Another reason might be they pay significantly less per stream than anyone else:
Source: https://soundcharts.com/blog/music-streaming-rates-payouts
And still, 70%+ of Spotify’s revenue is used for expenses with licences/royalties. I don’t understand how Apple Music/Google Play Music can pay so much more, except if they have much better deals with licence holders or if they are subsidising the Music side with money from other parts of the company.
If Spotify paid the same per stream it’d cost 122,5% of Spotify’s revenue just to pay out licences, without considering all the other costs (which marketing and staff are the vast majority of it).
I think it’s the latter probably.
Whether they’re throwing enough at it to win, I don’t know, but I reckon they are basically attempting to Uber Spotify. Which might be hard with the majors so invested in Spotify.
But just getting people in their ecosystem as a whole is probably worth the hit I guess.
How much are they paying their ceo?
Income/tax return information is public information here in Sweden, Daniel Ek earns about US$ 300-400k/year of salary. He is paid in stocks, not salary.
Does “licences/royalties” only include payment for actual streams, or also things like the $200 Million they paid to Joe Rogan?
But that is not “free”, it shows up unter “Accrued social costs for options and RSUs” in the financial statement, and the associated costs are 36 million per month, if I understand that correctly. Not everything here is related to Ek’s shares, of course.
Let’s not forget that Spotify has for almost a decade invested significantly in growth instead of paying the artists a larger share of the revenue.
Licence payment is royalties, not exclusivity-deals, those are taken from a different expenditure. So no, it does not count exclusivity sweet deals like US$ 200 million for that fucker.
It’s not free but it is not taken from the pile of money paying royalties, it can’t be transferred to pay royalties, it’s not “cash” that the company can use to pay more per stream.
Also, that expenditure is used to pay all employees in RSUs and options, the executive leadership holds a lot of those but everyone at Spotify is paid with RSUs and options as well, it’s part of salary/staffing expenditures. US$ 36 millions is spent to support 9k+ employees who are partially paid with shares.
Simply put: there’s no way for Spotify to pay more for royalties if it doesn’t substantially increases revenues, either through a lot more ads revenue or a huge bump to Premium subscription prices (as in 50% of increase from current prices).
70% of the current revenue is already tied to be spent just to pay royalties, there’s no more milking that can be done to increase payment per stream.
And his net worth is over 2bn.
Of course, he owns a lot of Spotify stocks.
What does that has to do with royalties payments? I ask because I do agree that the music industry is broken, but the main and core issue of it are major music labels, while the flak goes to streaming platforms that are just hostages to music licences through these labels.
The consumers are getting fucked, the artists are getting fucked, the streaming platforms have to keep feeding the coffers of the major music labels and they don’t get any heat. My purpose is to focus the hate on the players who actually fuck the musicians the most: music labels.
Quick edit: even if Daniel Ek sold everything, made US$ 2b in cash and put all of it to pay royalties it’d pay 17% per stream than what it does now, for a year until the money ran out.
Focus the hate on the big 3 labels, on Ticketmaster, those are the shadowy figures fucking us in our asses constantly.
No, it’s not. It’s actually worse this time around, and worth ranting about, here and elsewhere if you can.
In the past, collection societies managed these kinds of royalty payments, and they had the problem that funds would disproportionately go to the already more successful musicians. Back when they started, when the plays which triggered payments were on radio and in venues, and accounting was manual, remote and paper-based, this made some sense, despite being unfair on the underdogs. Today, Spotify already has the technology to pay accurately. They have been using that technology for years. It was working and the underdogs were getting paid.
Spotify have decided to regress to the older payout model, despite not needing to from a technical perspective. It’s probably harder to maintain (in terms of developer-hours) their system now, as a result of this change, because they can’t apply the same rule for every musician: they now have to make the calculations more complex. Using my model above that the >1000 plays set have a 100% discount on the cost of the service, but the unpaid ones are “paying” with the fees they would previously have earned… you could now say the <1000 plays musicians are paying for the upkeep of the system that decides they don’t get paid. (I admit I’m deliberately looking for a Kafka-esque slant on my critique).
