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Spotify: Labels Win, Artists Lose?

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Spotify only turned a year old this month and yet they have constantly been mentioned in the press for their plans of expansion, from the 3UK/HTC phone to tie-ins with Swedish telco Telia for a possible TV service. Before we get caught up in the fairy tale story though one must ask, for a start-up with a single-digit percentage of subscribers paying and billions of streams to account for…how is this company getting such “sweet” deals?

Since the one-year mark founder Daniel Ek has finally revealed some stats on Spotify’s success, although the only stats that actually have numbers are about the users, which are now at 6 million. It was revealed that users are averaging 72 minutes a day listening to music and streaming numbers are in the billions per month. 6 million users times 72 minutes a day equals a hell of lot of streaming royalties to pay!

Stuff.tv (http://stuff.tv/News/Spotify-premium-subscribers-less-than-10-of-users-plus-movie-version-planned/13292/) calculated that with Spotify claiming over 1 million subscribers “only a maximum of 90,000 of them are stumping up £10 a month for the ad-free Premium service. That means it brings in just £900,000 a month – not small change but not enough to make the service profitable”.  If we bring into perspective the PRS headline rate of 10.5% from £900,000…Spotify could be giving the UK’s percentage of at least £94,500 a month to the PRS from subscriptions alone; we would include advertising revenue but Ek only gives a vague “millions of Euros per month”. Glenn Peoples from Billboard did a rough estimate of streaming costs and figured “two billion songs per month generates royalties of $13.7 million per month, or $164 million per year”. $13.7 million is much more than £94,500, so that means the UK’s percentage of that number is what should be going to PRS, being the higher total.

What is puzzling is why we haven’t heard of such figures being put into PRS’s accounts every month?  They should be pleased right? What about other collection societies? Isn’t it strange that we haven’t heard from them? We have heard from the majors Universal and Sony claiming the labels themselves are making more money from Spotify in Sweden than iTunes…but since they also have stock in the company that makes sense.

Now don’t get me wrong, I love Spotify and it’s great to hear praise from bloggers and the majors alike but one voice we haven’t heard from is collection societies, the ones who in particular represent artists. Is it because they’ve got a special deal with Spotify? Cheaper rates to keep the money flowing between the company and the labels who have equity in the company? Where does this leave artists and songwriters?

Robb McDaniels from INgrooves mentioned that “in the perspective of a content owner, it now takes 150-200 plays of a song before the content owner earns royalties on par with one download”(http://www.billboard.biz/bbbiz/content_display/industry/e3i19437ccbf2fa677342dc08a68255081a). What if Spotify is paying a lower royalty rate to collection societies? How long would it take to compensate the artist?

Back to the Billboard (http://www.billboard.biz/bbbiz/content_display/industry/e3iecb83415cefdd2b0a43399437dff3e5f) analysis, it also suggests, “Let’s say the company focused on technological innovations that made a non-interactive service work so well that users didn’t mind not being able to select songs. Switching to a non-interactive business model would save Spotify millions. Royalties paid would drop to less than $2 million per year, assuming the 0.093 per stream rate [for non-on-demand online streaming].” These kind of numbers are quite agreeable for a start-up to pay, allowing them to grow and thrive…so do they?

Let’s compare this to American non-interactive online radio site Pandora. Pandora offers an ad-free ((http://www.techcrunch.com/2009/07/07/pandora-and-other-internet-radio-has-officially-been-saved/). subscription for $36/year, but like Spotify it’s mainly an ad-driven business. This past year has been one of rapid growth for the company as its user base has doubled to 35 million registered users, and according to founder Tim Westergren “it’s bringing in some $40 million in revenues and should be profitable by the end of the year” (http://www.techcrunch.com/2009/09/25/pandora-from-near-death-to-profitability-in-a-year/)

A recent New York Times article on Pandora reported that their licensing fees for royalties is equal to “something like 50 percent of Pandora’s revenue” (http://www.nytimes.com/2009/10/18/magazine/18Pandora-t.html), which would mean $20 million, a healthy amount of money to be distributed to labels and artists.  Bloggers ((http://www.businessweek.com/magazine/content/09_39/b4148034485959.htm?chan=technology_technology+index+page_top+stories) have noted how open and honest Westergren has been about the service and it’s made our job easier of figuring out their situation, but Spotify has been very quiet about theirs (which is something Ek admitted to in the one-year celebratory blog post).

Spotify has no problem boasting about “adding 30,000 to 50,000 new users each day” (http://news.cnet.com/8301-1023_3-10218302-93.html), but Ek only says that the iPhone app has been “an enormous success”, growing premium subscriptions “by a big number”. A big number? Pandora reports the iPhone app is downloaded 20,000 times a day, is it big compared to that? Ek also says revenue is jumping 50% a month, but how can we judge if that is good if no numbers have been given in the first place?

Since the labels have stock in Spotify there must have been a lessening of pressure to ‘be fair’ and for Spotify to pay the proper royalties to collection societies (who funded by and in essence controlled by labels as well) so the company can thrive and expand. It’s all well and good that we have at least one start-up thriving these days but what about the artists and songwriters who ‘thrive’ on such compensation? Spotify expanding is good for the majors because they’ve invested in it but artists and songwriters don’t have stock in the labels, nor in Spotify.

Collection societies need to speak up and convince us everyone is being paid what they should because the whole situation is getting a bit too murky. Remember when Pete Waterman, co-writer of the nefariously popular Rickrolling track “Never Gonna Give You Up” earned only $16 from the 150 million+ views on YouTube? Will we have a similar situation on our hands when artists open their royalty cheques and see a fraction of what they are entitled to under “online streaming royalties”? We certainly hope not.

http://stuff.tv/News/Spotify-premium-subscribers-less-than-10-of-users-plus-movie-version-planned/13292/

http://www.billboard.biz/bbbiz/content_display/industry/e3i19437ccbf2fa677342dc08a68255081a

http://www.billboard.biz/bbbiz/content_display/industry/e3iecb83415cefdd2b0a43399437dff3e5f

http://moconews.net/article/419-spotify-thinks-big-carrier-deals-promise-a-trillion-transactions/

http://www.techcrunch.com/2009/07/07/pandora-and-other-internet-radio-has-officially-been-saved/

http://www.businessweek.com/magazine/content/09_39/b4148034485959.htm?chan=technology_technology+index+page_top+stories

http://www.techcrunch.com/2009/09/25/pandora-from-near-death-to-profitability-in-a-year/

http://news.cnet.com/8301-1023_3-10218302-93.html

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