the music business to those agitating for results that are impossible. Spotify can’t lay out more cash to artists, who are paid by their label anyway, if they’ve got one, because then it would GO BROKE!

I remember a conversation with Lucian Grainge. He lamented the artist blowback on Spotify because THEY’RE HIS BIGGEST CUSTOMER! The healthier Spotify is, the healthier the labels are. And there’s no point in putting Spotify out of business, because it would hurt the labels.

If you know anything about retailing, about concert promotion prior to the Sillerman roll-up, you know that the first rule of these businesses is TO KEEP THEIR BUYERS SOLVENT! Which is why manufacturers extend terms to retailers, why acts give back money to concert promoters, which they still might do with indies.

But the problem with the internet is it’s flat. Everybody gets a voice and everybody’s can be amplified. And then this misinformation, or twist of information, gets picked up by the ignorant with an agenda and you end up with a paper tiger. What next, Lucian and Rob Stringer running a child sex ring out of the dressing rooms in Madison Square Garden?

So, you hate the big boys. I get it. They’re up here and you’re down there. You want more. And I believe in a safety net for everybody, a roof over their head and food on the table, BUT I DON’T BELIEVE EVERY ARTIST IS ENTITLED TO THE SAME THING! And just so the nitpickers won’t bite back, there should be a government safety net for these people, but as far as their artistic work…NO WAY!

What next? Do we get rid of all pool percentage deals?

Once again, I don’t want to go too deep here, giving those on the other side cracks they can burrow down into…

However, do you know if you buy more you pay less? Which is why if you buy from a one stop you pay more than you do buying direct? Ever try to sell to Wal-Mart? It’s only interested in products that can scale, that can sell zillions. They don’t want to stock any product that won’t, because it’s going to eat up shelf space that could go to a more valuable product. Then again, in the virtual world, like SPOTIFY, there’s unlimited shelf space, so there is more room to play!

Creating music is a social experience. Not one of hard facts. Whereas the business side is. Which is why you see a clear division between the two. The artists need the business people and vice versa. Hell, most musicians couldn’t even work at the 7-11, they couldn’t show up on time. And you can’t sell the music of the execs, believe me, many tried, they gave up.


But your response to my screed has the chance to not only reach as many people, but more.

And I get it, you’re mad that I have a bigger audience than you do. But you truly aren’t aware of what it cost to garner that audience in blood, sweat and tears, sheer work. Without ads or promo, without buying followers. Furthermore, I’m not getting paid for my writing. I choose to do this. Because the wider my reach, the richer the opportunities to make bank. JUST LIKE SPOTIFY!

Which is why if you’re a nobody and you’ve got a paywall, good luck, your odds of making it are low. Like all those people on Patreon. If you’re making a living, more power to you. But spreading the word, growing, gaining significant mindshare…NEARLY IMPOSSIBLE!

There’s plenty of money out there, tons. And if you’re interested in cash, figure out a way to make it.

The biggest artists make most of their money from brand-associated income, perfumes, makeup, clothing, tchotchkes. And it’s not that streaming pays so bad, but you just can’t make as much as Jeff Bezos from it. And you can try, but it’s literally impossible to do, no one makes triple digit billions in music. But music gives you the right to speak truth to power, to have an impact…THAT’S ITS ESSENCE!

Believe me, if you’re great, people will find you. But the process is slower than ever before, because the channel is overwhelmed with junk. So, you’ve got to work longer and harder to make it, and you still may never make it. How many people have that gumption? Maybe you had an interest in medicine, but you didn’t want to study and get good grades and therefore get a good MCAT score, never mind spend all those years in school and as an intern and resident, so you’re closed out. What next, should everybody be allowed to be an MD? Should the amateur MDs be paid more proportionally for each visit/operation, because they see fewer people? And what about the CUSTOMER! The customer won’t want to go to the amateur MD, no way, they want to see the big, licensed MD, so the amateur MDs get online and tell everybody how this is unfair.

This is the way it is. Who knows, I’m completely fried, I might have left a hole for a nitpicker to enter, to blow back. But the spirit, the essence of the above, is true, definitively.

Oh, one more example. There are always people lamenting their act won’t get signed to the major label, or the company released the music and have stopped marketing it with tons of bucks. EVER HEARD OF OPPORTUNITY COST? Record labels want to give themselves the biggest chance to make more money. They don’t want an album that can sell 10,000 copies, even if you give it to them for free. Because it’s gonna take up too much time and effort marketing said product and supporting it in other ways.

