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Spotify formally enters the economics of streaming debate with new Loud & Clear website

By | Published on Friday 19 March 2021

Spotify Loud & Clear

We all know that the economics of streaming has become a much bigger talking point over the last year – mainly as a result of the COVID shutdown and its impact on other music revenue streams. Now Spotify has formally joined that conversation by stepping forward to share some stats and facts, and to give its official answers to some of the big questions that have been posed along the way. It does all that via a new website called Loud & Clear.

It’s not the first time Spotify has responded to criticism within the artist community with a website. The platform that became Spotify For Artists was originally launched when streaming first started to gain real momentum and various high-level music-makers spoke out against the then still emerging business model and the low per-stream royalty payments.

Spotify recognised that – because its licensing deals were with record labels, music distributors, music publishers and collecting societies – it didn’t have a direct connection with the artist community. Therefore it launched a website for artists and their managers offering that community direct access to educational content, usage data and – subsequently – marketing tools.

In the early days that website even included an average per-stream royalty figure. Which was a brave and possibly foolish move, even though it was a decent approximation for the time. But it did strengthen the idea that there is a per-stream royalty rate, even though there isn’t. The way streaming royalties are calculated and paid is, of course, much more complicated than that.

Putting an average per-stream royalty figure on the record – and therefore setting an expectation among artists for what money each stream generates – also made it more obvious when – with the rise of family plans and the increased importance of certain emerging markets – the average rate per stream on a global basis started to go down.

The new website – which is possibly aimed as much at music fans as music-makers – does its best to explain the complexities, and why honing in on average per-stream royalty rates isn’t very helpful.

Of course, cynics might argue that that’s because Spotify’s average per-stream royalty rate is lower than that of many of its rivals, and so the firm is keen to distract people away from that metric. But it is, generally, an imprecise and unhelpful metric, and trying to understand some of the complexities instead is a useful thing to do.

Although, before getting into any of the complexities and specific debates, the Loud & Clear website initially throws a barrage of stats at its audience. First about how streaming in general – and Spotify in particular – has taken the record industry back into growth after fifteen years of decline. And secondly about how an increasing number of artists are generating a decent income from their Spotify streams.

Some of these stats were already presented at the streaming firm’s recent Stream On bash. However, the website goes a little deeper, and provides some interactive tools for people who like to fill out some boxes and press some buttons before getting their stats fix.

“Over 207,000 songs were streamed over a million times in 2020 alone”, we are told. Plus 870 artists had catalogues that generated more than $1 million in Spotify royalties last year, when both recording and song royalties are counted up. 7800 made more than $100,000. 13,400 more than $50,000. 67,200 more than $5000.

Of course, that doesn’t mean those artists saw anything like those sums of money. An accompanying video stresses that Spotify pays labels, distributors, publishers and societies. What happens to the money once it’s been handed over to the music industry is another story that Spotify has no active role in.

“We would love to report on the money that artists take home as a result of their Spotify performance”, it states elsewhere on the new website, “but we do not have insight into each individual artist’s and songwriter’s agreements with their chosen rightsholders. We can only report the data that’s available to us, which is the amount of money that has left Spotify”.

Streaming services have always been in the tricky position of not being able to say “we hand over 70% of our money to the music industry, it’s not our fucking fault if that doesn’t get to the artists”, given that their entire businesses rely on having good relationships with the labels, distributors, publishers and collecting societies.

However, the new website’s video does its best to illustrate the fact that the cash it hands over flows down an assortment of music industry pipes before reaching artists and songwriters, and who knows what happens in those pipes. Though that animation doesn’t go as far as showing money leaking out of half the pipes as it flows, which it possibly should, on the song side in particular.

Although the stats are fun for stat fans, the most interesting bit of the site is definitely the FAQs, where Spotify puts on the record its official answers to various questions that have been posed over the years, and even more so over the last twelve months.

That includes the question as to why Spotify’s per-play rates are lower than its competitors when averaged out across the platform on a global basis. “In the streaming era, fans do not pay per song and services do not pay per stream, so we don’t believe a ‘per stream rate’ is a meaningful number to analyse”, it reiterates.

Although, “we understand that artists find it useful to calculate an effective ‘per stream’ rate”. But remember, it adds, the rate for Spotify will look lower because it has a free tier, it is bigger in emerging markets where subscription prices are lower, and its average subscriber just listens to more music. All of which, it adds, artists should like because it provides “more opportunities to deepen engagement with listeners”. Yeah, maybe.

Given, as Spotify is so keen to stress, streaming is a revenue share business, why doesn’t it just get more revenue by charging a higher subscription fee? “Spotify persuaded listeners to pay a set price for music monthly, shifting fans away from piracy”, it reckons. “The cost of a subscription is not an insignificant amount for many. Raising prices is a fine balance – we don’t want to drive people back to piracy or unmonetised solutions”.

