Spotify represents an important piece of our music industry ecosystem, and the system is vulnerable.
Competition is a fundamental part of a free market economy, of which we all reap the benefits.
Spotify’s revenues increased 80% in 2015 to US $2.18bn (€1.95bn).
However, its annual operating losses also jumped from €165m to €184m as it paid out almost 85% of revenues to music rights owners.
In 2016, Spotify raised a $1bn convertible note, with a sizable 5% interest rate that increases 1% every six months until the company’s IPO.
And now? Spotify is considering delaying its planned IPO pending renegotiating fairer terms with the three major record companies: Sony, Universal and Warner (“the BIG 3”).
In the meantime, the company hopes to create a sustainable business while paying millions of dollars in interest to its new investors.
While streaming services are losing millions of dollars, artists and songwriters are fighting to get compensated fairly for creating the songs that make those services popular. The rates paid per stream remain fractions of pennies.
Meanwhile, the BIG 3 record companies are enjoying increased revenues and a return to growth after enduring a frustrating decade of decline; in part, a result of missing the technology curve.
“While streaming services are losing millions of dollars, artists and songwriters are fighting to get compensated fairly for creating the songs that make those services popular.”
What’s wrong with this picture?
Spotify’s deals with the BIG 3 previously involved large advances along with a significant share of the company’s revenues. It remains unclear whether these advances were in turn shared with their respective artists.
Although early support from the BIG 3 was evident for Spotify, this was only granted in return for stock consideration each of the BIG 3 received, but it’s safe to assume that artists didn’t see much of the benefit from the stock grant.
The BIG 3 are at a crossroads. If they continue to think short-term, they may face a future in which Apple will be the only streaming platform.
If they want to ensure a robust market for music rights, they need to think beyond the short-term gains that could ultimately lead to the demise of Spotify and other independent streaming platforms.
“If the majors want to ensure a robust market for music rights, they need to think beyond the short-term gains that could ultimately lead to the demise of Spotify.”
The BIG 3, the streaming platforms and all of us (as independents) form one connected ecosystem.
As an independent, we presumably have to accept what is available to us, and unfortunately our fate is at the mercy of the three biggest landlords, who are aligned in a somewhat myopic vision. Our music industry ecosystem, just like planet Earth, is fragile.
We need to find sustainable ways to grow and thrive, that don’t just serve the few.
If Spotify and other independent streaming services fail, what will be left? Answer: the biggest company in the world, Apple Inc, along with their streaming platform, Apple Music.
Apple Music can afford to lose money while it quietly grows to be the number one – or the only one – streaming platform in the world.
Let’s put that in perspective.
Assuming Apple has its recently reported $246bn cash in a bank account returning 2% interest per annum, Spotify’s 2015 losses of €184m represent about 2 weeks of interest earnings for Apple.
“Apple Music can afford to lose money while it quietly grows to be the number one, or the only one streaming platform in the world.”
The question the BIG 3 may need to ask themselves is, “Do we only want one streaming platform?”
Perhaps they need to recall when itunes was the dominant download platform and the record industry went into freefall.
Are we looking to repeat history?
A better future for artists and songwriters cannot come from serving a monopoly.Music Business Worldwide
