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@zoecello’s Royalties Give the Lie to Daniel Ek’s “Greedy Middlemen” Rant

May 31, 2015 2 comments

Sony Contract Leak: The Bright and Shiny Object

Regardless of who you believe actually leaked Spotify’s contract with Sony Music, Spotify’s CEO Daniel Ek certainly is trying to capitalize on the leak.  (“Spotify CEO says middlemen gobble cash“)  It sounds like this is just another indication of how badly a defiant Spotify has broken trust with its label “partners” and their artists.

The spin from Mr. Ek is that he wants you to believe that the reason that artists think Spotify’s royalties are low is not because of Spotify, it’s because of the greedy major labels.  More accurately–with the benefit of the contract leak–any label that has MFN treatment with Sony Music.  (Because if you’re leaking contracts, you can’t really leak all the contracts, but you don’t need to if you can leak a single MFN contract from which terms can be extrapolated due to the MFN treatment.)   Because I don’t know all the labels with “most favored nation” treatment, I’ll refer to those labels as “MFN labels” rather than major labels (partly because the MFN definition in the Sony Music contract is not limited to other major labels).

Of course any labels or distributors licensing to Spotify get a share of the royalty payments, like they do any other service.  (Even if a distributor covers its downside risk with a flat fee payment instead of sharing the risk with its artists, there’s still an imputed share of Spotify royalties which could be massive or tiny depending on how the artist does.)

How much labels take is not well known and varies from label to label and artist to artist.  This makes a label’s share of royalties ripe for conspiracy theories that Mr. Ek appears to be fomenting.  And is a great “bright and shiny object” to deflect attention away from a simple truth:  Spotify loses money hand over fist, pays terrible royalties, and is cannibalizing higher margin sales.  Its valuation is driven solely by venture capitalists with liquidation preferences that make a down round unthinkable and a compliant press that in some cases is in the streaming business themselves.

The Empirical Check

So how would you know whether Spotify’s artist royalties are low regardless of the label’s share?  Easy.  Look at the royalty Spotify pays to an independent artist who does not share their royalties with a record label.  This won’t tell you what the MFN labels get, but it will tell you that the MFN labels should get no less than the independent artist collecting 100% of the Spotify revenue.  You can also assume that Spotify’s independent royalties are a cram down of lower per-stream rates than what Spotify pays the MFN labels.  Why?  Because they can.

Of course, the argument could easily be made that if Spotify’s goal is fairness in all things and world peace, Spotify would actually pay independent artists more than the MFN labels because Spotify doesn’t have to pay all the extras–starting with an advance and equity–to the independent artists.  (Whether services ought to pay extras is a whole other conversation.) Even so, if Spotify’s royalties are as great at Mr. Ek would have you believe, you should see that uptick in the “source” Spotify royalty paid to an artist who collects 100% of the royalty and not just the artist share under an MFN label contract.  

Last week, Zoë Keating courageously published her most recent royalty statement from Spotify.  As usual, Zoë makes an outstanding contribution to the knowledge of all artists grappling with life in the Age of the Internet.  Zoë’s Spotify statement gives a great example of the true royalty rate that Spotify pays to record labels–without the big advances and other financial incentives paid under the MFN label deals as seen with the leaked Sony Music contract.  Not to mention the cost of the detailed reporting required under the Sony Music contract.  A couple things jump out.

First, it’s not really sound to speak of a global “per stream” rate for Spotify except in the most generic sense.  As you’ll see from Zoë’s statement, there are many, many different rates.  I would guess that these rates vary based on some high level variables and rule sets such as ad-supported or subscription and mobile or desktop.   The statement doesn’t break this out and just refers to “streams”.  Not all streams produce the same value as the statement reveals.

Then there are different rates for each country where Spotify operates, just like on a record company royalty statement.

As you will see in her statement, Zoë’s per-stream royalties ranged from $0.0000013284 to approximately $0.01 per stream, except for 3 streams in “CH” (presumably Switzerland) that broke $0.02.  I would guess that the lowest royalty rates are from ad supported streams and the higher rates are likely from subscriptions.

