The Beat

Welcome to The Beat, Decential’s weekly breakdown of the music-web3 byway.

Like most things in web3, the music space moves at breakneck speeds, issuing regular bouts of hope, cringe and FOMO. That combination of qualities blur the essence of the movement – the enduring solutions to legacy industry problems and the people building them. Let’s focus on the essence; the rest, as Alex Ross wrote, is noise.

Spotted

For the last Beat of 2023, I recapped an eventful year at Spotify. I highlighted its sundry moves because – like it or not – the Swedish streamer continues to be the figurehead of the music industry.

It’s been a minute since we last had a dose of “what’s Spotify up to,” so let’s check in. It’s important that we do so at a reasonable cadence to remind ourselves why we need to build new systems.

And the urgency of that need just keeps shining in sheer virulent green.

Supremium

One of Spotify’s big 2023 moves was announcing three adjustments to their royalty structure, largely motivated by fraud deterrence. The third adjustment – a minimum annual stream threshold – is perilous: any track that doesn’t hit the minimum number earns no royalties.

It’s an edict cut from the same cloth as the Universal Music Group and Deezer “artist-centric” boost to so-called professional artists, which halved the royalty weight of artists with less than 1,000 monthly streams and 500 unique monthly listeners. 

As MIDiA Research founder Mark Mulligan noted in his examination of the UMG-Deezer initiative, artists with under 1,000 streams represent about 80% of all artists. “It is redistribution of wealth in reverse,” he wrote, “taking income from struggling, emerging artists and sharing it among those who have already found success.” 

This reverse-Robin Hood rule benefits labels like UMG because it helps their artists – those who have already established a fanbase and easily surpass those thresholds. On April 1, the new rule took effect.

Just before it did, Spotify and Universal announced an expansion of their deal to seek “deeper social experiences.” Two weeks later, rumors began to swirl that Spotify was adding remix tools to its platform, which “would allow subscribers to speed up, mash up and otherwise edit songs from their favorite artists,” the Wall Street Journal reported. 

That should come as no surprise. Thirty-eight percent of songs on TikTok are modified, and the social music creation platform BandLab – a kind of GarageBand meets TikTok for music dabblers – has 100 million “creators.” Tough to argue with those numbers and the behavior they represent, which no doubt puts a twinkle in the eye of Spotify CEO, Daniel Ek, whose own platform ambitions have lots of zeroes. By 2030, his goals are 50 million creators and a billion-plus active users.

The WSJ report suggests that these remix tools could be reserved for subscribers in an upcoming “supremium” tier, part of a bevy of ongoing pricing adjustments that began last year, when Spotify raised their premium subscription price for the first time ever.

In early April, Bloomberg reported that Spotify will again raise the prices of its premium tier between $1-2, targeting five countries by the end of the month before they “follow suit” in the US later this year. News of the increases raised Spotify’s market cap by $4.4 billion in a single day.

That’s good right? Net new revenue for music folk? Alas, not so fast. These increases are attached to Spotify’s recently launched audiobooks catalog, part of a growing menu of new content offerings. The kicker, though, is that Spotify is qualifying the new package as a bundle, which has notable implications for mechanical royalties. Here’s why that matters.

Every five years, the Copyright Royalty Board reevaluates mechanical royalty rates in the US. This affects the rate at which songwriters and publishers get paid when a song is reproduced (e.g. streamed, downloaded, etc).

The calculus for these determinations are complex, and well-detailed by Billboard, but in short, mechanical royalties are calculated differently for bundles than for standalone offerings, and Spotify is taking advantage of that difference to maximize their profits. Broadly speaking, the overall pie increases with the increased subscription revenue, but in addition to doling out pieces to the usual suspects (e.g. music publishers and songwriters), the pie now needs to get split with book publishers and authors, too.

“It appears Spotify has returned to attacking the very songwriters who make its business possible,” reacted David Israelite, president and CEO of the National Music Publishers’ Association (NMPA).

