Recently, I was pondering the scenario whereby Spotify is listed on the stock exchange and what the outcome would be for artists. Lets first look at the current ownership structure of Spotify – All four major labels and indie representative body Merlin own a combined 18% of the service. DST, Accell and Kleiner Perkins recently invested $100 million in the streaming business. Obviously, Daniel Ek and Martin Lorentzon also own a substantial chunk of the company as well. Recent valuations of the company have been $1 Billion dollars.
Out of the $200 million dollars invested into Spotify up until this date, how much has actually been paid through to the artists on the mentioned labels? TMV have it on very good authority that artists have received zero, nada, and zilch from these high and extortionate licensing deals undertaken by the labels they are signed to.
The key issue in TMV’s mind is that whilst artist’s are complaining of only seeing ‘metal change on the floor’ labels have received massive advance payments from Spotify based on the catalogue of music they license from each label. So please labels explain to TMV and your artist’s why you have not been paying through these advances to your artists. You trade on your artist’s art and would not have the ability to secure such high advances without said artists.
Drilling down further, all of these labels stand to make a killing if Spotify is listed on the stock exchange. Reinforcing this is the statement made by Pink Floyd’s manager Paul Loasby that “Payment to artists is not going to be high on their priority list”. And so sadly based on current behaviour it is clear artists will not see the clear light of day in terms of any of that payout.
Reinforcing this is the fact that having labels own equity in digital music services ensures serious conflicts on interest between, the service, labels and artists. Clearly the global artists taking down their tracks from Spotify and other streaming services illustrated this.
The conflict of interest is crystal clear – if a label owns equity in a digital music service, it is in the labels interest to keep royalty payouts to a minimum, as it will make more money on the backend from the equity owned in digital music service. The artists who have already demanded their music be taken down have seen no payout from advances received by their labels paid by Spotify and understand that the labels will not payout any of the winnings when an IPO eventuates, which it will.
And labels wonder why large artist like Coldplay, The Black Keys et al decide to pull their catalogue from such services? TMV would hazard a guess that such high level artists will continue to pull their content from Spotify until artists are guaranteed an inclusion payment from advances received by these labels and also a payout once the company goes public for $2 billion or more. Without all of the artist’s music, labels would not be able to demand such high advances. Labels are trading on artists signed to them and then not paying through when it comes to receiving advances based on these artists music.
Ironically, Cosmo Lush the SVP of Digital Business at EMI states “If you take a stake in a partners business, your objectives are much better aligned with that business”. In real speak this can be translated as being “better aligned” means paying less in royalties to artists. This label statement drills down and confirms the conflict of interest between label and artist in such a situation.
Sadly, history has proven time and time again that a majority of labels cannot be trusted to account to their artists in both a transparent and honest manner. Subsequently, whilst onerous Spotify and music services like it need to take some responsibility and insist contractually in any new deals that major labels and others outline the base calculation they use to pay the artist signed to them. Going further it is important that music services have a right of audit of labels they pay hefty advances to. This would help to ensure that artists are paid what they are legally owed and prevent any reason for them to depart such services in droves.
The added benefit to services such as Spotify is that they would protect themselves from having numerous artists, which could turn into a domino effect leaving their services. If such a domino effect were to occur then labels, artists and Spotify including its investors would all lose out. With the continued lack of transparency from labels and Spotify, TMV views this as a very real significant risk. The fact is everyone needs Spotify and services of its ilk like Pandora, Rhapsody, MOG and Deezer, as without them everyone suffers and there will be no alternatives to curbing piracy.