Remember–this is 100% of the Spotify royalty, not shared with a label.  So Mr. Ek would have you believe that if it just weren’t for the greedy middlemen, artists would find Spotify profitable, because, after all, Spotify pays millions to superstars–the superstars whose labels spend millions marketing their records and driving traffic to Spotify.  Low royalties are not Spotify’s fault, it’s the greedy middlemen.  (This rhetoric also resonates with the Google and Pandora-backed “McCoalition” that is running those tired 1999isms to try to divide our community.)

Mr. Ek points to the leaked Sony Music contract to justify his position, and I point to Zoë’s statement to ask who in their right mind would think that Spotify royalties (or streaming royalties in general) are worth the trouble.

And don’t forget that Mr. Ek is quick to point out that streaming revenue is a growing share of overall digital revenues and displacing downloads.  Yes, that’s right.  In a race to the bottom, micro-margin streams are replacing high margin downloads.  Correct, it’s called cannibalization.

That cannibalization is happening across the board, too, not just to major labels.  “CD release parties” that used to generate a significant contribution toward recording costs for local independent artists now are a rapidly vanishing share of artist revenues (right alongside cover charge).

So Mr. Ek’s misdirection doesn’t work when you look at the numbers.  Evidently, Spotify hopes you won’t.

More is Less: Why Do Artist Revenues Increase at a Lower Rate than Artist Streams?

But here’s another interesting metric.  Zoë’s spreadsheet shows that in 2015, Zoë had 1.4 million streams and $4,821.07 in royalties or an average of $0.003 per stream.  I’m using a per stream average as a way to compare per-stream value over time because the spreadsheet also shows Zoë’s royalties from 2013 and 2014.  I don’t recommend using a per stream average for any other purpose because it tends to overstate the ad-supported royalty and understate the subscription royalty.

Zoë’s per stream average from 2013 was $0.0042, in 2014 it was $0.0040 and was $0.0032 in 2015. So even though Zoë’s own total streams increased from 416,112 to 1,487,584 during the 2013-2015 period, her average per stream royalty declined from $0.0042 to $0.0032.

Given that a simple per stream average tends to understate the subscription revenue, wouldn’t you think that a 350% increase in streams would result in a higher per stream average?  Particularly because Spotify wants you to believe that it is growing its subscription business as well as its business in general, hence its massive investment valuation.  Even if you consider the difference in Zoë’s gross revenue, her total royalty payment increased by 271%, much less than the increase in her overall streams.

Maybe there are anomalies that explain this, maybe there are specific attributes of Zoë’s fans that explain that difference, but it seems very, very odd.

Who Are the Real Greedy Middlemen?

Face it, the streaming business is a horrible business.  Everyone in it loses money based on cash flow and the only people who make bank are the executive teams who get stock in the enterprise.  Remember, Spotify has a bigger valuation than the entire music business.  If that’s not a bubble, I don’t know what is.

It’s only a matter of time before Spotify does exactly what Pandora is doing–comes to the government and tries to force a lower royalty down our throats so Spotify can stay in business.  Spotify will likely do it through manipulating the antitrust law (notwithstanding Spotify’s own self-admitted monopoly on music subscription services.)  There’s only one thing such people fear more than an artist who publishes their royalty statement.

That’s a venture capitalist collecting a preference on a down round–so the valuation has to constantly increase even if it is not connected to reality.  And if reality ever catches up to Mr. Ek, all he’ll do is flip the keys to the first bum on the street after he cashes out–and destroys our business.

Remember–he’s not in the music business.  If Spotify fails, Mr. Ek will just go into some other “disruptive” tech company that preys on people like child data profiling.

Thanks to Zoë Keating, we once again can see that Spotify gives truth the back of the hand in its rush to IPO riches.  As long as the VCs keep rewarding fast buck artists like Mr. Ek and governments turn a blind eye toward Bit Torrent, the race to the bottom will continue and artist innovators will keep being punished.

The Revolution Shall be Monetized: Zoë Keating Confirms YouTube Learned Nothing From Indie Labels

January 24, 2015 2 comments

…there was lunch in the larger, first floor cafeteria where, in the corner, on a small stage there was a man, playing a guitar, who looked like an aging singer-songwriter Mae’s parents listened to.