“That said, Spotify is always evaluating pricing in each of our markets, and we’ve increased pricing in a number of them”, it goes on. “Since Spotify and artists’ rightsholders share in the same pool of money, our incentives are totally aligned: We both want to generate as much revenue from listeners and advertisers as possible. Over the years we have made a number of price increases in different markets around the world, and we will continue to do so when it makes sense, based on a variety of local and regional factors”.

And what about switching over to that user-centric approach for royalty distribution everyone keeps talking about? “The research we’ve seen to date suggests that a shift to user-centric payments would not benefit artists as much as many may have originally hoped”, it counters.

Citing that recent report from France’s National Music Centre, it then notes that that research “found that the change would result in ‘at most a few euros per year on average’ for artists outside the top 10,000”. However, it concludes: “We are willing to make the switch to a user-centric model if that’s what artists, songwriters, and rightsholders want to do. However, Spotify cannot make this decision on its own – it requires broad industry alignment to implement this change”.

Assuming Spotify plans to keep this website up to date, it will be interesting to see if any of the answers in the FAQs section evolve over time as debates on things like price rises and user-centric move on. And also as newer topics become bigger talking points, like the lack of transparency regarding the increasingly powerful Spotify algorithm, and the mounting backlash to Spotify’s Discovery Mode, where artists can influence that algorithm but only in return for providing a royalty discount.

It will also be interesting to see if any of the language around the business model changes too. There are already some innovations on the site. It talks about the current model for royalty distribution as ‘streamshare’, which possibly sounds better than terms like ‘pro-rata’ and ‘market share, which are used elsewhere in the industry.

It also notably talks about sharing “two thirds” of its revenue with the music industry. This is interesting given that – while Spotify has talked about its cut being 30-35% in the past – people still often talk about the service’s share of the digital pie being 30% rather than 33.3%.

So, lots to digest. But is this new website achieving its aim of placating Spotify’s critics in the music community, and reassuring the fans of those critical artists? Interestingly the response from artist groups has been different in the US compared to the UK. Possibly because the big public debate over the streaming business model on this side of the Atlantic has been going on for longer, and generally shifted away from “Spotify is the problem” to “the labels are the problem”.

The two groups behind the UK-based #fixstreaming campaign – the Musicians’ Union and the Ivors Academy – were mainly positive about the new website.

MU General Secretary Horace Trubridge said yesterday: “We are delighted to welcome the launch of Spotify’s Loud & Clear website. The #fixstreaming campaign has been calling for more clarity and transparency in the way the platforms pay out to the rightsholders and it’s great to see Spotify respond in such a positive way”.

“It does, however, underline the fact that whilst the success of streaming is generating huge dividends, it is the rights owners who are benefitting chiefly and the artists and performers who write and deliver the music that the whole ecosystem depends on are, at best, the poor relations”, he added.

Meanwhile, Ivors CEO Graham Davies stated: “We welcome Spotify’s new initiative as a step in the right direction of providing music creators with greater transparency. Knowledge is power. We have campaigned for greater transparency about how streaming works, and how songwriters and composers are paid”.

“However”, he went on, “the figures from Spotify that show ‘payouts’ are not what goes into the pockets of artists and songwriters. It is what labels and publishers receive, who then pay artists and songwriters a fraction of that. This is where the industry still has a long way to go to achieve true transparency and fair distribution. But well done Spotify, for recognising the importance of transparency and showing that it is possible”.

However, in the US, the relatively new Union Of Musicians And Allied Workers – which staged protests against Spotify specifically earlier this week – says that the new website doesn’t provide any of the answers or information its members seek.

In a statement on Twitter, it said: “Spotify has failed to meet any of our demands. The company consistently deflects blame onto others for systems it has itself built, and from which it has created its nearly $70 billion valuation. We asked for transparency, but this website answers none of our questions about the sources of Spotify’s income in addition to subscriptions and ads, payola schemes for playlist and algorithm prioritisation, or the terms of their contracts with major labels”.

It also notes that the ongoing controversy over Spotify’s involvement in the appeal regarding the increase of the statutory royalty rate due to songwriters under US law is not mentioned. It then concluded: “UMAW will have a more complete statement in coming days”.

Also responding to the new website was rival Deezer, which honed in on what Loud & Clear says about user-centric royalty distribution. Deezer, of course, is the streaming service that is trying to persuade the music industry to switch to that model.

“Streaming today lacks both transparency and fairness, and benefits the people at the top of the food chain”, Deezer’s Chief Content And Strategy Officer Alexander Holland remarked. “A user-centric model doesn’t magically solve all these problems. But it does connect artists to their fans. It does treat every artist equally. And it makes sure that you as a fan support the artists you love. Saying that something isn’t worth doing because it doesn’t matter enough to you is what defenders of the status quo have always done. And in the end, fairness and change always prevails”.

He concluded: “We continue to pursue a user-centric payment system, simply because it’s the right thing to do. And it’s fair for everyone involved. No ifs or buts. And we continue to call on labels to work with us to launch a [user-centric] pilot to prove the case”.