Spotify has a lot of reasons for refusing to pay increased royalties to songwriters. But this is easily the biggest one.
In its formal filing with the U.S. Court of Appeals in Washington, D.C., Spotify outlined a number of reasons for refusing to pay songwriters more. That included serious qualms with licensing limitations, including the exclusion of lyrics and video licenses in the Copyright Royalty Board’s decision.
Spotify also noted that terms for ‘bundles’ that included Spotify’s service weren’t included in the increase.
“We are supportive of US effective rates rising to 15% between now and 2022 provided they cover the right scope of publishing rights,” Spotify offered in a statement last month.
Of course, the biggest issue wasn’t directly stated.
Spotify simply doesn’t want to pay more money — because that will negatively impact their margins and the company’s ability to reach sustained profitability. And that means destruction on Wall Street.
Indeed, shares of SPOT might plunge if writers scored their 44% royalty increase, based on problematic financials.
Every percentage point makes a huge difference. Spotify only went public after major labels shaved a few points off of their royalty demands, an arm-twisting that reportedly only wrestled 2-3 points back. Despite those concessions, Spotify has still be unable to reach profitability since, though it has flirted with the possibility.
But recording labels, which easily demand more than 50% of the royalty pie, are refusing to lower their rates.
Recording labels like Universal, Warner, and Sony aren’t hamstrung by federal laws limiting their royalty rates. They can charge whatever they want, which means publishers are left fighting for scraps through government rate-setting processes. And labels aren’t willing to share the pie with publishers and songwriters, despite taking more of the royalty pot.
“The CRB judges set the new publishing rates by assuming that record labels would react by reducing their licensing rates, but their assumption is incorrect,” Spotify explained.
So if labels won’t budge, why not raise the price?
After all, Netflix has raised their prices multiple times in the past years — more than 3 times over the past 10 years, to be exact. Spotify hasn’t raised their price once in the past 10 years… or ever.
Factor in price-chopping deals like student plans, family plans, telco bundles, and lengthy free trials, and the average price of Spotify Premium has actually dropped dramatically over the years.
Layer in more than a decade of inflation, and Spotify’s $10-a-month price tag sinks to about $8.50 in real-dollar (US) terms.
Of course, Spotify now has nearly 100 million paying subscribers, which is roughly 99.75 million more than in 2009.
But it doesn’t look like Spotify’s about to change its monthly rates, despite continuing upticks in inflation and bigger royalty demands.
“We think $10 a month is a very, very cheap and an amazing proposition,” Spotify CEO Daniel Ek recently told the Freakonomics podcast. “But the amount of people who wake up in the morning thinking, ‘Hey, I want to like pay $10 a month for music’ isn’t as great as most people would believe.”
Ek pointed to his usual boogeymen when explaining the reasons for the resistance. “And we believe that that is because not only did piracy exist in a big way just a few years ago, but there are all of these other sources where you can access music very cheaply. Mostly free. So you can go on radio and listen to it, but you can also go on YouTube and you can find the entire archive of music including all the bootlegs and videos and you can listen to that entirely for free. That’s what we’re competing against.”
It’s unclear whether Spotify would suffer substantial attrition if it raised its mainline subscription rate.
The answer to that question depends on the price sensitivity of Spotify subscribers. And it’s entirely possible that a $1 increase wouldn’t have any serious impact on Spotify’s paying base.
But the idea is a no-go for Ek.
So in order to do that you can imagine then it’s a free product versus one that’s $10 a month. That’s a pretty big stretch, certainly since all of these other things may have other things like convenience — in the case of radio, works in your car, like works in all those different things. And then you know, in the case of YouTube, it’s just like it’s everything. It’s even greater than what Spotify’s library is. So that’s where we’re kind of from a competitive set wrestling with.
All of which means that Spotify is putting its margins ahead of songwriters, because Wall Street is putting margins above everything. And without more money coming in from subscribers, Spotify is extremely unlikely to relent on its CRB appeal.
Woo rock n roll
The point being $10 is a psychological number that is more acceptable and agreeable to the public than $12
However, having said that, I’m paying AU$11.99 for Apple Music so maybe it’s not a cruncher for everyone …
The key point being ignored is what is Spotify’s gross margin? Running an independent label for 30+ years, our gross margin was 60%. In other words, 40% of our total revenue went to Artist and Publisher royalties. Spotify could cut back on fancy offices, and ‘cough’ executive compensation, or many other aspects of their business before they raise the subscription price. Spotify and the other streaming services have been ripping off rights owners since day one…..and continue to do so. Have no sympathy for them.
