We’re through the looking glass, people.
This surely has to go down as one of the most psychedelic weeks in the entire gloried history of the music business.
Maybe David Bowie’s playing a few pranks up there.
We’ve got LPs being certified Platinum without needing to sell a single copy – and 1,500 YouTube views equating to an ‘album’.
Taylor Swift is making a freemium video game.
And TIDAL, God love TIDAL, is publicly slagging off Universal, its biggest supplier – just a few months after it brazenly claimed that Apple was a ‘Big Brother’ creation that was ‘interfering with artistry’.
(Anyone else really starting to admire TIDAL’s balls, by the way? Fun while it lasts…)
Yet even that head-bending bundle of misfit news couldn’t out-strange what, for some, will have been the weirdest notion of all.
Yes, the concept of major music corporations being publicly altruistic towards their artists when they don’t even have to be.
So Warner, quickly followed by Sony, says it’s going to pay out a portion of profits from the inevitable sale of their Spotify stakes when Daniel Ek‘s streaming beast floats.
These financial giveaways, say both companies, will be distributed completely in accordance with how artists are usually recompensed on usage, via their regular streaming royalty rates.
As one MBW reader smartly pointed out on Twitter minutes after Warner’s announcement… This all sounds suspiciously fair, doesn’t it?
Well, yes.
But Warner boss Stephen Cooper knew what he was talking about when, before dropping his artist-friendly bombshell, he explicitly pointed out:
“The main form of compensation we receive from streaming services is revenue based on actual streams.”
His point: our holding in Spotify is not the shell game many conspiracy theorists have cracked it up to be.
And when you look at what’s actually on the table, it makes sense.
MBW understands that Warner owns somewhere up to 3% in Spotify. (This share has likely been watered down over the years as more investment has sloshed into Daniel Ek’s coffers.)
Let’s say Spotify floats tomorrow, at its current market valuation of $8bn, and Warner cashes in its chips. The major will net somewhere around $200m.
The net royalty rates its artists receive from streaming will wildly vary, but it’s a fair guess to say the average across new and catalogue contracts will land somewhere around 15%-20%.
Out of the $200m, therefore, we could be talking about just $30m that will then be passed to performers.
It’s not nickel-and-dime money, but it’s hardly going to change anyone’s life.
Particularly when you consider that the big guns in Warner’s streaming catalogue – from David Guetta to Pink Floyd, Coldplay to Michael Buble and Ed Sheeran (pictured) – will receive by far the lion’s share.
It’s a similar story for Sony, whose current stake in Spotify is likely worth somewhere between $400m and $500m.
On the same rough average royalty rate as Warner, all of the artists and estates across SME‘s giant catalogue will probably share just $70m.
So if it’s not about the money, what’s it’s about?
Well, the money, obviously.
Bear in mind that, according to MBW’s very rough estimates, Spotify was paying out approximately $142m to the music business every month in the first half of 2015.
As you will have noticed, that figure is multiple times larger than the size of the one-off ‘Spotify windfall’ acts will receive from both Sony and Warner should they stick to their fine words yesterday.
Once again, that figure is what Spotify pays out to labels and publishers (and artists and songwriters) every month.
You could, therefore, understand why some Universal execs yesterday must have been thinking: ‘Rather than making proclamations about equity stakes, let’s focus on breaking artists bigger and better than everyone else.
“That’s how you really get artists paid from streaming.’
So were Warner and Sony’s commitments more puff than principle?
With ultimately nominal fees going back to the artist from any Spotify share offload, did their promises even matter?
Well, yes. Hugely so.
And if Universal doesn’t follow up soon with its own public pledge, it’s playing a risky game.
Make no mistake, Warner CEO Stephen Cooper very deliberately laid down the gauntlet to his rivals yesterday.
Yes, he knew that such an announcement might cost his business up to, say, $50m.
But it also came with a significant halo effect – one that could very much help third-placed Warner lure artist signatures away from its rivals.
In the topsy-turvy music business of 2016, treating your artists kindly has actually become a competitive advantage.
Who’d have ever thought it?
(Aside from the independent labels, whose Fair Deals Declaration promised their artists a chunk of Spotify equity proceeds yonks ago.)
The real money in streaming for the major labels is in volume of plays, not slivers of Spotify they’re destined to cash in.
(The same isn’t true, as MBW pointed out last week, for Spotify’s big money investors like TCV and Li Ka-Shing – who stand to make eye-watering money from the IPO, with no artists to pay.)
Both Warner and Sony know this. And they also both know that the power of the label/artist equation is switching rapidly.
Artists want to call a company home that demonstrably doesn’t fiddle, land-grab or penny-pinch their due income.
Meanwhile, managers are getting smarter at calling such behavior out. (No wonder they’ve been harassing Universal to say something on the matter today.)
Funny to think that, despite all the recent debate around the worth of Spotify, major label equity stakes and bonanza VC investment packages, Warner and Sony just demonstrated that the most valuable thing in the music business remains exactly the same.
The men and women who write the songs, and stand in front of the microphones.
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