Business model

Spotify’s business model is screwing up musicians and ruining music

Neil Young’s recent decision to remove his music from Spotify, the world’s largest streaming service, has rocked the music industry and sparked wider questions about how streaming services work. Young demanded that the company choose between his music or Joe Rogan’s misinformation-laden podcast. Spotify chose Rogan.

This should surprise no one. In 2020, the company secured an exclusive and lucrative $100 million deal with Rogan and his library of over a decade of podcast episodes. Rogan recently interviewed anti-vaccine activist Robert Malone, a man who was banned from Twitter for violating its COVID-19 misinformation guidelines. The interview was so controversial that even YouTube banned it.

Still, Spotify chose Rogan over Young. And on Joni Mitchell, India Arie and even Crosby, Stills and Nash, who followed suit pulling their music. He did it because the bottom line of the business is to preserve profits, and it seems Rogan’s show is worth more financially than all of the catalogs of legendary musicians.

Moreover, Spotify, like Amazon, played the long game, absorbing losses like only big companies can, in order to finally start turning a profit years later. In fact, Spotify was expected to become profitable this year.

And, just as Amazon gobbled up its competition for to become profitable, Spotify dominated the industry by offering a cheap subscription service to listeners, forcing competitors who sold downloads to do the same. The result has been disastrous for music creators and consumers.

“What they do always comes down to profit,” says Zack Nestel-Patt, an organizer with the Union of Musicians and Allied Workers (UMAW).

Unlike Young, Arie and other major artists, who can rely on other streaming services like Apple Music to deliver their work, millions of independent musicians around the world have far less clout.

While Spotify and Rogan have responded to Young’s accusations by saying they’ll try to do better, Nestel-Patt is unimpressed, “because it has little effect on musicians, especially working-class musicians who are struggling at the bottom of the Spotify ecosystem”. While he applauds Young and his allies for taking on Spotify over misinformation and forcing the company to respond, the real question of the company’s business model – built on severely underpaid labor of millions of creators – remains unchanged.

To put it more concretely, an independent musician creating works of art in which he puts his heart and soul into can find success with a hit that garners millions of plays on Spotify. Users of the service might imagine that translates into a generous payout for their new favorite artist, but in reality, Spotify’s paychecks are peanuts.

One analyst estimated that an artist with a family would need to have more than 24 million plays on Spotify per year in order to earn just enough to meet the federal poverty level.

Additionally, the tiny royalties may have to be shared with a record company, with band members, songwriters, managers, etc. The money that most of Nestel-Patt’s musician friends make from Spotify is “so negligible they don’t even take it into account.”

Imagine a business model based on selling the pleasure of a product that the creator gets almost no money to produce. It looks like theft. “Imagine any other company working this way,” says Nestel-Patt.

He explains: “People who are making substantial money has tens of millions, hundreds of millions, or billions of plays on Spotify every year, and that’s a very small percentage” of artists on the platform.

Now Spotify is facing scrutiny from the UK Parliament for its paltry salary. Freelance musician Nadine Shah, who has had four critically acclaimed albums and won awards for her work, gave evidence to MPs saying she couldn’t even pay her rent anymore.

Nestel-Patt says Spotify’s business model ensures that musicians must have other sources of income or start out as wealthy independently to survive. “It reinforces the barriers that already exist for class and race to enter into [music] and be successful as a musician,” he says. In other words, “if you need a huge amount of money” just to break into the industry, that could disproportionately exclude low-income people of color from pursuing music.

There was a time when musicians made money selling records, cassettes and CDs – sales fueled by the airplay of their songs on radio stations. That started to change in the late 1990s when digital platforms started offering music to the public for little or no cost, paving the way for Spotify. This digital transition has forced musicians to increasingly rely on live performances and ticket sales to earn a living.

But in 2020, a global pandemic brought the world to a standstill and live performances came to an abrupt halt.

“The rise of streaming as an official replacement for physical media sales is why musicians have become so entirely reliant on touring. [in the first place]because no one is buying records at the same level as 10 years ago,” says Nestel-Patt.

When the pandemic hit, he recalls “it was catastrophic for everyone I know” and “it was a big overnight crash of everything we were doing.”

Musicians, seeing their work come to a screeching halt and their already meager sources of income completely dry up, began to organize online. From the ashes of musical careers was born UMAW, where artists proclaimed that “[m]Usual workers are workers, and it’s time we got organized and joined the fight.

The organization goes further by describing itself as “an anti-capitalist, anti-colonialist organization that stands for Medicare for All, a Green New Deal, the abolition of ICE, the destruction of borders, the release of the incarcerated, a minimum wage of $15/hour and more.”

The group led multi-city protests against Spotify in 2021 and tens of thousands of musicians signed a petition as part of UMAW’s #JusticeAtSpotify campaign. Their demands were simple: to compensate artists fairly, directly and transparently, and to treat them with dignity.

Spotify replied that it had heard their requests. But Nestel-Patt dismissed it as a reiteration of previous responses which he called “don’t blame us, blame the labels” and that the company engaged in “obscurations and misdirections on what they do and how they work”.

It’s not just musicians who lose out under Spotify’s business model. Even though Americans are spending more and more money on music, to the tune of $20 billion a year, and music industry revenue has reached $43 billion a year, it turns out that very little of this amount goes to the musicians. Creators only get about $5 billion a year, or 12%, with intermediaries such as record labels and streaming services like Spotify taking the majority of the profits.

Worse still, this predatory business model could ruin music as a whole. Ted Gioia, writing in The Atlantic, recently asked, “Is old music killing new music? Pointing out that a majority of the music consumed today comes from the catalogs of older or even deceased musicians, he concludes that “record companies… [are losing] interest in new music.

While there are plenty of amazing new musical talents out there, “the music industry has lost its ability to discover and nurture their talents,” Gioia writes. And, Spotify is a big reason why.

“I think it’s as much a listener’s issue as it is a musician’s issue,” says Nestel-Patt.

He worries that “if the only thing that makes money on Spotify is big pop bands, then… what happens to classical music? What happens to Tejano music? What’s Happening to Appalachian Bluegrass Music? »

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