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Spotify’s Daniel Ek responds to Taylor Swift and other critics

By | Published on Wednesday 12 November 2014

Daniel Ek

Spotify boss Daniel Ek yesterday came forth and presented a defence of his company’s business model in a lengthy blog post. This is something the pro-streaming camp had been calling for ever since Taylor Swift pulled from the streaming platform last week, initiating some of the most high profile debate to date on the pros and cons of the ‘access’ approach to music (Spotify’s initial love letter and mixtape to Taylor doing little to address the issues involved).

“Taylor Swift is absolutely right”, he begins, referring to remarks the singer made in a Wall Street Journal op-ed and Yahoo interview. “Music is art, art has real value, and artists deserve to be paid for it. We started Spotify because we love music and piracy was killing it. So all the talk swirling around lately about how Spotify is making money on the backs of artists upsets me big time”.

As well as going into detail, once again, about how the Spotify payment model works, Ek also revealed some up to date stats. One is that Spotify has now paid out $2 billion to the music industry since launching in 2008, $1 billion of that in the last year. Plus he confirmed rumours that Spotify now has 50 million active users, 12.5 million of whom are paying subscribers – an increase of ten million and 2.5 million respectively since the last lot of official figures released back in May of this year.

In the article, Ek goes on to skirt a fine line by calling out the widely discussed (by Bono most recently) problems with how streaming royalties are declared and shared out to artists once the money has left Spotify’s bank account, without specifically laying into the labels who are arguably doing the bad job of declaring and sharing the loot, but which are also key partners in his business, both as content providers and shareholders.

“The music industry is changing – and we’re proud of our part in that change – but lots of problems that have plagued the industry since its inception continue to exist”, he writes. “As I said, we’ve already paid more than $2 billion in royalties to the music industry and if that money is not flowing to the creative community in a timely and transparent way, that’s a big problem. We will do anything we can to work with the industry to increase transparency, improve speed of payments, and give artists the opportunity to promote themselves and connect with fans – that’s our responsibility as a leader in this industry; and it’s the right thing to do”.

As previously reported, the reason that Swift and her label Big Machine pulled the singer’s entire catalogue off Spotify (and others) is the existence of its freemium tier, which allows users to access music without paying a penny. “If this fan went and purchased the record, CD, iTunes, wherever, and then their friends go, ‘Why did you pay for it? It’s free on Spotify’, we’re being completely disrespectful to that superfan who wants to invest”, said Big Machine’s Scott Borchetta last week.

Ek points out that, while consumers can access music at this level for free, the artist does still earn a royalty from each play their music receives. In comparison, he adds, a play on a free-to-access US radio station will earn the artist nothing, which is half true, the songwriter earns a royalty from American radio. And, of course, in other countries labels and recording artists are also paid royalties by radio stations, so his statement only really applies to America. Though, streams on Spotify will also earn a label/artist more money compared to the equivalent number of listeners on a Radio 1 play.

“Here’s the overwhelming, undeniable, inescapable bottom line: the vast majority of music listening is unpaid”, he writes, continuing on his point, noting that Spotify’s main competitors are radio, YouTube and piracy. “If we want to drive people to pay for music, we have to compete with free to get their attention in the first place”. Spotify’s free tier is vital to driving people to pay, he continues, saying: “More than 80% of our subscribers started as free users. If you take away only one thing, it should be this: No free, no paid, no $2 billion”.

All of which is true, Spotify has generally enjoyed faster growth in any market where it launches than its competitors almost certainly because it has a very compelling freemium option to hook people in. Indeed, many of its rivals have added their own free options to help sell premium down the line. Though it does remain a fact that giving so much away gratis poses problems for the future development of the streaming sector, which almost certainly needs to fit some £3, £5, £8 options in the mix to go truly mass market.

Away from the freemium debate, Ek also goes on to address claims that streaming doesn’t pay enough for an artist to earn a living by taking Swift as a case study: “At our current size, payouts for a top artist like Taylor Swift (before she pulled her catalogue) are on track to exceed $6 million a year, and that’s only growing – we expect that number to double again in a year”.

Of course, it’s a top heavy model, most artists are earning much more modest sums from streaming, but then again, the music industry is a top heavy business.

The final criticism Ek addresses is the line that streaming is cannibalising download sales, a point that has been raised again recently after it emerged that iTunes’ music revenues had dropped by 14%. This, he says, is “is classic correlation without causation”. He writes: “Canada is a great example, because it has a mature music market very similar to the US. Spotify launched in Canada a few weeks ago. In the first half of 2014, downloads declined just as dramatically in Canada – without Spotify – as they did everywhere else. If Spotify is cannibalising downloads, who’s cannibalising Canada?”

“Who’s cannibalising Canada?” sounds like a song title. Someone write that one, please. And then put it on Spotify.

Ek concludes by pointing out that Taylor Swift is the only artist to have sold a million albums this year, whereas she would have been one of many a decade or more ago. “People’s listening habits have changed – and they’re not going to change back”, he says. Then, having held back from calling out the labels earlier, he does call out some rival streaming services, saying: “[Swift’s] songs are all over services and sites like YouTube and SoundCloud, where people can listen all they want for free. To say nothing of the fans who will just turn back to pirate services like Grooveshark”. That last point, Grooveshark has, as you might expect, taken exception to.

Finally, addressing artists directly, he says: “The more we grow, the more we’ll pay you”, adding: “We’re going to be transparent about it all the way through”.

I’m not sure if that was him quietly announcing something there, because however grand your blog posts may be, I’m pretty sure all those NDAs with the labels remain standing. Still, it will be interesting to see if this response from Ek does shift the debate more onto other entities, especially as YouTube and SoundCloud start announcing their new developments.

Or will Spotify’s status as the most visible streaming player, in Europe at least (the Hoover of streaming, if you like), mean it can’t shake off the problem of being at the receiving end of all criticism of the streaming model in general. Even if it can circumvent some criticism in the short term, it’s likely to all kick off again once any IPO is formally on the agenda.

Meanwhile, read Ek’s blog post in full here.