Streaming Should Pay More, But How?
a.k.a. Spotify and the rest obviously have other priorities, and it's far from clear that consumers have any appetite for price hikes.
Almost a year has gone by since I last dedicated an edition of the newsletter specifically to streaming, and frankly, things haven’t improved much since then. According to a report by the Recording Industry Association of America, streaming accounted for 84% of recorded music revenue in the US last year, and yet companies like Spotify, Apple and Amazon continue to pay rightsholders the equivalent of fractions of a penny per stream. Artists have now spent years loudly clamoring for higher payments, but Spotify is actively going in the other direction, announcing just last week that it would be expanding its Discovery Mode program, in which rightsholders accept even lower royalty rates in exchange for an algorithmic boost (i.e. better placement) on the platform. Between that and with the company’s new TikTok-style vertical feed, which will place an even larger premium on algorithmically selected content than before, it’s exceedingly clear that Spotify is far more interested in its own survival than that of the artists who provide its content offerings.
Of course it is! Spotify is a multibillion-dollar corporation operating at a global scale, as are its primary competitors. These companies might make the occasional noise about helping artists—Spotify’s ongoing Loud and Clear campaign, which was also given a fresh update last week, is perhaps the most prominent example—but no amount of “we really care” branding can obscure the fact that streaming is not an altruistically or artistically minded enterprise. It’s a service, and a cheap one at that. It’s not geared towards artists, or even music lovers; it’s been optimized for passive listening (i.e. consumers who are perfectly content to be fed content options and let the algorithm do its thing), and with each passing year, it’s starting to look more and more like commercial radio with a skip button. (If predictions that Spotify’s new interface will lead to an uptick in the quantity of advertising on the platform prove to be correct, then the radio comparisons will be even harder to avoid.)
Less than three decades have passed since Napster, iTunes, MP3 blogs and filesharing completely upended the music ecosystem, and yet somehow the industry has circled back to a place where music consumption and distribution is largely controlled by just a handful of giant corporations. (In comparison to today, the ’90s music landscape actually looks like a bastion of competition and free enterprise; there were more major labels and more companies that owned radio stations, not to mention a robust independent music ecosystem where artists outside the commercial mainstream could potentially carve out a modest living on record sales and touring alone.) The anger directed at streaming companies is totally understandable, and over the past few years, it’s most frequently been funneled into two specific calls for reform:
Higher streaming royalty rates. (The top demand in the Union of Musicians and Allied Workers’ highly publicized Justice at Spotify campaign is for the company to pay “at least one cent per stream.”)
Switching to a user-centric royalty payment model. (This is more complicated. Streaming companies are a presently using a pro-rata model, in which all revenue is put into a single pot, and is then distributed to rightsholders by calculating the percentage of total streams on the platform they’ve accumulated in a particular territory during a particular time period. For example, if 20% of all US Spotify streams are for Drake songs in a given month, then the rightholders to his music would receive 20% of the total American royalty payouts for that month. A user-centric model would take a different approach, calculating royalty percentages on a user-specific basis. So if a single subscriber listens to nothing but Aphex Twin for an entire month, then Aphex Twin would receive all of the royalties generated by that one user during that month. While studies on the potential economic benefits for individual rightsholders within a user-centric model have so far provided mixed results, user-centric payments are still widely seen as inherently more fair, simply because they directly correspond to individual listening behavior. It’s not a coincidence that the adoption of a user-centric payment model is the second demand in the UMAW’s aforementioned Justice at Spotify campaign.)
Have you stopped reading yet? The complexities of royalty payments alone are enough to get most consumers to start tuning out of the streaming conversation, which is perhaps why that conversation so often gets boiled down to “pay artists more.” That sounds simple enough, and it’s the sort of slogan that pretty much anyone get on board with (and “like” on their favorite social media platform), but it ignores one major problem:
Even if streaming companies wanted to pay more to rightsholders—and to be clear, they don’t want to—they couldn’t.
Spotify lost 270 million euros during the fourth quarter of 2022, despite the fact that its subscriber and active user numbers reached unprecedented new heights. The company claims to already be paying nearly 70% of every dollar it generates to rightsholders, with more than $3 billion total having been paid out during the last two years alone. How much higher can those numbers realistically go? Perhaps the fact that Spotify recently laid off 6% of its global workforce will help the company’s margins, but considering the giant financial hole it’s already in, it’s unlikely that calls to effectively triple its royalty rate (which is what the “penny per stream” demand effectively represents) are financially feasible.
Streaming critics often point to Spotify’s deals with Joe Rogan (reportedly more than $200 million) and FC Barcelona (reportedly more than $300 million) as signs that the company has plenty of money to spend. But let’s say that all $500 million of that money was instead split equally between all 200,000 of what Spotify describes as “professional or professionally aspiring recording acts globally” on the platform. Each act would receive a one-time payment of $2500. That’s not nothing, but it’s not exactly life-changing money, let alone anything resembling a living wage. (And if some larger fraction of the more than 11 million total artists on Spotify were included in these theoretical payments, the amount would drop even further.) Moreover, considering that these controversial deals were spread over multiple years and also generated revenue the company wouldn’t have received otherwise, eliminating them wouldn’t necessarily put Spotify in the black.
No matter how much cost cutting Spotify and the other streaming companies do, there’s likely only one way for them to increase revenue to a point where significantly higher streaming payouts would be possible: raising prices.
Apple has already gone this route, raising its individual monthly subscription price (in the US) from $9.99 to $10.99 last October. Spotify, however, remains at $9.99 per month, the exact same price it’s had in the US since the company’s launch there in 2011. (For what it’s worth, Amazon Music is also $9.99 per month.) Especially in light of recent inflation, it’s absurd that these companies—and especially Spotify—have maintained such low price points, even if it was done in an effort to build their respective customer bases and theoretically get consumers “hooked” on paying for music. It’s true that the convenience, reliability and low price of services like Spotify have likely transformed at least some illegal downloaders into paying customers, but after more than 11 years, streaming has also given rise to a broad listening public that expects access to what they (inaccurately) see as all of recorded music for less than what a single album cost throughout the 1990s. More people may be paying for music now, but when they’re paying so little, it’s not hard to see music as a whole has arguably been devalued as a result.
Artists need consumers to pay more for streaming, but here’s the question that even the harshest streaming critics often refuse to ask: what if they don’t want to?