Spotify No More Indie-Friendly than Radio?

Posted on 23. Nov, 2009 by in NEWS, TECHNOLOGY

Lady Gaga's dress probably cost more than her payout for 1 million plays on Spotify.

Lady Gaga's dress probably cost more than her payout for 1 million plays on Spotify.

When Pandora and Last.fm arrived on the scene and Spotify was still just a twinkle in Daniel Ek’s eye, many independent artists and fans looked to online music streaming as a new beginning. These services promised a more democratic approach to music discovery than traditional radio and offered the chance to wash away the stains of payola and corruption that have marred broadcast industry for decades. Now, even as the RIAA is poised to drive the last stake into terrestrial radio, the future of streaming as a viable revenue source for artists is not looking as bright as it once did.

Spotify, for all the media coverage it receives, is still fairly new. New enough that until about midway through 2009 very few people had any concrete numbers to discuss regarding the artists’ share of royalties. When the checks finally did begin to arrive at least one Swedish artist expressed outrage at the amount, saying that he had “earned as much in six months as a BUSKER could earn in a day.”

Even artists at the top of the international charts are feeling stiffed by their cut. Lady Gaga has sold over 4 million albums and enjoys the fruits of pervasive rotation on radio stations across the world. She is certainly not hurting for cash. Yet, according to TorrentFreak, this is no thanks to Spotify:

Lady Gaga’s track “Poker Face” was one of the most popular tracks during a five month period on Spotify and was played more than a million times. So how much money does she get paid by STIM (the Swedish Performing Rights Society) for this massive achievement?

SEK 1150 – that’s around $167 or roughly 113 Euros.

One-hundred and sixty-seven dollars. Lady Gaga probably couldn’t buy a pair of shoes for that amount. Where is all the money going?

Well, that question assumes that money is being made and right now there isn’t much indication that this is the case. As I’ve written before, Spotify continues to struggle to convert users to premium subscriptions. Spotify’s current model depends on these subscriptions because ads can’t float the platform alone. This concern has led the major labels to the delay Spotify’s US launch (which was scheduled to take place last week.)

Spotify founder Daniel Ek

Spotify founder Daniel Ek

“We think Spotify is a great service but they’re going to have to convince us they can convert enough people from free to paid subscriptions to make it worth our while,” one label revealed in a recent Finacial Times piece. “As an ad-supported service the economics don’t work at all.”

The labels are able to have this kind of influence over what Spotify can and can’t do in part because the 4 majors own about 18% of the company. Sony BMG bought the largest chunk - 5.8% – for 2,935 Euros, while EMI received the smallest – 1.9% – for the measly sum of 980 Euros. In other words, Spotify sold any hopes for a more indie-friendly alternative for a grand total of 8318 Euros.

The Guardian.uk discussed the labels involvement in Spotify back in August and came to the same conclusion:

On Spotify, it seems, artists are not equal. There are indie labels that, as opposed to the majors and Merlin members, receive no advance, receive no minimum per stream and only get a 50% share of ad revenue on a pro-rata basis (which so far has amounted to next to nothing). Incidentally, when I asked a Spotify rep if they would feature music by unsigned artists the way We7 does, he said no, but that all they would need to do was to sign up to a label and they’d get on the site.

No label, no Spotify. If you are on an indie label you can get on the service but don’t count on seeing any revenue. With Lady Gaga only earning about $1 for every 6,000 plays I can only imagine what the indies are receiving with significantly less favorable deals.

Looks like the independent music community’s hopes that the death of traditional radio and the rise of online streaming would usher in a new era of equality were premature. On a more positive note, the space is still very young and the kinks are being ironed out. Unfortunately, artists not getting paid is a pretty big kink.

What do you think?

UPDATE: Here’s a good article from PaidContent that explains a bit more about the numbers involved in this story, including a response from Spotify:

Spotify told us in a statement that any STIM payment “would only represent a fraction” of the money that goes to rights holders from the service. The company stresses that it pays “not only collecting societies, but also publishers and the record company to play their music.” It also argues that the $167 is from “way before we’d established ourselves as a music service and built up a large user base.”

The article also talks more about how the labels’ get a double piece of the streaming revenue pie, and how that affects the artists’ share.

Also, in response to some comments on Twitter – the royalty payments are obviously only a piece of the puzzle. An artists strategy should be focused on gaining exposure and driving revenue in a variety of ways. Making songs available for streaming could go a long way toward boosting that exposure. No doubt Lady Gaga’s 1 million plays influenced her 20 million downloads and that shouldn’t be forgotten.

However, the point of this post is that online streaming has the potential to do things differently than traditional radio. Yet based on early evidence it looks like it is already falling into the same old practices, with the labels finding ways to ensure that they receive more than their fair share.

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19 Responses to “Spotify No More Indie-Friendly than Radio?”

