Music Technology Policy

There are several myths about streaming, but none so prevalent as the “savior” trope, which streaming services are doing their best to splice into the DNA of the music business.  Without streaming, we are told, then piracy: “Streaming stops piracy”.  Piracy, of course, is a constant, and is factored into sales these days as a limiting factor.  Also factored in is the cost of the faux legality of piracy on DMCA-protected services which also must be managed in order for windowing to work.

Streaming is now baked into the charts, which is the first step to becoming a self-fulfilling prophecy: “Streaming is radio”.  Artists must stream or be lost:  “Windowing punishes fans” (just like selling albums “punishes” fans).

All these myths ignore the basic proposition that windowing, exclusives and other contract based rights are simply ways to divide up our property rights–no more, no less.  And contracts take two to tango–if the deal is bad, no one will take it which undermines the myth.  And like all myths that fall apart when reality diverges from dogma, the curia fights back.

Given Spotify’s monopoly, or certainly dominant, position in their streaming market, it should not surprise that they push all of these myths, and they seem to do it like clockwork whenever Taylor Swift releases a new album.  Why?  Because Taylor Swift has four–count ’em–four albums that sold over one million copies in their first week of US release.  And–she’s the only artist ever to have done so.  And–she windowed every one of them, pre and post Spotify’s US launch.

Let’s be clear–any distributor getting a Taylor Swift record in the fourth quarter sure makes up for a multitude of commercial sins in their year.  At least that’s true of profit-making companies whose executives actually have consequences for commercial sins.  Loss-making companies, on the other hand, are not motivated by pesky things like profits if they are on the “get big fast and exit” track.  You may say, oh, that’s so 1999, surely they have learned their lessons from the Dot Bomb debacle.

Nah.

The exit is still the thing for these venture backed tech companies.  The problem with exits is that the people who are only in it for the money move on to self-driving cars, climate default swaps, bitcoin or whatever.  People who are in it because they love it are stuck with the consequences.  The music business will be picking up the pieces from the streaming exit for decades because of a simple logic:  You cannot take away something that sold at a $10 price point and replace it with something that “sells” at a $0.005 price point and expect to have a business.  Remember–the trendline since 2008 is predominantly flat so while streaming may be a bigger piece of the pie, the pie itself is not growing much.  That’s cannibalization.  We’ll see how much that trend changes this year–and how much of that change is Taylor Swift.

Source: RIAA

It must be said that there’s a real question of how many Taylor Swifts the business will sustain going forward if we don’t listen to the lesson she is teaching for those who care to pay attention and think outside the stream.

Remember that salted in the 1,290,000 units that reputation sold in week 1 are quite a few units that were sold as a fan package on an exclusive–there’s that word again–at a higher price point than the general release CD.  That should mean that the gross revenue to the distributor conservatively averages around $8 after discounts or something like $10 million in distributor gross for the week (in the US alone).

Producing that amount of streaming revenue would require approximately 2,000,000,000 streams in a week depending on whose average streaming royalty you buy into.  “Call It What You Want”, Taylor’s first single from reputation, entered HITS song revenue chart at #4 with 9,259,698 streams earning $66,186 (a chart with revenue metrics I have a quibble with due to averaging of free/sub streaming revenue, but that’s another subject).

Regardless of the underlying math, you can see that there is no way that streaming is going to put much of a dent in the revenue from the physical release.  If you are in a future oriented profit making business and not an exit oriented loss making business, you like those numbers.  Why?

Because it tells you that you could probably keep doing this for a while.  That’s called a career, and it’s what managers were supposed to foster.

How was this received at the dominant streaming platform?  Spotify hired the former Lady Gaga manager, Troy Carter, as its “global head of creative services” reporting to one Stefan Blom.  (Mr. Blom was formerly chairman at EMI Nordic, but songwriters will recognize Mr. Blom as the Spotify executive who can’t seem to find millions of songwriters despite Spotify’s vast technical abilities and signs Spotify’s “address unknown NOI” filings with the Copyright Office denying royalties to millions of songs.)

Mr. Carter did not take well to Taylor Swift’s decision to hold the reputation album off of Spotify (notwithstanding reports of Spotify’s recent agreement to accept windowing as a condition of closing its Universal license).  Variety reports:

Taylor Swift’s decision to keep her new album “Reputation” off streaming services like Spotify will drive people back to piracy, said Spotify’s global head of creator services Troy Carter at the Internet Association’s Virtuous Circle Summit Monday morning. [The Internet Association is antagonistic to artists as a general proposition.]  “A lot of it is going to be pirated,” he said. “It kind of sets the industry back a little bit.”

However, Carter also said that he understood Swift’s decision: “Taylor is super smart. We are not mad at her for the decision she made,” he said. Swift and Adele, who sold millions of copies of her “25” album while waiting seven months to release it to streaming services, are among the few artists who can withhold an album from such platforms without significantly impairing its exposure.  [Emphasis mine–note the “among the few” rationalization of the “streaming is inevitable” narrative.  If you shame everyone away from windowing, how will you ever know that it’s a “few”?]

Carter, who managed artists including Lady Gaga and Meghan Trainor before joining Spotify in 2016, was also critical about the music industry’s past business model. “We screwed over consumers for years,” he said, arguing that consumers were forced to buy highly priced albums for years that only included one or two songs they wanted. Carter drew a direct line from this attitude to exclusives on streaming services.

So we have Mr. Carter trotting out several myths at once here–although it must be said that Mr. Carter’s former employer from 2007-2013 is herself not without experience in the rarified air of the First Week Million Club–Lady Gaga herself has one record in that group with her 2011 release, Born This Way.  Of course, with its May 23, 2011 release, Lady Gaga did not have to address the Spotify new release windowing issue as the service had not yet launched in the US at that time.

Even though Mr. Carter was clearly wide of the mark with his advice to Taylor Swift, his messaging was a vast improvement over Daniel Ek’s mansplaining to Taylor on 1989 which was one of the more bizarre public encounters between an artist and a retailer in history.  Can you imagine Tower Records chief Ross Solomon saying any of these things in public?

I still hold the view that the windowing issue changes depending on whether the artist concerned has a fan base that wants their physical record.  If they do, then streaming services become like record clubs.  Nobody ever wanted the clubs to get their record until they’d had at least a 90 day holdback, more frequently 6 months or even a year.  So it is with streaming services, including Spotify.

The bigger questions are what effect windowing has on the ability to sell physical at all.  I’m still waiting to see the consumer research suggesting one drives the other, and based on industry revenues over time, it seems far more likely that streaming cannibalizes physical.  Another question is how much elasticity is there in the subscription price?  If we are expected to welcome low margin streaming as a replacement for higher margin physical and downloads, please don’t tell me that the answer is we’ll make it up on volume, t-shirts or touring.

For now, we have to acknowledge that for artists who anticipate large sales of physical and permanent downloads, singles-only streaming releases combined with physical sales is probably the principal way their distributor can afford to breach the value gap and send enough DMCA notices to keep the album off of YouTube.