That, plus their app is buggy, slow and the tiny text makes it much harder to use than Spotify, when it does work. I really wanted Tidal to be “good” because you can stream it to Serato… that side works well, but the day-to-day, non-DJ experience was dire.
Never going to back down on high ceo pay, including in shares, is fucked up, when the workers are the ones doing all the work. In a company like Spotify the things are even more complicated cause it is us who create the product that makes the platform exist in the first place, but that’s besides the point at this moment.
The fact the majors and ticket master etc are the biggest offenders, doesn’t take away from the fact the ceo earns insane amounts for the work they do. Even the 300k is extremely high for the amount of labour they put in.
Presumably this means $300-400k of shares are added to the pool yearly, diluting the value for everyone else?
Of course, I completely agree with you. Billionaires are a policy failure, no one should ever become one.
I’m not defending Daniel Ek at all, I don’t think he (or anyone else) should have this amount of wealth. I just wanted to point out that even if his money is completely drained it won’t change much of the economics of how music streaming works, it won’t make a dent in the systemic issue at hand.
That’s the salary paid in cash, other bonuses in stocks, etc. comes separate from that, I don’t think he’s earning much more stocks since he already has quite a lot from being a founder all the way to the IPO.
Oh, but it is. In their shareholders deck, they explain
Social Charges are payroll taxes associated
with employee salaries and benefits in select countries where
we operate. Since a portion of these taxes is tied to the intrinsic
value of share-based compensation awards, movements in our
stock price can lead to fluctuations in the taxes we accrue.
Also the repurchase their own shares, again from money that could be given to license holders.
For the three and nine months ended September 30, 2023, the Company issued and repurchased 900,000 and 1,600,000 of its own ordinary shares,
respectively, from its Netherlands subsidiary at par value
Now this may not be too much compared to what they actually pay the license holders, but still.
Agreed. And they should have to do that. For €15 per month, up to six people can listen 24/7 to a lot of music. That is not a reasonable price.
For platforms to decide on their own on both what they pay the license holder and on the fee they keep (30% as it appears) is beyond the pale.
Indeed, and not only for the very valid reasons you mentioned.
Streaming is not only bad for the artist, but also a bad idea for the customer in the long run, because when you terminate your subscription, you’ve paid money, but you end up with zero music to listen to. For quite a while I had a subscription to emusic, where I paid about €20 per month for 90 downloads. That was a lot of music to listen to… Now that I cancelled my subscription, I still legally own all the downloads. And the license holders were paid a lot more than they can ever hope to get from a streaming service.
You could say that, but you’d be wrong. Because Spotify clearly states that money is distributed to the license holders of tracks that have more than 1000 plays, i.e. to the big labels. The added cost of maintaining the software exists but is negligible related to the already enormous budget they allocate to IT and development.
However, even if it were more costly to distribute the money fairly, I believe they still should be forced to do it.
Social charges are taxes to cover the compensation package offered to employees (which is in the form of RSUs and options), that line on the financial results are charges from taxes. For example, here in Sweden any bonus-esque compensation has social charges attached to it (to avoid loopholes where a company could pay low salaries and its imbued charges/taxes/fees and instead supplement that with bonuses if there were lower taxes/government fees).
These are issuances + repurchases, they count both in the same pile (only repurchases require cash, issuances are issuances to investors diluting the rest of the stock). Even if we considered the total there (1,6 million shares) were simply repurchases that’s about US$ 240-270m, if that amount is added to the pot paid to licence holders that amounts to paying a little over 1,7% more per stream, bumping payment-per-stream to staggering US$ 0,0032544 instead of US$ 0,0032.
The economics of it is: people are not going to pay more for music. They won’t pay US$ 30-50 per month for it, even less in many market which Spotify operates like Latin America, Africa, Southeast Asia, etc. There’s not enough people in the world willing to shell out enough money to grow artists’ revenue through streaming, there simply isn’t.
Even a bump of 50% in subscription prices (a hefty increase in any market) with the unrealistic expectation that it won’t churn away any subscribers will bring the payment-per-stream value to about US$ 0,0048.
That fee is not profit, that fee is used to operate the whole company, it’s not like Spotify is taking 30% out of the revenue as profit, the margin is negative, it’s always been negative until Q3 2023.