So you can decide right now which side you want to be on. Do you want to amplify the words of the losers, who don’t understand the business, or do you want to align yourself with those who are successful and learn from them? Believe me, in a business like music, it’s almost impossible to get a job and keep it. Not only can you not skip a day, YOU’VE GOT TO WORK ON SATURDAY AND SUNDAY AND MAY NOT GET PAID EXTRA! It’s a life commitment, and most people are not willing to suffer that much, and most people are not that great either. Do you think people want to pay to see castoffs from Little League as opposed to the Yankees?

I’m done.

 


Responses from Bob’s readers. These are posted as-is and not edited for grammar or content and do not necessarily reflect the views of CelebrityAccess or its staff.

I have to say that during the early 2000’s my royalties dwindled greatly with the loss of physical sales. In the past several years as the popularity of streaming grows, the royalties are now as equal, if not greater than the heyday of CD and record sales… 90% from streaming, 10% from physical sales. That is all…

cheers … ed

Ed Stasium

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Here’s the one questions I’ve never received an adequate answer to from the naysayers. If streaming services are bad for the overall music economy, then how come the business grew from $6.7B to $11.1B (US sales) from 2015 to 2019, the EXACT same time that streaming was growing into the dominant way that people consume music? This tracks what happened in the Swedish music business in the early part of last decade by the way. If artists are not getting paid, then they should investigate the deals they are entering into, and not try to crucify the platforms that have resurrected the business (not that they are perfect, mind you). I don’t even want to think about where the recorded music business would be if it were dependent on transactional purchasing rather than the utility model of streaming during this pandemic.

Best-
David Macias
Thirty Tigers

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The real problem for most “non-star” musicians isn’t streaming, it’s the lack of live venues. There are few clubs like there used to be…no Cafe Wah, Bitter End, Electric Circus, etc. Bands could support themselves playing live, even if just locally in Boston, Philly, Chicago, etc. That was also a situation where the cream rose to the top, because there was a finite number of clubs, and the owners could pick the best bands. From there, it was a short step to getting a following, selling albums, opening for major acts, and moving up the ladder based solely on whether you were a draw.

There are still some live music venues like bars, but they’re often a “tip jar” situation. Band members are lucky to make enough to cover the expenses of playing. Unfortunately the days of seeing a band like the Mothers of Invention or Cream in a club that holds 1,500 people, with a support act working its way up in the biz, are long gone.

Craig Anderton

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A smaller slice of a bigger pie that is bigger than, a bigger slice of a smaller pie.
Do you want 50% of a million dollars or 1% of a billion Dollars

Steve Hutton

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I feel I want to screen shot the Facebook convo I had today.. basically saying the exact same thing. I got into a lot of trouble at a conference once by saying “just because you make music doesn’t mean you have a right to make a living at it”. It’s so short sighted to say, “I make no money off streams”.. but at the same time are not making competitive music, or only making it for a small niche or only marketing locally or putting stuff out and waiting for the world to discover it. There is more opportunity than ever before but the number 1 problem I see is clients trying to do things the old way and expecting the same results as then. It’s just not possible. You have to stay educated. The music is just another tool for the brand. The money is all connected in one way or another. Music, merch, YouTube, ad money, touring. One feeds into the other. Bands that would never have a chance now get heard on Spotify and find fan bases. And the reality is.. you might yes indeed get to a point where you can’t make real money at it anymore and you might have to get a regular (or different) job.. just like many other people in many other fields. My friend was an architect for 20 years.. he and his designs are no longer in demand.. he is not as relevant and never got big enough for a legacy to see him through. So he is moving on and finding a new thing to do. It’s life. I read in the thread on Facebook by one person “ if we paid for 6 or 7 albums a month and spent 60 bucks why can’t Apple Music charge 49 bucks a month and give 30 to the artists. That statement says it all.

Chad richardson
@thesongspace

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It’s a tough ask. Artists want both – a song not to depreciate in value over time and also be purchased multiple times. The physics have changed. So has the job. Like everyone else’s. There are even more new jobs than streaming for them to perform with their art however. The future is big.

Mark Iannarelli
Endless Riff

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I’m with you on this one Bob, especially the moniker “wankers”. Making a living doing what you love – music or whatever – is a noble goal, but rarely achieved. Lots of people grow up with big dreams, but dreams are a lot different than reality, and just because one discovers that they possess musical talent, and are told that with practice, patience, and perseverance they can make a career for themselves, doesn’t mean it’s true. The basic problem is that the the idea that the world needs more working musicians is absurd.

