Sony To Court: Of Course We're Allowed To Contractually Screw Over Our Artists

from the that's-how-this-works dept

For quite some time now, we've been pointing out that the hatred directed at Spotify and other music streaming services in some circles is misplaced. Spotify is paying out a ton of money to the copyright holders (approximately 70% of its revenue). The problem is that much of that money is staying with the labels rather than being passed on to the artists. Earlier this year, in fact, we wrote about a detailed report by Ernst & Young, in cooperation with a European music label trade group, that revealed just how lopsided some of these deals end up being: That's the breakdown of how subscription fees are distributed. The vast majority goes to the labels and only a small portion goes to artists and songwriters directly. Now, some of that label money may make it to artists through other means -- eventual royalty payments should an artist ever recoup, but we all know how rare that is.

And that brings us to an interesting lawsuit that was actually first filed last year from a bunch of artists associated with American Idol, filed by "19," a management company connected to the show. Originally, the lawsuit had been a typical one concerning the question of whether online streaming counts as a license or a sale for the purposes of the contracts (music contracts pay much higher rates to artists for licensing rather than "sales" and there have been a bunch of lawsuits around that). However, once the Sony-Spotify 2010 contract was leaked a couple of months back, the lawsuit was amended to specifically argue that Sony chose to structure its deal with Spotify in a way that purposely kept revenue from artists.

Sony has filed its response, which pretty much directly admits that it has every right to negotiate contracts with third parties that screw over artists:

The implied covenant does not require SME to structure its affairs in whatever way yields the greatest royalties for 19

It further cites an earlier ruling in this very case, in which the judge said that Sony Music is under no obligation to maximize revenue for artists if it benefits Sony:

...as Judge Abrams already has held, SME can “act on its own interests in a way that may incidentally lessen the other party’s anticipated fruits from the contract.”

Furthermore, Sony points to the details in the contract that it signed with 19, which flat out says that Sony is free to receive revenue in other forms that don't lead to royalties.

19 cannot claim that the parties intended that SME would not receive consideration on a general or label basis (such as in the form of an advertising credit), rather than on a basis tied to the use of a particular sound recording, because 19 expressly agreed that it “shall not be entitled to a share of income received by or credited to [SME] on a general or label basis."

The filing from Sony also (rightly) mocks the claim that Sony did some "self-dealing" because it has "control" over Spotify and wanted to benefit Spotify. Noting that it holds approximately 6% of the equity in Spotify, it points out how that is a rather small equity position, and not one that gives it any real control.

Sony Music is absolutely right here. 19 signed a contract that handed over control to Sony Music, and Sony Music appears to be living up to that contract exactly. That the contract itself has a bunch of ways in which Sony can screw over the artists isn't Sony breaking the contract. It's the artists and 19 agreeing to a bad contract that they no longer like -- something that all too frequently happens in the recording industry. Sony's actions in its dealings with the artists and with Spotify may be morally questionable on the issue of whether it's really helping artists, but from a legal and contractual standpoint, it's difficult to see how 19's argument has much of a chance in court. It seems likely to get tossed out pretty quickly.

But, the big point remains: in the end it's not the music services that are to blame for small royalty checks to artists. It's the bad deals that artists themselves continue to sign with labels.

Filed Under: american idol, artists, contracts, labels, royalties
Companies: 19, sony, sony music, spotify

Chicago Rages Against The Future With 9% Tax On Netflix, Spotify And Other Streaming Services

from the tax-the-future dept

Almost exactly three years ago, Mike wrote up a post that discussed Planet Money pulling together five economists with differing political views to see what they could all agree on. The result was several policy ideas that appeared to transcend politics if economics was the driving motivator instead of any kind of partisanship. The whole post is awesome, and has influenced my thoughts on economic policy and taxes to a large degree, but I came away from it with one general concept firmly in mind: tax what you want to discourage, don't tax what you want to encourage, and never tax innovation or the future.

And now my home city is taxing the future. You see, the city of Chicago recently announced that it will extend its 9% amusement tax to online streaming services and cloud computing.

