As Spotify prepares for its impending direct public offering (IPO) and shares of Spotify are sold on the public market for the first time, it’s time for a discussion we’ve long avoided about what it means for artists. Once the bell rings on the floor of the New York Stock Exchange on Tuesday, April 3rd, and anyone can invest their money into Spotify, all the major labels will be able to sell their stakes in the streaming service, opening up an expansive cash infusion for them that most artists are not entitled to because their contracts don’t account for it.
For many artists, it’s a shocking bit of news, but it’s been an open secret in the industry that the major labels have been sympathetic to Spotify by allowing it to negotiate lower licensing fees for track streams in exchange for equity stakes in the company. As consumption increases on Spotify, we can see the amount of money per stream decreasing – according to the Trichordist, Spotify’s payout per track stream was 0.00521¢ in 2014 and dropped to 0.00397¢ in 2017, “a reduction of 9% since last year…[and] a cumulative reduction of 24% since 2014.”
As a result, labels are getting less direct money from their Spotify deals, and thus have a smaller amount to share with artists. Meanwhile, they’ve been granted these ownership stakes in Spotify — based on the catalogs of their artists — which they will now be able to sell on public markets, bringing in a ton of money. Sony Music, for example, owns 5.7% of Spotify, so if the company’s IPO hits its valuation of $20 billion from last fall, they’re set to earn up to $1.1 billion. However, most artists aren’t obligated to a dime of it since this revenue source didn’t exist when most of those artist contracts were signed, so there’s no language in those contracts to handle the situation.
Lucian Grainge, chairman of Universal Music Group, addressed concerns about these issues when they first took on a stake in Spotify by promising that artists will get a share of any money UMG earns by selling its stake in Spotify. Last month, a UMG spokesperson confirmed this to Music Business Worldwide, saying that “consistent with UMG’s approach to artist compensation, artists would share in the proceeds of a [Spotify] equity sale.”
But what does that really mean? If there’s no set compensation structure, then it’s basically a hand-out from UMG to its artists for the amount of whatever it wants to give them, just like Wal-Mart and other big companies handed out pittance-bonuses to their staff in January when the recent American tax overhaul gave them big benefits: according to ThinkProgress, the percentage of tax cuts redistributed to employees by their companies amounted to 0.13%. Likewise, labels will give artists whatever they think is fair, and pocket the rest. The majority of the new proceeds are still being handed to the middle-men; nothing changes, and artists don’t get shit.
There have been many benefits to the internet era for musicians, like how the disruption of digital distribution evened the playing field for indie artists and major label acts. Artists have been sold on a digital, streaming future by the promise of artistic freedom. The music industry is growing once again — according to the IFPI Report, total industry revenue “grew by 5.9% in 2016, the highest rate since IFPI began tracking the market in 1997” — so clearly, streaming could mean more money for the industry as a whole. However, if we haven’t solved the problem of how we equitably distribute monies within the industry, then things are as skewed as they’ve always been. If major labels negotiated lower payouts for artists in exchange for participation in profits they don’t share with artists, then they’ve sold ‘em out.
Artists need to educate themselves on the industry that’s rapidly moving around them, and I believe they also need to unite and stand together in demanding their fair share from any equity sale, whether during the Spotify IPO or beyond. But even more importantly, big artists need to stand with small artists in ensuring that these are evenly distributed. From data that Spotify presented to potential investors last month, it was extrapolated that the top 2.5 percent of artists are earning 90 percent of Spotify’s revenues. If the system is able to buy the cooperation of big artists with bigger shares of the pie, leaving rising artists defenseless as they get shafted, what will be for the future of our industry?
The power of Spotify right now cannot be understated – 30 percent of its streams come from playlists, which are mostly curated in-house by Spotify employees – and they hold a significant control over what becomes popular and what gets heard widely. Where major labels used to control the flow of content and popularity growth through radio servicing, in-store placements of physical product, and publicity, now Spotify acts as the gatekeeper of music through its power of play-listing. Their user base of 159 million is one of the largest music audiences on this planet today, so regardless of all the questions about Spotify’s finances and future, that power is still growing.
Spotify hasn’t done much wrong here, other than playing by the rules of the game they walked into: it’s the label’s job to protect the value of their catalogs, and to compensate artists fairly. As long as they continue to acquiesce to Spotify’s playbook in order to reap some medium-term gain, they’ll be selling our industry and artists short through the long con, allowing for the continued devaluation of music and the transference of its market value away from music companies and the artists that they’re meant to support, and towards the technology companies that provide their infrastructure.