If you were alive three hundred years ago, what would be the best job you could get as a musician? Forget rambling and carousing, you’d want a steady gig in the court of the king. Accepting the fact that you go on right after the jugglers and before the belly dancers is a humility lacking in most rock star aspirants. The ones who can accept it work in cover bands and have day jobs because even if they’re lucky enough to get a gig, they know there’s only so many kings and so many courts and tastes change. How many many talented people strung out on their own ego do you know?

This dovetails nicely with your piece last week about artists and songs that have a message and this piece today (yesterday). What’s the message? I want fame and fortune? Yawn. I want you to ‘hear my music’ – puke! As you pointed out, what musicians really want today is devoted followers, subscribers, fan base, mailing list, and the accompanying income. And what are they willing to do to achieved their goal? Uh…anything boss, it’s the entertainment business. Lots of reverb (there days), awful-tuned vocals, posing, and spirit fingers. Pit Bull is on record saying that music is about fifteen percent of what he does. At least he admits it!

Everyone (thinks they) can be their own label, their own network, but despite some success stories, that’s less than one percent (calculated from personal experience) of everyone who pursues a musical career. The other ninety-nine percent, the reason Guitar Center exists (existed?), are on Spotify.

Victor Levine
Studio City

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I invested in Spotify about two years ago, post IPO. You were the primary reason why I bought $SPOT because of the way you described the potential it had to disrupt an antiquated industry. Today it’s my second largest position and I’ve more than doubled my initial investment.

Thanks for your letters. Keep them coming. You should now put them on a podcast on Spotify or Youtube. I’ll subscribe.

Cheers,
Arindam Das

(Note-As stated many times previously, I own no stock in Spotify nor am I on the company’s payroll.)

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It’s good to hear this. I feel bad for the old guard. I was one of them in age, but didn’t start music until 1989 (I’m 69). The key for low level folks like myself is to own everything (Masters.publishing, copyright) so income isn’t divided up. I have 108 million streams on Pandora and do less well w spotify (I don’t understand how total streams are added there but I have about 7,000 followers a month (Or what ever U call it)

The bad thing for us is that if you have a weak left brain, controlling the massive amount of knowledge U need (Controlling all web sites, social media etc) is overwhelming at times

I tell friends that were on major labels and don’t own all or part publishing to release independently free of the shiney shoes. Their old history will make finding followers easier than starting off new, and U keep all royalties

paul adams

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Pardon us for belly-aching. In the past five years, artists like me have watched their cash flow disappear almost completely. Niche acts used to be able to release a new album a year, hit the road and sell decent numbers of CDs after shows. 5000-10,000 of a release sold annually, plus whatever catalog on top of that created an income with which one could raise a family. The era of iTunes killed the single but the payout was still respectable. Now? Consumers of the world love free music and are happy to put the majority of musicians out of business while they are streaming away. Your examples below ring hollow…if no one was enjoying recorded music anymore, no one would be entitled to anything. But more music is consumed than ever. Now we have to be on the streaming services or we’re invisible. Ownership is over. For the time being, live music is over. .003 cents a stream? Us small-time artists are on the streets or considering other career paths.

All my kids are musicians. I’m not recommending this industry to any of them.

Sam Glaser
Glaser Musicworks

www.samglaser.com

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I like when Bobby gets mad. I am a producer, drummer, keyboardist, performer, DJ. And one time manager. I am not in the top echelon of the music biz, but am a testament to the hard yards and hustle you must engage in to carve a career in the biz. You won’t hear me complain about streaming revenue, though mine is quite small, it amazes me every time when I see in my stats that someone in Russia, or freakin’ Zambia streamed or bought a track. This is something I couldn’t do by myself, and the reach of it is endless. Whereas that couple hundred cds I have left in the garage (I won’t be printing anymore runs..) has no chance of getting to a listener in Zambia. I love the potential, and I too get a bit mad at the smallfry’s who think they are owed a living playing music.

Thanks for firing me up Bob, back to mixing a track for a guy who will likely never be famous, but lives for playing, makes a bit of money and surfs in his spare time. That’s the life money can’t buy.

Matt Aitchison

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Thanks for the clear view from 20,000 feet of how to chart a course as a modern musician to share in the modern and future income streams available to musicians who know how to write, record, and control their intellectual properties, build a loyal Audience, a brand and share in the bounty that puts a writer or artist in the music BUSINESS, not just someone who “does music”.