A ruling by Chicago’s Department of Finance allows the city to add an extra nine percent tax onto “electronically delivered amusements” and “nonpossessory computer leases.” In an odd combination, buying a subscription to streaming media, such as Netflix or Spotify, would qualify, as would using a cloud computing platform, such as Amazon Web Services. Each would be subject to 9% tax; Chicago is the first major American city to levy a tax on either streaming services or cloud computing services.

Amusement taxes in and of themselves generally violate the concept I highlighted in the opening. After all, if you're a municipality, taxing fun is essentially saying you want less fun. But what makes this re-write of the amusement tax already on the books silly is that it is purely a money-grab. Here's what happened: the amusement tax in Chicago worked primarily to collect revenue from book stores, music stores and movie rental stores, which are obviously becoming increasingly in short supply as consumers move to online stores and streaming services like Netflix and Spotify and Amazon for all of the above. This is actually a good thing from a public interest standpoint for a variety of reasons: less pollution from physical products, more efficiency in the marketplace, the opening of more creative outlets for members of the city, and more access to more content from more places and devices, meaning a more robust economic marketplace. The future, in other words, although increasingly the present as well. And Chicago wants to tax all this, effectively discouraging its use, in order to collect an additional $12 million a year.

Chicago, mind you, is in the hole for roughly one hundred times that amount.

Cities with amusement taxes have lost revenue as more people forgo book stores, record shops and video rental stores in place of online outlets. But $12 million isn’t going to be much more than a drop of water in the bucket of the city’s $1 billion operating shortfall.

Fighting the future doesn't even yield much of a reward, so why do it at all? Don't tax what you want to encourage and tax what you want to discourage. This makes it look like the city of Chicago really wants a tax policy to make the city operate like it was 1995.

Filed Under: chicago, entertainment, internet, streaming, tax
Companies: netflix, spotify

Sony Uses Copyright To Force Verge To Takedown Its Copy Of Sony's Spotify Contract

from the censorship-through-copyright dept

Well, well. A few days ago, the Verge got a huge scoop in the form of Sony's original US contract with Spotify, leading to a ton of discussion (mostly focused around the huge "advances" that Spotify guaranteed Sony, and the related question of whether or not Sony actually passes those advances on to musicians). The debate raged on for a couple days, and late last night, Paul Resnikoff over at Digital Music News noticed something interesting: the original contract was now missing, and The Verge's own website claims it's due to a copyright threat from Sony: On Twitter, the Verge's editor-in-chief Nilay Patel admits that a threat from Sony forced the site to take down the contract. In fact, he claims that Sony actually sent four cease and desist letters claiming copyright infringement: Earlier this week, Resnikoff reported that Spotify was apparently putting pressure on publications not to report on the contract, including "dangling threats" to scare them off. However, Spotify would have no copyright argument here. As the Verge report (still) notes, the contract was "written by Sony Music," meaning that if there's any copyright claim (we'll get to that shortly), it's held by Sony Music.

And we all know damn well that Sony loves to throw around bogus copyright threats. Even we have received one concerning reporting on Sony Pictures' leaked emails. Sony has threatened lots of other publications as well, and even Twitter over such leaks. And, Resnikoff notes that Sony Music threatened his site for an April Fool's joke, pretending to reveal internal emails concerning Sony's equity stake in Spotify.

So here's the question: why did Vox (the owner of the Verge) cave? For a modern media operation, it must have lawyers that know the threat is bullshit.

Yes, it is possible to get a copyright over the contract, but it's likely to be a pretty thin copyright, because the amount of "creative" work in the contract is minimal. Much of the contract is likely boilerplate. But, more importantly, the Verge has a slam dunk fair use case here. They're providing commentary on the contract. It's a matter of public interest. They're not "selling" the contract and they're certainly not harming the "market" for the contract itself, of which there is none.

We actually dealt with this issue once before -- two years ago when Apple pulled the same bullshit move to pull down a contract that Resnikoff himself had posted on Digital Music News. Somewhat ironically, the first party to report on that... was the Verge! And in their report, they quoted law professor Eric Goldman noting the ridiculousness of it:

"It's just kind of a jerk move. We all know what's happening here. Apple doesn't care about protecting the copyright of contracts. It's using copyright to try and suppress information that it doesn't want made public."

