Cupps1

JacobCupps
Bode
+APComp&Lit
19November2015
YourCapitalRRighttoSupportArtistswhoarentTaylorSwift
IfyouvelistenedtopopmusicindustrygiantTaylorSwiftsnewestbestselling,
charttoppingLP

1989,youhaventdoneitonaninternetradiostreamingservice.Ifyouvetried
tofindanyofSwifts5LPs,2EPs,or2livealbums,infact,youhavenotfoundthemanywhere
butfromadirectalbumsaleorsaleequivalent.Whyisthisthecase?Greatquestion.
LastNovember,Swiftandhermanagementteamdecidedtotakeherentirecatalogof
musicoffofstreamingservicessuchasAmazonsPrimeMusic,GooglePlay,iHeartRadio,and
mostnotablySpotifyfortworeasons,predominantly(Engel).Thefirst,morethanlikelydriven
byhermanagementthanSwiftherself,wouldbetoboostsalesof

1989,whichwasreleased
aboutaweekbeforethedecisionwasmadetopulleverything.Thesecond,whichshepersonally
voicedinanopedpublishedintheWallStreetJournal,isthatshebelievedthefactthat
Spotifysnonrequirementofasubscriptiondoesntplaceaperceptionofvalueonwhat[shes]
created(Engel).Andthoughthismaynotbemonetarilymotivatedwith

1989(beingthatitwas
thefirstalbumof2014togoplatinum),herwords,asshelatermentions,makeacaseforthe
nichemarketindependentartistswhouseSpotifyastheirmainsourceofincome.
Whetherherintentionslaidtrulyinmoneyorfairpayforthe

actuallystarving
artisttypes,Swiftsnotorietyhasinadvertentlyopenedupthepubliceyetoagreatdebatethat
hasbeentakingplaceforagoodmajorityoftheindustryshistory:onethatbegsthequestionof


Cupps2

whetherornotthemiddlemenshouldcatermoretowardstheconsumerortheprovider.But,
inasense,thisquestionisthewrongonetobegwhenthetruthofthematteriswecanhaveboth:
thereisawayinwhichtheconsumerisprovidedwithgoodservice,theproviderreceivesa
maximizedpayout,andSpotifycanstillfunctionasabusiness!However,thereiscurrentlyan
overlyharshstigmathatsurroundsSpotifysbusinessmodelitsworstcriticspaintingitutterly
corruptbutSpotify,likemanyofitsmiddlemanpredecessors,getsanunfairlypoorreputation.
Whilesomemaycallforacompleteoverhaulofthemodel,thereareafewpreviouslyproposed
solutionsforhowSpotifycanreorientitsdistributionofroyaltiesnotjusttobenefittheartists
whochoosetouseit,butforthecompanyitself,aswellasaddingadditionalincentivesfor
subscription.
Currently,however,theaveragepersonsworkingunderstandingoftheway
Spotifyoperatesasabusiness(namely,initsroyaltydistributionmethod)isatbestjadedand
incorrect.Betweenmisinformationonsocialmedia,andoccasionallyprintedonlargename
mediaoutlets,theaveragewellinformedmusicconsumeractsontheassumptionthatSpotify
distributesroyaltyataperstreamrate,accordingtoretiredprofessionalnichemarketartistKarl

Heinz,amusicdegreeholdingIndianagraduate(Heinz).Thisrate,asgivenonSpotifysown
debriefingoftheirpayoutmethodatspotifyartists.com,paysouttorightsholdersbetween
$0.006and$0.0084(Spotify).Thisrate,meanttogiveanaveragemetrictocomparetoother
services,isarbitrarybutcausespeopletobesusceptibletothe
factoidthatanartistsneedstoreceive2millionstreamsamonth
tomakethefederalminimumwage(Laguana).Whilethis
numbercanbederivedthroughtheperstreamrate,thisrateis


