The People vs Spotify
When I was younger one of my favourite things to do was to head down to Tower Records on a Friday night.
I used to get paid weekly from my first job. The boss would pull a bunch of bills from the register and hand them out as cash payment to those of us working in the loading docks. It was probably beneficial to him to pay us that way, but we loved it.
Young, with cash in our hands, we’d head off from work to blow it on the things that teenagers like to spend money on. In hindsight, I really should have invested that money in the market — I’d be on a beach now enjoying the benefits of compound interest now if I had.
I didn’t do that, however. Instead I would go grab 2-3 new CDs to add to my impressive and cherished music collection. Back then having a lot of CDs made you cool and made people want to hang out with you. It was the only way that you could control what music you heard. Otherwise you were at the mercy of whatever music video channel you could get or, worse, the radio.
It was tough, man. Nothing like today, when you just send Apple or Spotify a little bit of money each month and you can have access to almost every piece of music ever recorded.
The music streaming services have been true disruptors in the space. They turned the buying of records from a must-do activity for music lovers to something niche. Some people still like the act of going to a store and buying a record, but most of us just stream. It’s cheaper and easier.
Streaming has been a Godsend for almost everyone in the music industry. I said almost.
The artists hate it. At least in the way that it currently operates, where the labels and streaming companies take most of the profits. Those companies will argue that the artists are paid in exposure — more fans find them and, in turn, will buy more merchandise from them and, eventually again, go to watch them play live. The truth is that only a small portion of artists are able to parlay streaming success into legitimate profits.
Most are forced to rely on the pennies per listen that they receive. Those rates are far tinier than you’d imagine — at the high end, Spotify pays artists $0.003 USD per stream. So, $300 per 100,000 streams. Most artists get nowhere near 100,000 streams a month.
This has led to some serious pushback by artists and, at least in Britain, the politicians are now getting involved. In fact, a six-month enquiry on the streaming industry just ended in the British parliament. It concluded that a “complete reset” of streaming was needed, with a fairer cut of royalties given to artists.
That wasn’t defined, exactly, but it was more than $300 per 100,000.
The market reacted to the findings. Spotify (NYSE: SPOT) started the week at $266.72 and fell to $239.00 when the findings were released. It’s leveled out around $240 since. It’s much harder to determine what impact it had on Apple, but that stock (NASDAQ: APPL) was also down about 1.5% on the week.
One parliamentary report in the UK isn’t going to topple the streaming industry, but it can be viewed as part of a larger trend. There is significant pressure to get more profits into the hands of artists. Eventually, the companies are going to need to adjust.