The Association of Independent Music Publishers (AIMP) agreed. “We are disappointed to learn that Spotify believes it should pay songwriters a lower royalty rate for music streams, by unilaterally bundling a service (audiobooks) for existing Premium subscribers who were not given an opportunity to ‘opt out’ of the offering,” AIMP wrote in a statement. “Spotify provided no advanced notification to music creators, rights holders, or music fans, and provided no clear explanation for its decision.

“By forcing the Premium tier to bundle audiobooks,” they continue, “Spotify either inadvertently – or intentionally – ends up devaluing music by creating a song royalty rate that decreases by more than 40 percent.”

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We should acknowledge that bundling is commonplace in the streaming era. Apple and Amazon do it with their music offerings, and it’s cutthroat business competing with trillion-dollar companies who can roll out nearly identical products as loss leaders.

Spotify asserts its bundle is consistent with the precedent set by others. The NMPA, however, thinks what they’re doing may be unlawful. And either way, it’s a pretty vile move that reminds us, again that Spotify is a tech company, not a music company, and that they will exploit the music-makers when doing so means cushioning their war chest.

Loud and Clear

Why do we still act surprised when Spotify does things like this? Part of the reason, probably, is that they still purport to be a music champion – and indeed, many of the folks who work at Spotify likely are just that. Perhaps that cognitive dissonance still messes with our hopes and expectations, manifested in Spotify’s own pearly marketing narrative.

Recently, via their Loud and Clear website, they released their 2023 Music Economics Report, because as they write, “Artists deserve clarity about the economics of music streaming.” Indeed they do, and the report is full of interesting data points, but I want to focus on one bit: the calculation of – and earnings for – “professional” and “aspiring professional” artists.

To Spotify’s credit, in defining this segment of folks, they admit it’s not a perfect science and that it’s difficult to measure intent from data. To estimate, they balanced the number of artists who have uploaded 10 or more tracks to Spotify and average at least 10,000 monthly listeners (235,000) with the number of artists that had a gig at some point in 2023 (210,000 – Spotify gathered this data from integrations with various ticketing platforms).

They split the difference to estimate that there are approximately 225,000 artists who are professional musicians or aspire to be. Despite certainly leaving out emerging artists who haven’t yet reached 10,000 monthly listeners (reminiscent of that reverse-Robin Hood rule) or posted gigs on integrated platforms, that seems a fair enough estimation for this purpose.

Of that group, they estimate 29 percent (66,000) generated at least $10,000 from Spotify. There were another five percent (11,600) in the $100,000-plus range and half a percent (1,250) in the seven-figure category. Keep in mind that this is gross payout, which doesn’t account for label cuts, splits with band members and other intermediaries.

Now, there are countless caveats and subtleties in considering the holistic livelihood of artists, like that Spotify is just one of the streaming platforms that generates revenue for artists, and that these economics don’t account for touring or merch revenue. Loud and Clear accounts for many of these, and the whole thing’s convincingly packaged in thoughtful marketing speak.

But remember this: in 2021, Daniel Ek bid $2 billion on a Premier League Football team — the approximate amount that all 225,000 artists would earn if they all got to keep 100% of their earnings and averaged $10,000 a year.

That’s about as loud and clear as it gets.

Coda

Last weekend I played a gig at a venue called Luna in London’s Leyton neighborhood. It was organized by Band Up, a new collective of artists that puts shows on for themselves to bypass promotors. Promoters can take hefty cuts, and some require minimum ticket sales, threatening to book another artist if you can’t sell ‘x’ tickets by ‘x’ date. And like the Spotify’s of the world, they even obfuscate data, refusing to share the email addresses of folks who bought tickets to your show.

The result of artists doing it themselves? More people showed up, I became part of a Whatsapp group of 300 other artists that all support one another, and I got paid more. The point is – we don’t need the Spotify’s. They need us.

Now go outside and listen to music — it’s a beautiful day.

My name is MacEagon Voyce. For more music and less noise, consider subscribing to The Beat. And if you already do, consider sharing with a friend. Thanks for being here.