Cupps3

derivedfromoversimplifiedmaththe70%ofrevenuethatisdesignatedforroyalties(asshown
inFigure1),whendividedbythenumberofstreamsinagivenperiodoftimearehowtheper
streamrateiscalculated(Spotify).Inactuality,however,anartistsroyaltypaymentismore
accuratelycontingentonvariablessuchasthecountryinwhichtheirmusicisbeingstreamed,
Spotifystotalnumberofsubscribedusers(asthisgoesup,royaltyratesgoup),subscription
pricingdifferencesperregion,currencyvalueperregion,andlast,butpossiblymostimportant,
anartistsownroyaltyrate(setbytheirlabelorlackthereof,numberofmonthlylisteners,and
numerousotherfactors(Spotify).The
formulashowninFigure2providedby
thecompanyitselfillustratesthatthe
artistpayoutcomestobeproportionallyfair
fordifferentgenresandtheirrespective
notorietiesand/orpopularities.Inessence,thosewhocriticize,
comparabletohowSwiftdid,thecurrentmethodbywhichSpotifyisdistributingitsroyaltiesis
beingunfairtoindieartistscanclearlyseethroughthedataprovidedthematteroffactits
simplynotatruestatement.MostantiSpotifyarticlesbasetheirclaimsupongeneralizationsthat
arefaultierthanthemathusedtosupportit.Ingeneral,thefactthatSpotifyexistsasaplatform
thatpaysartistwhilenotrequiringthecommitmentofdirectsaleordownloadisablessingnot
onlytotheconsumerwhoisinconstantsearchfornewandenjoyablemusicbutalsotothe
artistswhodonthaveaTaylorSwifttierestablishmentintheindustryandneedaggregatorslike
Spotifytomarketthemselves.Evenifpayoutisindirectbecauseasubscriptionisnotrequired,
thisisplainlyputbetterforallpartiesinvolvedthanhavingtopiratemusic.


Cupps4

Thoughitwouldbewrongtoclaimthatthecompanyspayoutmethodishandledinan
entirelydysfunctionalmanner,afewmajorareasofinterestthatSpotifyscriticshaveaddressed
invaryingdegreescouldandshouldbeconsideredintheinterestofnotonlytheartists,butalso
thebusinessitself.Thoughthesechangesmay,onthesurface,seemtocomeatthecostofthe
consumer,anaverageconsumerwouldbenefitfromthem,inadditiontohavingmoresayinthe
waytheysupportartists.Itwould,however,involveforfeitingtherighttowhatcurrentlyexists:
essentiallyunhindered,subscriptionfreelistening.Thereinliesthemajorityoftheproblemfor
thecompanyscurrentsetup:thereisnexttonoincentivetoupgrade,ifyoucandealwithonly
playinginshuffleonmobiledevicesandtheoccasionaladonbothmobileanddesktoplistening.
WhilethisfoundationalaspectofSpotifygivesitanedgeagainstotherstreamingcompetition,
theideaofindefinitefreelisteningisnotsustainablebecausefreelistenerscostmore(in
bandwidthandpayout)thantheymake(adrevenueonly).Thoughthemusicbusinesssideofmy
brainwritesthis,I,theconsumer,makeacompleteconcessionandrecognizethatthisiswhat
makesSpotifyuniquefromanyotherlisteningplatform,andtheideaofSpotifychangingtheir
modeltoeventuallymakemepayisalessthancomforting.So,perhapsratherthangoing100%
toonlyallowingsubscriberstohavefullcatalogaccess,themorepragmaticsolutionlies
somewhereinbetweenSpotifybecomingsmarterasabusinessandmaintainingitssingularity
thatmakesitsuchareasonableconsumerchoice.Anideathatwouldincorporatebothofthese
wouldbetoallowanextendedfreetrialsomewhereinthethreetosixmonthrangethat
wouldkeepSpotifythewayitis,butoncethatends,makeamorerestrictivenonsubscriber
version(limitedcatalogaccess,inabilitytocreateplaylists,etc.)Anotherincentivizationidea
thatwouldrelylessonusurpingtherightsofnonsubscriberswouldbetoallowhalfofthe


Cupps5

subscriptionfeetobeinthehandsofthesubscriber:withittheycanchoosespecificallywhich
artistsarereceivingtheirmoney,thenleavingtheotherhalftobeusedforroyaltypayouts.After
all,theincentiveforsubscriptiontoanadamantmusiclistenerandconsumerwhosupportsartists
havingtheirmoneylieswithinthefactthatsubscribingincreasesartist'sroyaltypayout:in
particular,nontop40artiststhatrelyonandrelatetotheconsumermoresothantheirlabelsof
employment.
Andalthoughthenumberoftheseindependentlyproducedandmanagedartistshavebeen
ontheinclineintheindustryoverthelasttwodecades(incorrelationwiththedeclineofindustry
giantsbackedbylabels),manyoldindustrycontendersareinconstantcontentionwiththeidea
ofprogressingandimprovingSpotifyanditsmanagementofroyaltiesbecauseofideasthatare
fundamentallybehindthecurveofthechangeinthewaytheindustryworks.Thesemajorlabel
industrialismandmanagementproponentstendtoseeSpotifyasasecondarysourceofincome,
claimingthatanartistshouldnotrelyonSpotifyforanythingmorethanasecondarystreamof
revenuebehindalbumsales78RPMstothegrave,baby.Butthetrendsbegotherwise.Plain
andsimple:peoplearentbuyingalbumsanymore.Itsevidentnotonlyinthefactthatartists
releaseasmanysinglesastheyreleaseLPsorEPsthesedays,butalsointhefactthatonly1
albumwentplatinumin2014andthatwasSwifts1989.Consideringthefactthatmostartists
donthavethefollowingtojustremovetheirentirediscographyfromSpotifyandstayafloat,the
industrysimplycannotrelyonalbumsalestokeepthemselvesafloat,especiallywhentheonly
waymostconsumerswillbeabletoheartheirmusicisthroughSpotify.Thisfact,alongwiththe
factthatthesystemgoesagainsttheflowofhearingmusicthenpurchasingitdirectlyfromthe
artist,itseemsnotonlyunlikelythatartistscanuseSpotifyinadditiontotraditionalalbumsales,