Sounds about right when applied to Sony in this case. Besides, all this is really doing is drawing much more attention (yet again) to the contract, on a story that had already started to die down.

Filed Under: censorship, contract, copyright, fair use
Companies: sony, spotify, the verge, vox

Apple Trying To Kill Off Spotify's Free Tier; DOJ Now Investigating For Antitrust

from the tempting-the-anti-trust-gods dept

Remember a few years ago when Apple got in trouble for conspiring with book publishers to raise ebook prices to hurt Amazon and the public? Apparently the company hasn't learned very much. Today comes a report from the Verge, claiming that the DOJ is now investigating Apple for conspiring with the major record labels to get them to kill off Spotify's free tier, in an effort to better promote its own Beats Music service, which has no free tier.

Apple has been using its considerable power in the music industry to stop the music labels from renewing Spotify’s license to stream music through its free tier. Spotify currently has 60 million listeners, but only 15 million of them are paid users. Getting the music labels to kill the freemium tiers from Spotify and others could put Apple in prime position to grab a large swath of new users when it launches its own streaming service, which is widely expected to feature a considerable amount of exclusive content. "All the way up to Tim Cook, these guys are cutthroat," one music industry source said.

And it's not just Spotify. Apparently, Apple was trying to get labels to pull music from YouTube too:

Sources also indicated that Apple offered to pay YouTube’s music licensing fee to Universal Music Group if the label stopped allowing its songs on YouTube. Apple is seemingly trying to clear a path before its streaming service launches, which is expected to debut at WWDC in June. If Apple convinces the labels to stop licensing freemium services from Spotify and YouTube, it could take out a significant portion of business from its two largest music competitors.

This is fascinating for a few reasons, even beyond Apple's antitrust troubles over ebooks. In fact, there's some history here as well. A few years ago, there was an investigation, after Apple tried to pressure the labels into killing off daily deals that they were offering to Amazon, as it harmed Apple's iTunes business.

And, of course, there's the long history of the labels' relationship with Apple for much of the first decade of the millennium. Almost exactly a decade ago, we wrote about how the music labels all resented Apple because it had become such a dominant force in music with iTunes and the iPod (this was pre-iPhone) and had (for a while, at least) blocked the labels from trying to raise the price of single tracks beyond the original $0.99 price point. Of course, it's quite a sign of how the online music industry has shifted from downloads to streaming that those labels are apparently now working with Apple to focus on trying to stop competitors like Spotify and YouTube.

Just a month or so ago, we noted that there had been a series of articles claiming that the labels themselves were conspiring to put an end to free tiers on Spotify and other services, and we pointed out how stupid this was (mainly in the context of Jay-Z's new "Tidal" service). Bringing Apple into the game as well just makes the whole thing that much more ridiculous.

Rather than trying to build a better experience for users and give them more value, it appears that the labels and Apples are looking to decrease the value of competitors through coordinated action. It really says something -- and not something good -- when a company thinks the only way to compete in the market place is to kneecap competitors rather than build a better service itself. Competition has shown that great services can be built when they actually do focus on what consumers want. And there's still a long way to go. Spotify still has significant problems, but it's pretty good right now. It's astounding that Apple and the labels think that the right solution is not to build an even better product, but rather to make everyone else's products worse. Once again, it makes you wonder if they actually want to drive consumers back to completely unauthorized services.

And here's the thing that's really bizarre: why should Apple care about this at all? Apple is a hardware business. Even when iTunes was dominant, people at Apple would quietly admit that it was considered a "loss leader" or maybe a "breakeven leader" with the focus on selling more hardware. The same should be true of a streaming music service. Beats can make iPhones even more valuable -- and one way to do that is by offering a free streaming tier. Why Apple wants to take away its own value seems like a strategic error all around -- not just for consumers and competitors, but for itself as well.

Filed Under: antitrust, competition, doj, free tier, music, music streaming, value
Companies: apple, riaa, spotify, youtube

Journalists Worry About Facebook Hosting News; Is That Similar To Musicians Worried About Spotify Hosting Music?

from the questions-to-ponder dept

For the last few years, Facebook's role in online journalism has been a hotly debated topic. Many sites have relied heavily on Facebook for traffic, often looking for ways to "game" the system to get more shares on Facebook (which brought us the rise of "clickbait"). You can go back years and find stories of news sites trying to figure out how much they should change their practices to "adapt" to whatever Facebook was doing at the time. And lots of journalists worry and fret about how Facebook might change its algorithms in ways that mess up all the hard work they put into gaming the system.