  1. Tweets that mention Spotify No More Indie-Friendly than Radio | creative deconstruction -- Topsy.com

    23. Nov, 2009

    [...] This post was mentioned on Twitter by Refe Tuma and Refe Tuma, Music Man. Music Man said: RT @refeup: Is online streaming any more indie friendly than radio? http://bit.ly/4FLOUm [...]

  2. Will

    23. Nov, 2009

    ahh the continued obsession with 3rd party websites..

    • refe

      23. Nov, 2009

      Responding to your twitter reply rather than your comment (not much to respond to there):

      You said, “it means sell your own $hit on your own website.”

      Of course artists should be creating and maintaining their own online presence and focusing on the revenue sources where they control the product, distribution and margins.

      But selling merch from a personal website and allowing your music to be streamed on a service like Spotify are certainly not mutually exclusive concepts…

      And why the obsession with 3rd party websites? (I’ll just pretend you had a question mark in there ;) ) Because that’s where a large part of music discovery is happening. With radio on the way out these sites are taking its place. No sense in ignoring that.

  3. Tweets that mention Spotify No More Indie-Friendly than Radio | creative deconstruction -- Topsy.com

    23. Nov, 2009

    [...] This post was mentioned on Twitter by invisiblepilot. invisiblepilot said: Spotify No More Indie-Friendly than Radio? http://bit.ly/59RmNz [...]

  4. Eugenia

    23. Nov, 2009

    The question here is how much the label makes out of these plays, or the artist fee mentioned is the overall paying amount out of Spotify?

    In my opinion, for spotify/labels/artist make any real amount of money out of this subscription model, Spotify must charge about $0.05 per song streamed ($0.02 for licensing which is always a sticky point, $0.01 for spotify’s needs to run the operation, $0.01 for the label, $0.01 for the artist). Many users might listen to Spotify while at work, so that’s 8 hours. An hour holds about 17 songs overall. 17*8 = 136 songs. 136 * $0.05 = $6.8 per day. For 30 days: $6.8 * 30 = $204 PER MONTH.

    That’s how much you need to charge listeners for everyone in the chain to make any real money, be able to play the license fees, and the bandwidth, and run the whole operation. About $200 per listener!

    Obviously, no one in his right mind will pay that, and not everyone is listening to Spotify 8 hours a day. This is why users must pay per song streamed, and not via a flat fee. This will enable lower prices for smaller bandwidth songs, or for cheaper indie songs. In other words, the flat fee doesn’t work because it doesn’t enable free market principles: indie songs should cost less than GaGa’s. Let the market shape how these songs are priced.

    I’m afraid there’s no other way to both service the public with a subscription model, AND have the artists/chain make money. Someone’s got to pay for them.

  5. indiequick

    23. Nov, 2009

    These figures are dismal. As much as I despise what Lady Gaga means for music, I still think she should make more than $1 for every 6,000 plays.

    The problem is not the systems that Spotify, Imeem, Ilike, and Last.fm have set up online with streaming radio. The problem is their partners and investors are music labels that have driven their companies into the ground.

    Why would you, as a website, partner with a failing business model.

    Indies need to stay that way. Forget Spotify, Last.fm and everything else, unless as an artist – you are okay with making no money for your music.

    I guess the decision comes down to… do you want people to discover your music on these sites and then try to lure them to a show or to buy your record… OR… do you as an indie label/artist/etc. fall in line with getting your music out there to a few more smaller services – i.e. somafm.com, college radio, free mp3′s on independent blogs.

    • refe

      23. Nov, 2009

      Every artist has the choice to opt out of this type of service. Some, like the Swedish artist I alluded to, have done so in an act of defiance rather than as a strategic decision. I suppose if revenue is the only factor than no, it wouldn’t make much sense at all to let your music be streamed. But that isn’t the only consideration.

      Similar to radio’s former self, there is still significant promotional value that can be gained from streaming services. For example, one of my favorite bands in high school was Now It’s Overhead. I hadn’t listened to them in years before I got onto Spotify. After listening to them a few times I decided that I wanted to download a few tracks. Would I have gone to their personal website? Probably not.

  6. Eugenia

    23. Nov, 2009

    >Why would you, as a website, partner with a failing business model.

    Because people want to listen to the music that the majors are putting out. I am pretty sure iTunes, Amazon and even Rhapsody make more money than eMusic does. Indie music is good, but most of it is not easy listening. People have other things to do every day rather than have to decrypt unfamiliar melodies on their brains.

    >Indies need to stay that way. Forget Spotify, Last.fm and everything else

    I am afraid that being that taking an extreme position won’t fix the problem. Becoming polarized in any subject is what drives that subject to the ground. See, if you remove yourself from all mainstream outlets, then there’s not much you can do to make yourself known. And… I believe you are a heavy Last.fm user, no? ;-)

    ——–
    OT:
    Refe, this caching problem is becoming irritating on this blog (comments show up a long time later, even if they are live and authorized). Please go to WordPress’ plugins page and tweak your cache addon (or upgrade to its newest version, or just disable it altogether). There’s definitely something wrong with the cache on this web site, as we discussed in the past.