Cupps6

itseemsdownrightunfair.Ontheotherendofthespectrumofchange,protectorsoftheroyalty
payoutmethodwithoutanyadditionalsubscriberincentivizationinessence,keepingthingsthe
waytheyareclaimthatbecauseSpotifysroyaltypayoutsarecomparabletorightsholders
PerformanceRightsOrganizations(PROs),nothingshouldbedonetoaltertheSpotifybusiness
methodinanywayatallwhatsoever.Howevercorrectthesebusinessconservativesmaybein
theirunderstandingofroyaltypayoutanditscurrentstateofrelativesuccess,theylackthe
foresighttoseetheimportanceofupdatingthesubscriberincentivization.Evenifthecostwould
beslightlyalteringthecurrentmethodofpayout,thebenefitwouldbethattheamountofpayout
revenuewouldincreasedrasticallywiththemoreconsumersincentivizedtosubscribewhich
ultimatelymeansmorebusinessforSpotifyandfortherightsholdersthemselves.Attheendof
theday,changingthesystemtobelessliketheestablishedmethodsofPROswillhavebenefits
toit,evenattheriskofalteringawellestablishedmethodofpayout.
MuchliketheideasofthosewhoareaversetothechangingSpotifysbusinessmodel,
manyconsumersdontseethepowerthatcanbediscoveredinthechangesthathavebeen
occurringinthemusicbusinesssincetheturnofthecentury,especiallyastheypertainto
aggregationofmusicbetweenconsumersandproviders.Thesufferfromalackofunderstanding
aboveanything,predominantlyinthewaythatSpotifysbusinessmodelhasbeensuccessfulbut
alsointhefactthatindependentartistshavestartedtotakeholdinanindustrythathasbeen
unscalableassomeonewhodoestheirownthinguntiltherecentchangesinavailabilityof
musicinagloballycommunalmannerandthisis,inpart,duetothefactthatserviceslike
Spotifyhavecomeintoexistence.Andwhilediscussingthemoralityofbigmusicbusinessin
comparisontothecurrentindependentlydrivenmusicbusinessisawasteoftime,thefactisthat


Cupps7

thebusinesshasbecomewhatitisandisnotlikelytogobacktobeingthebusinessitwas20
yearsago.AndSpotify,fromapracticalstandpoint,hastocontinuetogrowanddevelopina
waythatallowsartiststobeconnectedwiththeirfollowingsinthemostunhinderedway
possible.Tosomedegree,thatistheartisticpurposebehindthecreationanddistributionof
musicinthefirstplace.


Cupps8

WorksCited
Engel,Pamela."TaylorSwiftExplainsWhySheLeftSpotify."BusinessInsider.Business
Insider,Inc,13Nov.2014.Web.20Nov.2015.
Heinz,Karl."SharkyLaguanaand"Fair"SpotifyRoyalties."TheTritonester.N.p.,20Nov.
2014.Web.20Nov.2015.
"HowIsSpotifyContributingtotheMusicBusiness?"Spotifyartists.com.SpotifyLtd.,July
2013.Web.20Nov.2015.
Laguana,Sharky."TheRealReasonWhytheSpotifyModelIsBroken."TheKernelRSS.The
DailyDot,15Mar.2015.Web.20Nov.2015.
Wilbur,KennethC.,andYiZhu.MarketingScience.2nded.Vol.28.N.p.:INFORMS,2009.
JSTOR,Mar.Apr.2009.Web.20Nov.2015.<http://www.jstor.org/stable/23884264>.