And then... a few weeks ago, the NY Times reported that Facebook was working with some publishers to get them to publish their news directly to Facebook, using the site not just as a platform for getting links to your news stories, but as a platform for hosting the news stories themselves. Not surprisingly, journalists have mostly reacted negatively to this deal -- with many referring to it as a Faustian bargain in which publications may get more attention and a larger community, but in exchange for giving up their souls. Mathew Ingram (in the link above) even argues that it's worse than that:

In some ways, dealing with Facebook is actually worse than Faust’s deal: The German scholar chose to cut a deal with Satan primarily because he was vain, but media companies are forced to work with Facebook whether they want to or not, because the platform plays such a huge role in how millions of people come into contact with the news. With that kind of clout, news entities can’t afford to not be on the network, but the more content they put there, the more they risk losing even more control over their business — and the only one in a position to dictate the terms of such a deal is Facebook.

Some others, however, have really embraced the platform. Josh Stearns recently had an interesting article discussing the success of Jersey Shore Hurricane News -- a publication that has existed almost entirely on Facebook since it was founded back in 2011 (and where it's built up a strong community).

My gut reaction is to agree with those like Mathew, who see relying on something like Facebook as a risky proposition. But I think the key there is in the issue of whether or not you're truly relying on the platform. To some extent, this debate sounds like the nearly identical debate from just a few years ago concerning various websites focusing so much on getting more traffic from Google, and all the fears about how Google had too much power to make or break a site (famously leading up to its famed Google Panda release, that did actually "break" some sites that relied too strongly on Google for all their traffic.

At Techdirt, we've always tried to be somewhat agnostic to all of this -- focusing instead on just writing good content with the focus on building a community that (hopefully) will keep coming back to see what we're doing, regardless of how other sites treat us. But even we're not immune to ebbs and flows as other sites change. A few years ago, we suddenly started getting a ton of traffic from StumbleUpon, though I still have no idea why. That lasted for about a year and then went away when StumbleUpon changed its algorithms. Then Reddit drove a ton of traffic to us for a while. It still does, but less so recently, after Reddit admins demoted two of the subreddits that seemed to drive the most traffic (r/technology and r/politics). And so we just keep focusing on writing what we write, and hoping that people like it enough to share however and wherever they want. We don't have a "social media manager" or a "social media strategy" and perhaps that's a mistake in terms of gaming whatever system to get traffic, but we'd rather just focus on writing what we think is good content.

Still, this big debate over whether or not news sites should "embrace" Facebook has me thinking about similar debates in other fields, like whether or not musicians should embrace platforms like Spotify or YouTube for their music. Many musicians have responded the way that journalists have responded to Facebook, fearing what happens when they give up control to those big platforms who could change important concepts on a whim, and who keep most of the important details (who's accessing your content, how do you reach them?) and monetization options to themselves.

There are some key differences of course -- in part in how people consume music vs. news. Music is more inherently something that you want all in a single place and on a single platform. News is a little different. But there are some similarities as well. In the end, it seems like the best strategy remains the one where you experiment widely with whatever your biggest fans want while making sure you don't become too reliant on any one platform. I still think that musicians should be putting music on various platforms, and news publications should be experimenting on different platforms (including Facebook), based on where they see their communities/audiences going. But they should always be focused most on creating the great content that brings in more people, and try to make sure they don't become totally reliant on any single platform.

In the music space, that means putting music on Spotify and YouTube, but making sure you're not solely reliant on those for your business. Make use of other platforms as well -- your own website, Bandcamp, Patreon, Kickstarter, Soundcloud, etc. -- just as news sites should be willing to experiment with Facebook and others (like Reddit, Medium, Flipboard, LinkedIn, etc.). The trick is just in balancing these things so that there are always other options if one of those platforms goes off in a direction you dislike.