These are not the issues to why there’s not more money to pay licences, the pot to pay those have a fixed increase: for each subscriber there’s about US$ 9-10 more of revenue, which ~US$ 7 goes to pay out royalties.
The economics of music streaming simply do not work, there’s not enough people willing to pay enough so all artists can earn what we would consider “fair”. The music industry is not fair, it won’t ever be fair just like any other passion industry is not fair to their workers, people are willing to do it because they have an inner drive pulling them towards it, not because there’s money to be made.
The whole capitalist system is not fair to anything that isn’t business, all the arts suffer under it.
I want to be extremely clear: I don’t want to be a big corp shill, a defender, or any of sorts, in an ideal world I’d wish all of them to simply not exist, nor all the corporate bullshit, etc. But I do want people to be more well informed about the economics of all of this because there’s no simple solution such as “just pay artists more”, there’s not enough money leftover after labels take their cut for that to be materially possible, not with the current culture and market around music.
In my personal opinion (or at least my personal belief) the best way to improve the music scene so artists can be paid enough is to support your local artists instead of making them compete with all of the world for a share of the world’s attention. We can support our local acts, imbue in others around us that watching that weirdly good punk band from the local town can be a fulfilling experience as much as buying the latest Taylor Swift album even if they are very different experiences.
I don’t see how streaming can ever pay enough for the work smaller/non-mainstream artists do, like ever.
Let’s cut the discussion about shares short, all I wanted to point out is that giving shares to employees does not mean there are zero costs attached for the company.
No worries, I get that.
I know, my point was these platforms unilaterally decide what their cut is.
It’s also not fair to business, capitalism favours the large concentration of capital over the small business. I think it’s fair to say that capitalism in its current state fails to deliver on it’s fundamental value propositions: that it is able to distribute limited resources effectively, and that it favours hard work, creativity and innovation over cronyism and rent-seeking.
Yes, there probably is not reasonable price that people are willing to pay. For me that would imply that streaming is not a viable business model, but it appears to be for Spotify and for the Labels, just not for the artists involved.
It’s kind of like Uber, somebody is making money on the backs of the drivers, and people are complicit to this exploitation because they gain some convenience or save a bit of money. However, I’ve read that in markets where Uber has managed to replace Taxis, the Uber fare is now similar to those of the Taxis, but the drivers are not paid more. So I would expect that once Spotify has a certain market Share, they might raise the price, and still won’t pay more to the artists. Because eventually the stakeholders would expect a dividend, right?
Not with large platforms like Spotify (and the labels) dictating the terms to artist, that is for sure. For a while, small artists and labels had a chance to benefit digital music, but with the rise of streaming platforms, that went sideways.
I agree 100% to all of those suggestions. When given to Spotify, €150 per year will go towards persisting an unfair system, but given directly to local artists they will make a tangible difference.
I think I can add something to this…
Think of it like this…
If someone has a 10 song album and gets 900 plays on 9 of the tracks and 1,000 on one of them. That’s 9,100 total streams. But since only 1 track had over 1,000, that means a payout of ~$3 instead of ~$27. Now, in theory, the per track rate will go up. But not enough to offset that smaller artist from losing $24.
Instead of eliminating fraud, I think this will actually increase it as there will be more artists trying to game the system ‘just enough’ so they get their royalties.
One scary thought, for me, is how they now plan on fining distributors for content that gets fraudulent streamed. What is a fraudulent stream? It can be anything from bot farms to stolen accounts to bad ‘playlisting’ services. The fine number being thrown out is €10 per track that Spotify deems is involved in fraudulent streaming activity. And that’s PER MONTH. Spotify will not remove that track or tracks from their platform. They keep it on there and then alert the distributors through reporting, often 2-3 months after the stream took place, that the track was engaged in fraudulent streaming. So Spotify could be racking up €20-30 PER TRACK in fines by keeping the track on their platform. I don’t think that is even legal here in the US.
As a distributor, they haven’t been completely clear on how all of this will be rolled out. It’s still VERY early. Things could change before or during the launch. Give it a year or two and you will see that number of minimum plays increase from 1,000 to 10,000 or more. And other platforms will begin to do this too.
Is this the death of streaming for independent artists? Not yet. Time will tell though.