I’ve been a subscriber to your letter for 5 years now, have paid attention, and along with the many established artists who work with and for me, I am working to monetize my BRAND, Which includes books I write ( which still sell as print and eBook downloads) the apps I develop with Filemaker, the teaching I do, (songwriting, recording production, Pro Tools, entrepreneurship, small business start up, marketing, web content strategy) and social justice work with local and national MN politicians on causes that include Homelessness, Immigration, and criminal justice reform. It is and will be my OTHER non-music copyrights and services that comprise my near as far future income because they reinforce and build my music brand.

Best,
Zannman
Minneapolis

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As a struggling musician/songwriter in his 60s I get weary trying to explain to my younger colleagues why Spotify and other streaming platforms are good for ALL of us. I don’t recall ever hearing musicians singing the praises of record companies in the pre-Spotify era, either. There’s never enough; if it’s money you seek, look elsewhere. We can now record an album in our bedrooms, release it for free on streaming platforms and, with a little social media effort, have at least some people other than our parents and spouses and kids hear it. That’s a miracle if you were a musician 25 or 30 years ago! Focus on the music and the money will find you.

Jim Caroompas
Seattle, WA

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We can’t turn back the clock, and anyway the “good old days” weren’t so good. Forcing people to buy an album for two decent songs was a sucky model that was destined to die a deserved death at some point. Was having a handful of labels and maybe 2-3 decent FM channels in a media market choosing winners a better model than streaming/YouTube/satellite radio? Seems as if some are upset that something closer to a meritocracy has replaced a lottery.

“Not as big as you think you are” sounds like my grandmother, but she was right!

Adam Keller

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Two things that I point out to artists are these…

1- Spotify is revenue that artists never made, ever, in the history of recorded music. Revenue from people making mixed tapes/Cd’s for fun and playing those endlessly. In fact it’s revenue for unknown artists that never would have made a penny. I just don’t think anyone born less than 8 years before Napster understands this. Why? Because they’ve never had to pay for music. These are the same people that were saying “music should be free” now they’re saying “why don’t I make more money from my streams?” These same people would still complain if they were making 10x. Why because they still wouldn’t make money because they have no idea how to market.

2- Music is your business card to attract your fan base. As you stated, the real revenue is made everywhere else. Sync, merch, live shows (someday again), shoutouts, cameo, endorsements, influencer gigs, product placements, it’s really whatever you can think of, you can monetize it.

There are absolutely no successfully monetized artist social media accounts that ONLY post about the music they are selling, none. The audience only cares a tiny bit about the music. What they really want is YOU, the artist, and to know and be a part of their lives. I do social media, I have very large artist accounts, and I can blow up anyone on social media that is interesting, the music is always secondary.

Any artist out there that thinks it’s all about music, they’re wrong and in the wrong business.

I’m Done!

Best,
James Lucente
Nashville
James Lucente, GSD/SMD
Lucente Social Media
Lucente Entertainment

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As a musician who plays, writes, and records music for my own fun and sanity, never trying to make it big or make it a career, just doing it because I love to do it, I never quite understood artists complaining about Spotify, especially if the artist has an audience that listens. Why? Because people are listening to your music! The point is for people to listen to your music. That’s it, end of story. Making a living is secondary to the opportunity to have more people listen. I never understand artists and labels who would hold back from Spotify. I would go to the artist’s page with a hunger to listen to their new album and…It’s not there. So guess what I did? I didn’t listen! Dollars should be less important than access because musicians want to be heard. I understand they have to make a living, but the paradigm has changed. The old ways are dead, so why not get as many people listening as possible? I would be filled with absolute joy and wonder if my music was heard by even a minor contingent. It’s not my goal, but just imagine…sounds better than a million dollars, let alone a thousand or two…for a voice to be heard…for an album to be listened to…

— Dan Grgas

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Hey Bob – the bigger point the entire industry is missing on this topic is podcasts and their long term effect. It is why the market has been driving the value of Spotify up after every recent announcement.

The artists get their share of plays, as a trickle down from the labels getting their share of plays, as you eloquently explain here. But as podcasts (ie owned content) become a larger share of plays (and they are 5-10x length of a song), the effective rev share to the labels goes down, and Spotify’s gross profit margin goes up.

Everyone said Spotify “could never be a label”, by which they meant “own the content”. However they are now doing this through the backdoor, in a Netflix-like transition.

Patrick Murphy

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The elephant in the room is as they spend hundreds of millions on podcasts, they are diluting the recorded music royalty.

It’s all a meritocracy island on Spotify. Exclusive Podcasts are good for Ek’s stock but bad for the musical artists living on the island.
Ash Avildsen

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