Given all of that, I have trouble buying the "Faustian bargain" argument that some have made about Facebook. It seems like it's just another platform with some benefits and some negatives. There will be ways to use it well -- which some will find. There will be ways that it is abused. And Facebook may eventually change its strategy entirely, leaving those who relied too strongly on it out to dry. In the end, it seems the strategy worth taking is being willing to experiment, while keeping other options open, so that you're not entirely at the whims of another company. Years ago, we wrote about being careful about whose platform you became reliant on and that still holds true today.

But the key there is not fearing others' platforms, but fearing reliance on them. Use them to your advantage, and always keep the doors open to other opportunities.

Filed Under: distribution, journalism, platforms, reliance
Companies: facebook, spotify

Competition In The Music Space Is Great: Fragmentation In The Music Space Is Dangerous

from the don't-screw-this-up dept

As you may have heard, Jay-Z bought himself a music streaming service, called Tidal, which is now being relaunched with lots of high profile musicians onboard -- in fact as partial equity owners:

The plan was unveiled on Monday at a brief but highly choreographed news conference in Manhattan, where Jay Z stood alongside more than a dozen musicians identified as Tidal’s owners. They included Rihanna, Kanye West, Madonna, Nicki Minaj, Jack White, Alicia Keys, the country singer Jason Aldean, the French dance duo Daft Punk (in signature robot costumes), members of Arcade Fire, and Beyonce, Jay Z’s wife.

So, we have all of these artists, taking on Dr. Dre and Trent Reznor who were the keys to Beats Music, which Apple is getting set to relaunch. Jay-Z is positioning Tidal as more friendly to artists -- though that was also the marketing claim behind Beats, and then it failed to attract too many users, in large part because there was no free, ad-supported tier. Of course, it's one thing if you're one of those megastars listed above, who get some equity stake in Tidal, but what about every other musician? Is it really going to be that good of a deal for them? Jay-Z and crew insist they'll be paying better rates than competitors, but considering competitors still can't get anywhere near profitability, it seems reasonable to question if Tidal can actually make any money at all. It's one thing to say you're going to pay artists more. It's another to defy basic economics.

Tidal also has no free, ad-supported tier, but does have a more expensive $20 tier for higher quality sound, which may attract random audiophiles, but not much more than that. Indeed, the recording industry (and many artists) have been pushing back against the free tiers that already exist. Universal Music has been demanding Spotify cut back on its free tier. And Universal's CEO Lucian Grange has been using every opportunity to complain about "freemium" music plans. Now owned by Apple, Beats wanted to offer service cheaper than the standard $10/month and the record labels said no.

And, of course, now Jay-Z is bashing free music tiers as well:

“The challenge is to get everyone to respect music again, to recognize its value,” said Jay Z, whose real name is Shawn Carter. “Water is free. Music is $6 but no one wants to pay for music. You should drink free water from the tap — it’s a beautiful thing. And if you want to hear the most beautiful song, then support the artist.”

That's kind of nonsensical in a variety of ways. Every time we've heard people talking about getting people to "respect music again" or "recognize its value," the projects have failed (often miserably), because they're not at all focused on what music fans actually want. Rather they're focused on trying to change the behavior of music fans and that's really, really, really difficult -- especially when you're not really offering that much that's different.

But Jay-Z has a plan to get around that: exclusive deals.

Over the weekend, the Swedish blog Breakit reported — citing sources close to the deal — that Tidal’s plan of attack will be to ink first-window deals with the artists, where Tidal would get first releases of tracks from big-name artists ahead of any other digital streaming services. This would be exclusive, but only for a period: Spotify, Deezer and others would eventually also get these tracks, but only later.

At least they'll go up on other services later, but this seems like a dangerous path to go down. Again, rather than focusing on providing more value the focus seems to be on taking away value from other services: ending free streaming deals and doing exclusives to fragment the market and make it harder for fans to actually listen to what they want, when they want it and how they want it.

That's the wrong lesson to get at this stage of the game. We've gone through nearly two decades of the recording industry fighting the internet at every turn, and now that we're finally starting to see some services that actually cater to what people want, the old industry players are jumping in and trying to kill the golden goose yet again. Any time any service shows that it can attract a lot of users, the recording industry tries to figure out a way to bleed it dry as quickly as possible, rather than helping it grow and building out more value for users.

