How much would you pay for all the world’s music?
A Spotify premium subscription is perhaps the biggest bargain available in the western world.
For $12.99 each month, you are given access to the largest archive of recorded audio ever assembled, a library containing the vast majority of music that has ever been commercially released — over a century’s worth of human endeavour – plus 4.7 million different podcasts to boot.
During the week, Spotify announced its Premium Family subscription will soon increase from $20.99 a month to $23.99.
Given this allows access to the aforementioned audio archive to six different ‘family members’, that’s a mighty $4 per head being paid. What a bargain!
Of course, people went mental. Nobody likes a price increase, especially during a cost-of-living crisis. A price increase from a subscription company tasked with providing the entertainment to distract us from the cost-of-living crisis seems especially harsh.
During the pandemic, artists who rely upon live work were the first to lose employment. Most were not covered by JobKeeper because of the transient nature of their work – officially, Jimmy Barnes does not qualify as having a Job to Keep – and when looking for reasons these artists are so reliant on live work, Spotify is by far the most visible culprit.
Musicians used to make money primarily through selling music, goes the argument, but thanks to Spotify, it now acts as an expensive commercial for their live show – a loss leader in a perfect world; money in a black hole in most cases.
It’s not Spotify’s fault, but they are leading the most recent iteration of the devaluing of music.
We could go back to home taping, and CD burners, but let’s stop at the turn of the century, when the advent of Napster meant that mp3 files could be swapped online, and therefore music could be obtained for free. In the quarter-century since, record labels and tech giants alike have scrambled in various inept ways to push the value of recorded music up from this anchor point of zero.
It’s an almost impossible task. In 1984, futurist Stewart Brand said: “Information wants to be free.” In 2004, Kanye West said “Fuck you, pay me”. They are both valid points.
Apple seems to dodge a lot of the heat that Spotify cops. I’m not sure why. Apple Music offers similarly paltry royalty rates, plus played a major, earlier role in the devaluing of music on a number of fronts: by putting a firm, legal price on digital music – around 99c a song, as I recall — and by building a mainstream digital store in which to easily buy it; and, by offering up the iPod: a fashionable, weightless way to carry stolen mp3s around. The iTunes store yelled that music piracy is ruining music, offering an affordable 99c-a-song price tag, but its other musical revolution, the one that boasted it could hold 10,000 songs, suggested something very different about the value being placed on recorded music.
But nuances are too nuanced. Spotify popularised subscription-based music streaming – using technology it simply harnessed rather than invented – and therefore got to set the new low bar at which artists are paid.
And 99c is still 99c. Spotify pays just $0.003 – $0.005 per stream. (Mumbrella commenters like to tell me this figure is based on a percentage and therefore not a set amount, to which I say, this is true, but the monetary figure still ends up within this same bracket). This is a tiny amount. It’s barely an amount.
But $0.003 – $0.005 is still $0.003 – $0.005. Recently, Spotify announced it will simply stop all payments for songs with less than 1,000 annual streams, seemingly figuring these artists to be rounding errors. People grumbled, then accepted it, because what else is there to do? Not be on Spotify?
In licensing their music to Spotify back in 2010, the record labels ceded control of pricing and distribution to a third-party tech company – in exchange for a share. In doing so, they became tech investors, and neatly cut the creators of these recorded works an even tinier slice of the pie they were previously offering.
What else could they do, they argue? People were stealing the music, anyway!
So now, Spotify is the major distribution of the entire world’s library of commercially available recorded music. Hurrah! Turns out it’s not so easy, though. It’s not a very lucrative job, either. After all, Spotify might be popular, but it isn’t at all profitable, and it never has been.
Those petty royalty payments are baked into the unsustainable business model they’ve set up. They actually pay a decent percentage – there’s just not enough money coming into the funnel.
As I opened with, a Spotify premium subscription is perhaps the biggest bargain available in the western world. But it’s unsustainable, for all involved. Offering all the world’s music for a price that people are willing to pay means you lose money. Which obviously means the price must be higher. Hence the $3 extra your family now needs to pay.
But the value of recorded music is still anchored at zero. Because of Napster. But also because of that CD wallet filled with burned Incubus CD-Rs you carried around in high school. And the iPod you filled up from your cousin’s computer, because it can’t possibly be stealing if she still has the file, right? And radio in the car, and songs in the air, and carefully curated cassettes with your neatest handwriting, and Columbia House Record Club pamphlets, and – at the moment – because of Spotify.
Taylor Swift’s recent crusade to re-record and therefore ‘own’ her masters has shone a light on the actual ownership of recorded work. As an artist, it is prudent for many varied reasons – a lot of which has to do with control of that art. It’s not owning the rights to your own recorded works that results in The Beatles’ Revolution being used in a Nike advert. Most artists, especially those through music labels, don’t own their own recorded works. The label does. These days, the ownership of masters mainly pays off in music sync deals for TV shows and movies where a nostalgic dance scene is needed to push the plot along. It doesn’t help with streaming.
Spotify learned a hard lesson recently that acquisition and ownership wasn’t the business for them. After spending insane amounts of money to secure once-leading independent podcast studios such as Parcast and Gimlet, as well as splashing out over US$1 billion to secure Joe Rogan, Meghan Markle and Prince Harry, Kim Kardashian, Bill Simmons, and the Obamas – they quickly realised what they always knew; the lesson baked into their entire business model – that ownership doesn’t make money in the world of streaming.