And, therein, lies the rub: “Recording labels like Universal, Warner, and Sony aren’t hamstrung by federal laws limiting their royalty rates. They can charge whatever they want, which means publishers are left fighting for scraps through government rate-setting processes. And labels aren’t willing to share the pie with publishers and songwriters, despite taking more of the royalty pot.”
The 15% increase that Spotify opposes is both laudable and laughable. It doesn’t even reach the 15% level until 2022.
Songwriters have ceded their advocacy to entities that are controlled by the major publishers, who are controlled by their sister labels – who are empowered by their corporate bosses who prefer label revenue to publishing revenue because the corporate profit margins are significantly higher.
Spotify claims: “The CRB judges set the new publishing rates by assuming that record labels would react by reducing their licensing rates, but their assumption is incorrect,” Spotify explained. If it is true that the CRB judges had such expectations, it means that they live in a cave or they were misled by participants in the process.
It’s not Spotify’s job to protect songwriters …(“All of which means that Spotify is putting its margins ahead of songwriters, because Wall Street is putting margins above everything.”) The songwriters must rage against the labels who are the single impediment to royalty equity.
https://www.digitalmusicnews.com/2016/09/12/songwriters-rates-low-follow-cash/
https://www.digitalmusicnews.com/2016/08/24/songwriters-left-cold-ascap-bmi/
Well-reasoned and written, a rare exception to much of the reactionary drivel here.
Didn’t DMN wrote an article on former Spotify executive, Troy Carter, dropping over $730k on a painting but the songwriters dont deserve what they are worth? EK is a wolf in sheep clothing, nothing but a crook.
On Mon, Apr 15, 2019 at 8:29 AM Tom Hendricks wrote:
DMN,
The Spotify article suggests that there are only 2 options – raise
prices or tough luck songwriters.
That is false – the company has many ways to pay songwriters more such
as: cut costs, bonuses, salaries, expenses, etc. Be the good media
that makes it clear that complex problems have many options – not the
media that plays up conflict with either or nonsense.
BTW, Pennies for Play , where any artists of any kind online, gets a
penny per play for every click, will dump the need for record
companies and most middlemen, – same for writers, artists,
filmmakers, photographers, blogs, etc.
When you cover the music revolution, you cover the future.
Journalism LITE ( article from Musea since 1992.)
What does a media source do to avoid hard journalism, and tough
stories on powerful people?
Here is a list.
1. Substitute the easy “4 Word Journalism” for journalism that
requires investigation, reporting, fact checking, sources, editing.
etc. “4 Word Journalism” is: “What do you think? or “How do you
feel? Better to ask an ‘expert’s’ opinion, then to have to stand by a
reporter’s story.
2. Chase ambulances and cover crime with scare reports. Don’t do
background or follow up stories. When two weeks are gone drop the
story.
3. Cover what MIGHT happen in the next election, years away. Future –
maybe – news can never be fact checked.
4. Print press release journalism – let the advertiser and sponsor
write the report. Then print it as hard news. Never cover issues
connected to parent companies, or sponsors.
5. Cover the scandal of the few, to avoid issues of the millions.
6. When you cover weather, avoid all talk about climate change. When
you cover race issues, avoid all talk about the economic side of
racism. Lite coverage always.
7. Refuse to respond to listener complaints, concerns, or media
watchdogs. Pretend that they don’t exist. Never issue corrections.
Pretend you are perfect.
8. Cover the daily issues as a problem with two clear sides.
Oversimplify the problem into two opposing sides. Never cover any
background information, the many solutions to the conflict, or the
many complexities of the issue. Stay neutral and fan the fires. Cover
social issues to avoid economic issues.
9. Cover fluff issues, heart warming stories, single person consumer
problems with small time businesses, and something with cute kids –
almost always caucasian!
10. Never talk about the new paradigm of corporations versus people,
and how corporations control more and more of the government including
the media that is supposed to report on them. Never cover issues that
would upset powerful companies and influential people that could fight
back and sue.
Tom Hendricks’
tomhendricks.US
You don’t go to DMN for award winning journalism.
DMN Journalism 101
Open Google
Search Music
Read other Articles
Rewrite trending articles as your own
Fact Check/Shmact Check
Anonymous hits the nail on the head: Resnikoff is clueless and bitter about it.
Swing that hammer!
It’s really about how their stock IPO was/is way over valued. Amazon is about to crush Spotify and their share price will go sideways and tank…
https://www.thestreet.com/jim-cramer/what-cant-amazon-do-cramers-mad-money-recap-april-15-14927441