More competition in the online music space is a great thing. But the trend towards locking stuff up, and taking away the value to music fans, while similarly jacking up the prices, doesn't seem like a productive path. It seems like one that is just going to annoy fans and push them back towards unauthorized alternatives.

Filed Under: copyright, exclusives, freemium, jay-z, lucian grange, music, music streaming, recording industry, subscriptions, tiers
Companies: apple, beats music, spotify, tidal

Yes, Major Record Labels Are Keeping Nearly All The Money They Get From Spotify, Rather Than Giving It To Artists

from the who-are-you-blaming-now? dept

A small group of very vocal musicians has decided that the new target of their anger, after attacking cyberlockers, search engines and torrent sites, should be legal, authorized streaming services. They've decided that the payouts from these services are simply too low, even though almost none of these services are anywhere close to profitable, and most are handing out the vast majority of their revenue to copyright holders. The complaints are often nonsensical. Way back in 2012, we noted that the target of these musicians' anger appeared to be misplaced, as the CEO of Merlin (which represents a ton of indie labels) admitted that the real problem was that Spotify paid lots of money to labels and it was the labels not giving that money to the artists. Yet, rather than blaming their own labels (or their own contracts), these artists lashed out at Spotify and other streaming services. Just a few months ago, we covered this issue again, with even Bono admitting that the real problem was the lack of transparency from the labels.

And, it appears, there's a decent reason why those labels haven't been eager to be transparent: because they're keeping most of the money. The Music Business Worldwide site has the details on a new report put together by Ernst & Young with the French record label trade group SNEP, concerning where the money from streaming services Deezer and Spotify ends up. Spoiler alert: it's not with the artists. Here's the overall share of the 9.99 Euros that people pay for a premium account on these services: As you can see, the labels get the lion's share, with songwriters/publishers splitting 10% and the performers getting less than 7%. And, if you look at the specifics of the actual post-tax payout, you can see the contrast more starkly: The labels end up with nearly 75% of the total payout, with actual artists and songwriters left with the scraps.

Of course, since this project was paid for by SNEP, which represents the major labels, it then tries to spin this as being not only perfectly fair, but a good thing for the artists themselves. What, you say? How can that be? The report claims that 95% of that money that goes to the labels goes to cover all of the "expenses" those poor poor labels have to endure to record and... um... upload(?) the actual music. Sure, in the past, it may have been reasonable for the labels to take on large fees for distribution -- but that's when it meant manufacturing tons of plastic and vinyl and then shipping it to thousands of record stores around the globe. In this case, there's no manufacturing, and distribution is an "upload" button. Sure, there are some marketing costs, but the numbers ring pretty hollow (especially for many of the artists for whom the labels do little to no marketing).

So, again, rather than blaming these streaming services, it appears that perhaps they should be discussing things with the labels.

Filed Under: artists, contracts, copyright, distribution, music, record labels, revenue, streaming
Companies: deezer, snep, spotify

If You're Going To Complain About Spotify Payments, At Least Understand A Little Economics First

from the fighting-against-the-future dept

In discussions of Taylor Swift pulling her music from Spotify because the service wouldn't make the music available solely to paying subscribers, which pays higher royalty rates, and Aloe Blacc's Wired op-ed calling for higher royalties for songwriters from streaming services (but see: Spirit Animal frontman Steve Cooper's thoughtful piece in Business Insider on "why Spotify is not the enemy"), there are a few important economic realities being ignored.

Spotify currently pays about 70% of its revenue to rightsholders.  That typically goes to middlemen — publishers for the musical work copyright, who then pay a portion to the songwriters, and record labels for the sound recording copyright, who then pay a portion to the musicians.

VC David Pakman (who testified in November 2012 before the House Judiciary IP Subcommittee about why the current music licensing scheme deters VC investment in new music services) recently analyzed data from middlemen in a few industries and found that many legacy middlemen are not earning the large share they take from creators in the digital age.  Record labels, for example, contributed a lot more value when they coordinated and financed studio time (which can now be done with a basic computer and Internet connection, and possibly a Kickstarter campaign), manufacturing records and CDs and got them to retailers (which is no longer the primary way of selling music), and marketing (which can be done online with free services).  Now, in the digital age, many of these services are no longer needed or performed.