“Is that….?”

“It is,” Annie said, not breaking her stride.  “There’s someone every day.   Musicians, comedians, writers….We book them a year ahead.  We have to fight them off.”

The singer-songwriter was signing passionately…but the vast majority of the cafeteria was paying little to no attention.

“I can’t imagine the budget for that, ” Mae said.

“Oh god, we don’t pay them.”

The Circle, by Dave Eggers

Once again, Zoë Keating provides a leading voice for artists rights and leads by personal example.  In her compelling viral blog post, “What Should I Do About YouTube,” Zoë describes a recent encounter with the demands of YouTube the definitive “new boss” monopoly video service owned by Google.

She asks her community for advice in making a decision about whether she should allow herself to be bullied by Google.  The “decision” that she must make crystalizes what my friend Rick Carnes (President of the Songwriters Guild) meant in the phrase he coined to describe how Google uses the DMCA: Notice and Shakedown.

Why is this an issue?  As Zoë tells us:

I am independent because I didn’t want a bunch of men in suits deciding how I should release my music. For 10 years I have managed to bushwhack a circuitous path around them but now I’ve got to find a away around the men in hoodies and crocs (I’m sorry, that was low, but that story was so funny).

Or as we say around MTP, meet the new boss, worse than the old boss.

Google is routinely and continually misusing the privileges that Congress provided in the now hopelessly outdated DMCA “notice and takedown” safe harbor.  If the 345 million takedown notices Google received last year alone for search alone doesn’t confirm that to you, Zoë’s description of the YouTube shakedown should make it crystal clear.

By telling her personal story, Zoë identifies adroitly the future of YouTube.  First, Zoë’s experience clearly demonstrates that Google learned nothing from its hugely bad press experience last year with the world’s independent record companies.

It also shows that Google fully intends to profit from the YouTube “bad acts” window–the period of time from when a video is posted and when Google ultimately take it down that gives “windowing” a whole new meaning.  This bad acts window is not limited to copyright infringement; it can include videos selling illegal drugs, recruiting young women into prostitution or young men into the jihad, demonstrating how to shoot heroin, sex tourist home movies, holocaust denier videos (illegal in many countries where YouTube makes them available), or plain old skin head racist videos.  MTP readers will require no citations for these videos, but if you are new to the blog just look under the “Bad Acts Videos” tab.

Moreover, Google’s treatment of Zoë is surely not limited to Zoë–it’s probably exactly what Google is doing to tens of thousands of artists.  If anything, Zoë probably got the star treatment version.  This is very Googlely–Google’s version of an “artist relations” team comes and tells you nicely how they are going to run roughshod over you (NP: Everything is Awesome).

Remember–the indie trade association IMPALA has filed an antitrust complaint against Google in Brussels over the way Google handled the MusicKey roll out which essentially involved the same deal.  So does Google say, that didn’t really work out too well for us, maybe we should handle it differently with the independent artists?

Nope–Google says, unfortunately, the indie labels fought back, but the independent artists cannot.  So Google says let’s screw them even harder.  As Zoë concludes her blog post:

What should I do? As much as it makes me grind my teeth, does having all my music forced onto Youtube’s music service really just not matter all that much? Should I just close my eyes and think of England?

Maybe after writing this blog Google will make the choice for me. They will block my channel and I will have to decide whether to block those 9,696 videos….and anger 9,696 fans. The usual people will talk about it for a day or two (*5) and then it and I will be forgotten.

Anyone starting up a new video service?

We’ll see.  Because what Zoë is really pointing to is the next step in the evolution of multichannel networks–leaving YouTube altogether and en masse.  Why would you want to drive traffic to YouTube for free when all they do is jack you around?  And speaking of “thinking of England”:

When I warned them that Britain would fight on alone whatever they did, their generals told their Prime Minister and his divided Cabinet, ‘In three weeks England will have her neck wrung like a chicken.’

Some chicken.

Some neck.

Winston Churchill, Ottawa, Dec. 30, 1941

A Great Question from @ZoeCello: Should Digital Retailers Own the Artist’s Fan Data?

