Helienne Lindvall Guardian.co.UK 08/17/09
No wonder the majors speak so highly of Spotify – they receive 18% of shares in the online streaming service. It’s justy a pity that artists won’t get to see any of this
The launch of Spotify in the UK must surely be one of the biggest PR successes for an online music service. Despite only having spent around £5,000 on marketing since 2006 (according to Daniel Ek, one of Spotify’s founders), they’ve managed to gain huge media coverage – not least in The Guardian.
It’s been described as sexy, incredibly user-friendly and the future – maybe even the saviour – of legal music consumption. I’ve met Ek, a fellow Swede. He seemed like a really nice guy who loves music, and when he said it’s important that artists are compensated, I really wanted Spotify to be all the things the hype had promised.
I signed up and quickly realised that, yes, Spotify is indeed user-friendly – if not for discovering new music, for rediscovering music from my teenage years as well as records I’ve lost along the way. But I wondered how artists could be compensated with so few adverts (sometimes, despite being logged on for hours, I haven’t seen any ads at all). As more details about their operation have emerged, my initial choice to put them in my proposed Fair Trade category appears to have been a bit premature.
The major record labels – and the bigger indies – that I spoke to seemed unusually positive about Spotify, which made me think that they must have received a pretty hefty payment and/or equity in the company. Sure enough, the other week some of my suspicions were confirmed when it was reported that the majors received 18% of Spotify shares. Merlin, who represent a large portion of the independent labels, received 1% (as their labels represent 11-12% of Spotify plays, it appears this is a bit disproportionate to the value of their content). What they paid for their shares is still under debate, with ComputerSweden reporting that it was as little as $10,000. Regarding payments, the labels I spoke to said that they’re not allowed to divulge these details. But, as it’s common for majors to demand such payments, I’d say it’s likely they did.
I can see why this puts Spotify in their good books. One of the main reasons why majors have been hesitant to offer their music to start-ups is that they’ve seen companies like YouTube and Last.fm build businesses, only to sell them off for big bucks without sharing the money with the copyright owners whose music they used.
A source close to Spotify told me he has serious doubts that their business model will add up and that it’s a case of “spot the idiot”, ie “find somebody stupid enough to buy it before realising that it’s too costly to run and that the numbers don’t add up to making a profit”.
Spotify is currently valued at $250m, despite, according to The Register, only having an advertising income of £82,000 and just 17,000 UK users signing up to pay £120 a year for Spotify Premium. Having equity in the company ensures that the labels get paid if Ek and his colleagues find said “idiot” and decide to sell up (Ek says they have no intention of selling up, by the way). But what does this all mean for the artists?
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.
For artists who “signed up to a label” there’s a tangible risk that revenue which comes from a possible sale of shares by the label would end up in the proverbial “blackbox” (non-attributable revenue that remains with the label). There’s growing concern about this in the artist management community and, a few weeks ago, Bob Dylan decided to pull his back catalogue from UK streaming services. The only Dylan albums currently on Spotify are Bob Dylan’s 60s Live, A 30th Anniversary Concert Celebration, a tribute compilation and a few tracks that are featured on movie soundtracks.
In Sweden, where Spotify has been running the longest, Magnus Uggla – well-established since the late 70s – has withdrawn his music from the service. On his blog he said that, after six months on the site he’d earned “what a mediocre busker could earn in a day”. Regarding his record label, Sony Music, he says “after suing the shit out of Pirate Bay, they’re acting just like them by not paying the artists”. When he found out that Sony had 5.8% equity in Spotify he wrote: “I would rather be raped by Pirate Bay than fucked up the ass by (Sony boss) Hasse Breitholtz and Sony Music and will remove all of my songs from Spotify pending an honest service.”
As labels taking equity in new services becomes commonplace (the majors are currently in the process of doing it with BskyB and VirginMedia for their soon-to-be-launched music services), the issue of how to compensate the artist is a problem that won’t go away and needs to be resolved.
So, in the light of recent revelations, I’m afraid I’m going to have to withdraw the virtual Fair Trade stamp I gave Spotify a few months back, until they prove that they are, indeed, concerned about treating artists right.