“We have doubled down on the [podcast] deals that worked, and have gotten out of many of the deals that didn’t work,” Spotify boss Daniel Ek said at the end of last year, after laying waste to a number of once-functioning podcast studios.
Spotify learned an even older lesson from their podcast land grab: that the real money was in advertising all along. When Spotify made its first substantial podcast play in 2020, by signing Joe Rogan to a deal worth more than A$300 million over 3.5 years, they made sure the podcast was exclusive to Spotify.
On paper, it made sense. But it evidently makes more sense for Spotify to allow Rogan to roam free across all podcast platforms, to infiltrate Apple Podcast and YouTube, and then sell advertising during the show at an even higher rate. Which is what they’ve now done, under the terms of Rogan’s new A$380 million deal.
Another lesson Spotify learned when keeping Rogan ‘exclusive’ – podcasts also want to be free. Not just free for the listener, but free in terms of distribution. Most podcast platforms have most podcasts. This is true of music, too – most music is on ‘all’ streaming services – or ‘none’.
This is not the case for television. Which means maybe, soon, it won’t be the case for music. Soon, you might need to have four different streaming subscriptions. That would be a horrible user experience.
I’ll give you a moment to pause and consider how confusing and frustrating it would be to have to cycle through three music streaming services to work out which one has ‘A Horse With No Name’ on it.
Right! Now, let’s say all the music streaming services were suddenly erased, and one single service emerged. Let’s also say, this service needed to renegotiate all deals with record labels, who are now armed with 23 years knowledge of Spotify and iPods, and therefore know to charge a lot more at the get-go.
How much would you pay for this streaming service? How much could such a service charge, and still make sure everyone makes money?
For television and film viewers, this is currently being tested, with new TV streamers coming into the market at a rapid rate. How many streaming services is your threshold? How much is enough? Most Australians pay for at least two, at last count.
Sony, Universal, and Warner control roughly 70% of the world’s recorded music between them – and there’s absolutely nothing stopping each of them from launching their own streaming service, with their own catalogue streaming exclusively.
Why don’t they do this? Maybe they will. But it would make for a terrible product, as examined above (surely it was on them to name the horse).
In its Q4 2023 financials, Spotify boasted about narrowing its losses during the quarter to a cool A$115 million. In three months. And this is a stemming of losses, from $445 million during the final quarter of 2022. I’m rounding to the near million, because anything less seems nit-picky.
While these losses were shrinking, advertising revenue hit an all-time quarterly high of $826 million. Music advertising revenue grew double-digits, while podcast advertising revenue “grew in the healthy double-digit range, driven by significant growth in sold impressions across original and licensed podcasts and the Spotify Audience Network, partially offset by softer pricing”.
Spotify had, at the end of 2023, 489 million monthly active users. 295 million of these are ad-supported users, meaning they don’t pay a subscription, instead choosing to be fed audio advertising every few songs in order to keep the music flowing.
This is an underreported fact: Most people who use Spotify don’t pay for it. Which might actually be good news for Spotify, which gets to earn advertising revenue for each of these users.
Unlike subscribers, who are worth a set amount each month to Spotify and will walk when the subscription price pushes too high – these ad-guzzling, music-loving freeloaders are an uncapped income stream. Just gotta keep them streaming, and keep them growing. Then hit the advertisers, not the music-lovers. Radio-style.
Ad-supported streaming television is booming — Marco Nobili, EVP and international GM of Paramount+, told Mumbrella he predicts it will soon make up half the entire television market — so it’s clearly a profitable model in the visual broadcast and streaming world.
Could it be that Spotify’s business would be better served if it had far less paying subscribers and more ad-supporters users?
Here’s a nice conspiracy theory: Maybe this $3 price rise everyone screamed about during the week is part of a calculated plan by Spotify to eventually tip us all off the Premium tier and down to the shallows, where the music is free, and the advertising isn’t so bad once you get used to it…
The major lesson from the podcasting boom is that people don’t mind listening to ads if its worth it to them.
So far, the major lesson from the music streaming services is that, maybe, just maybe, giving people access to all the world’s music for less than half of what they once paid for a Limp Bizkit CD is not a sustainable business model – for anyone involved.
When it all collapses, please act surprised. And hoard your CDs!
Enjoy your weekend.
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So Spotify is bad and Napster is bad, but more streaming services will mean more money because we want more ads?
Having a bit of a broader read there are some interesting trends you can see when reading the Q4 earnings calls from the major labels.
– UMG €3.2 billion Euro in revenue
– Sony $1.93 billion USD in revenue
– Warner $1.56 billion USD in revenue
It sounds like there is money to go around it’s just being held at the label level and not going to the artists.
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That was really well parsed Nathan. Another price hike in the next 18 mths would go a long way to confirming your theory.
Would really appreciate your take on the entities buying out artists rights, and how that fits in here. I read an interview with Hipgnosis’ founder where he said he was trying to build enough critical mass to negotiate better rates with the streamers. Lately they too have experienced a cash crunch and had to divest themselves of some of their rights to service their financial position.
That <1000 streams factoid is disgusting.
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Thanks for considering/honouring the source of it all – the musicians and writers, not many industry articles even get that far! Pity musicians are driven by a passion to create what everyone wants but is so easy to steal, musicians wont go on strike because …. they can’t…
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