November 19, 2012 Comments off

I want my data and in 2012 I see absolutely no reason why I shouldn’t own it. It seems like everyone has it, and exploits it…everyone but the creators providing the content that services are built on. I wish I could make this demand: stream my music, but in exchange give me my listener data. But the law doesn’t give me that power. The law only demands I be paid in money, which at this point in my career is not as valuable as information. I’d rather be paid in data.

Zoë Keating, What I Want From Internet Radio

Zoë Keating has raised a number of interesting points in a recent blog post about digital music services and one of them caught my eye–why is it that artists can’t get in the loop with the fans who buy or listen to their music?  When artists spend significant amounts of time and money trying to drive fans to purchase from iTunes or listen to their music on Pandora, Spotify or YouTube, why can’t these same artists connect with their fans who happen upon a track on a digital retailer?  (I may use “digital retailer” generically to include streaming services even though strictly speaking there’s no actual object being “retailed.”)

Or said from the point of view of property rights, why should the digital retailer own (or own exclusively) the artist’s property right in data relating to their works?  Since it is data created by the sale or transmission of the artist’s work for which the artist has spent time and effort to make valuable, why should that value accrue soley to the digital retailer?

As Zoë Keating says: “I want my data and in 2012 I see absolutely no reason why I shouldn’t own it. It seems like everyone has it, and exploits it…everyone but the creators providing the content that services are built on.”  That’s my emphasis, but I think that she sums up the problem very concisely.  (There’s a lot more to her post that you should read, but I’m going to focus on this one issue.)

The Land Grab for Fan Data

The main reason, of course, is that the digital retailer doesn’t want to share that information with anyone because it’s valuable.  I’m not talking about getting information about how many people in zip code 90210 bought your track.  I mean who bought it.

The retailer will no doubt say that simply handing over this information without the consent of the consumer would violate various privacy laws.  Yes, that’s probably true and also a very convenient dodge.  What I do not think would violate privacy laws would be if the retailer offered the fan a meaningful chance to sign up for the artist’s mailing list at the point of purchase or at the time of listening.

For example, if you are listening to Zoë Keating on Pandora, you are taken to a page that says “Frozen Angels” from “One Cello X 16: Natoma”.  You can “Share” or “Buy”.   If you click on the album page it’s similar stuff.

Same record on iTunes, you get “Artist Quick Links” which is all Apple-facing stuff:  “copy link” means the iTunes link, alerts are for iTunes, tell a friend let’s you send a link to iTunes, and so on.  And of course, you can share it on Facebook or share it on Twitter.

This is not just the template for an indie artist–the current AC/DC catalog promotion is essentially identical.

So why is this the case?

Sharing is Caring

What is so difficult about having another button–one that said “Artist Website” or “Artist Fan List” and either put a link to the artist website (which could be part of the track metadata) or a link to a signup for the artist’s mailing list.

The point of this, by the way, is for the artist to be able to capture the benefit of some of the traffic that they drive to Pandora, YouTube or to iTunes.  Sure, these big services can look down their noses at the indie artist, but how difficult would it be to implement?  They should welcome the opportunity to support the artists whose work profits them–particularly Spotify who pays jack in royalties and YouTube who spends as much time finding ways to screw artists as they do creating impossibly screwy royalty systems also designed to screw artists in ways that no old boss ever had the brass to attempt.

So we are not talking about a link to something that would drive traffic back to the retailer, or find another way to keep the artist’s fan on the Amazon site.  If you don’t like Zoë Keating, how about a nice salami sandwich?  Would you like fries with that?

No–having these sign up buttons would not be spamming the fan and would truly be sharing at least the most important data about the fan for the artist.  How to stay in touch.

I really don’t see the harm in this and I see tremendous benefit in affording artist and fan a chance to connect.  All at the fan’s choice.  Indie artists have a hard time getting any leverage over these retailers to negotiate better terms.  If we stick together, maybe one of them will do the right thing.

Since Pandora is asking for ever greater financial concessions from artists, maybe artists could ask Pandora for a non-monetary benefit of great value to the artist.  It would be help Pandora restore their tarnished image if they took the first step down this path.

If you agree, you can Tweet them @pandora_radio.

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