    • refe

      23. Nov, 2009

      Good points. And sorry about the cache issue. I think I fixed it, but send me a DM on Twitter if you still have a problem.

  7. indiequick

    23. Nov, 2009

    I am heavy on Last.fm for myself. All I care about on there are checking monthly stats about what I am listening to. Sometimes I just throw music on at work, and get stuck on a song. an album. an artist.

    I’m just looking forward at technology, the supply of music that is out there, and the general disdain for ‘the radio.’ Folks are waking up to music right now by the masses through one outlet or another. And I think if an artist is truly an artist, they’re not doing this anymore to ‘be famous.’ Artists now are doing it because they truly believe in it.

    Ah, it’s tough, cause I see both sides.

    • Eugenia

      23. Nov, 2009

      I was going to actually write on our Google Wave about this. About writing music “you believe in” and whatnot. In my opinion, the situation is clear:

      We are talking over here (and on our Wave) about how to save artists and the music industry as a whole. Truth is, in order to save any kind of art, you need to generate money. Without money, nothing will ever move from the ground. The communist USSR had no real art to speak off for example, because no one was making money in that system. And if generating money entails on writing music that you don’t necessarily believe in, then you should still do that. Because it’s what will get you money to do the music you want to actually write. You basically *use* what you’re good at, music in this case, to empower you to bring new stuff to the world. This is how technology works too: Google uses its search engine/ads to financially empower them in order to make all these other projects they do (and they don’t really make money of).

      So if you want to sell for $9.99 your pop easy-listening album, and use iTunes/Spotify/Last.fm or whoever is portrayed as a big fat monster this week, just so you can have enough money to put together than experimental punk album you always wanted to write, do that. There’s no shame in that. If someone feels that there is shame in that, and that he/she betrays his/her artistic integrity by doing so, then he/she’s a fanatic and a snob. And that won’t get anyone far, in any industry.

  8. indiequick

    23. Nov, 2009

    I see no problem with selling an album on iTunes, or Amazon, or any other site that you can purchase digital music from. I encourage all my friends to get on as many sites as possible when selling their music.

    But, the artist you just mentioned is not a real artist. I mean – there are those folks out there, definitely. I have a buddy who plays music for 17 year old girls and always will. I don’t consider him an artist. I think that he is stuck in a system of trying to get a contract. a placement. something that the early 2000′s music industry told us we wanted as ‘artists.’

    Now, some great music is coming from the most obscure places. i.e – Justin Vernon, in a cabin, in Wisconsin = Bon Iver. And it BLEW up… and he’s worked on a LOT of other projects – all very good. And this story is starting to repeat itself over and over.

    Now, the industry needs to catch up and start paying attention to people who are playing music because they NEED to, not cause they WANT to.

    • Eugenia

      23. Nov, 2009

      I see no problem making music for 17 year olds. It does require skill and art to make it likable to an age bracket that you don’t belong. And besides, why music from a guy in a cabin is better than Max Martin’s? (Max Martin from Sweden is behind most of today’s pop as a songwriter). Just because he writes it for money somehow it makes his music less good? Sorry, but I don’t agree with that at all. It’s like saying that a guy writing an open source image manipulation application on his bedroom is somehow better than Photoshop.

      It’s not.

  9. koningwoning

    24. Nov, 2009

    How many people listen to a radio station… how much does Lady Gaga get for a play by a radio station with 1.000.000 listeners. Not €167 I can assure you that (a lot less).
    It will become interesting when the sales figures start to come in.

    Please try to compare apples with apples!

  10. koningwoning

    24. Nov, 2009

    And one more thing.
    Spotify is not the place to get people interested in your brand as an artist…. It is however the place where they can do more than just dip their toes in… thus creating a fan where once you had a prospect.

    Try to see it for what it is… not what you’d desperately want it to be (and then burn it down when it’s not that)

  11. Erik

    24. Nov, 2009

    “On Spotify, it seems, artists are not equal. There are indie labels that, as opposed to the majors and Merlin members, receive no advance, receive no minimum per stream and only get a 50% share of ad revenue on a pro-rata basis (which so far has amounted to next to nothing). Incidentally, when I asked a Spotify rep if they would feature music by unsigned artists the way We7 does, he said no, but that all they would need to do was to sign up to a label and they’d get on the site.”
    http://www.guardian.co.uk/music/musicblog/2009/aug/17/major-labels-spotify

  12. Jack

    26. Nov, 2009

    Here´s a briliant comment on the subject:

    http://www.stevelawson.net/wordpress/2009/11/if-spotify-is-the-new-radio-the-artists-are-winning/

  13. Twitted by StephenPower

    28. Nov, 2009

    [...] This post was Twitted by StephenPower [...]

  14. André Nucci

    08. Dec, 2009

    Gimmesound.com had a nice promise too. Download for free and the artist gets a share of the ad money. Result, a month later i received US$ 0.01 per download. They said companies are still recovering and next year things will be different.

    Honestly, i don’t believe it.