In remarks last week at the Web Summit Conference in Dublin, Bono explained that rather than fighting against streaming, artists should be fighting for transparency:

Spotify is giving up 70% of all their revenues to rights owners.  But it's just that people don't know where the money is going because the record labels haven't been transparent.

The rightsholder middlemen pay a far smaller share to creators than the substantial majority that the services pay, which depends on whether labels have direct deals with services, a digital aggregator/distributor, or whether artists own their rights, and on artists' contracts with their label, as explained in Future of Music Coalition's helpful infographics on how the money flows.

And yet artists appear to often blame the Internet services rather than the publishers and labels.  One potential reason for this is that the artists aren't actually making the decisions; the publishers and labels are, because they own the rights and have the bargaining power.  But often it's those contracts that are the reason they're not getting paid enough, not the services.

Pakman's data has Spotify currently paying about 70%.  But how much should they pay?  What is the right amount?  100%?  More than 100%?

Lost in many of these discussions is the reality that music sales and streams are not the only way to make money anymore.  Streaming services help artists find fans, which enables them to generate sales of goods, like concert ticket sales and other scarce resources.

Another important point is that consumers are going to spend different amounts on music.  Many of them are happy to spend nothing on recorded music, and it's better for that to happen through ad-supported streaming sites like Spotify than through piracy.  (For some more thoughts on the economic theory behind this, including demand elasticity and whether an infringement is a lost sale, see this post.)

Rightsholders may have delayed the existence of services like Spotify, and may still want them to not exist (which would occur if they were required to pay out more than they take in).  But consumers want services like Spotify.  And they use them.  About 40% of Spotify's more than 40 million users were listening to Taylor Swift before she pulled her music, which some estimates said comes out to $84,000 a week.

Services like Spotify aren't just competing against digital sales on services like iTunes.  (Although in Europe, where Spotify launched first, Spotify is now generating more royalties for artists than iTunes, which comports with recent research finding that global streaming revenue will soon surpass physical sales.)  As DisCo has said in many posts (see, e.g., 1, 2, 3):  Giving consumers lawful affordable options for listening to what they want when they want it in a convenient format reduces piracy.

Reposted from the Disruptive Competition Project

Filed Under: aloe blacc, business models, economics, music, streaming, taylor swift
Companies: spotify

Yet More Evidence That Offering Good Legal Alternatives Reduces Music Piracy

from the Australia,-please-take-note dept

One of the most frustrating aspects of the copyright industry's insistence on pushing for harsher measures to reduce the number of illegal downloads is that we know it's simply unnecessary. As Techdirt has reported, there is mounting evidence that the best way to reduce piracy is to offer good legal alternatives. TorrentFreak has news of another data point supporting this idea:

In 2012 the streaming service [Spotify] entered the Australian market and Spotify's own research now shows that music piracy via BitTorrent dropped significantly during the following year.

In a keynote speech at the BIGSOUND music conference today, Spotify's Director of Economics Will Page reveals that the volume of music piracy has decreased 20% between 2012 and 2013. Similarly, the number of people sharing music via BitTorrent in Australia has gone down too.

Two important caveats are needed here. First, that this is research commissioned by Spotify, and therefore it might be regarded as suspect for that reason. However, it is likely that the Australian recording industry is also monitoring this kind of online activity, and so will able to challenge the findings if necessary. Secondly, there is no proof that the fall in music piracy on BitTorrent is down to Spotify's launch. However, the fact that a similar correlation has been observed in other countries around the world strongly suggests there is a link.

Finally, it's worth noting that this new research comes at an opportune moment. As Mike has pointed out, Australia is planning to tackle online copyright infringement by implementing what amounts to a Hollywood "wishlist" of measures. Maybe the government there should start paying attention to the evidence of what works and what doesn't, rather than accepting the copyright maximalist dogma without question.

Follow me @glynmoody on Twitter or identi.ca, and +glynmoody on Google+

Filed Under: australia, copyright, innovation, piracy
Companies: spotify

Killing The Golden Goose: Copyright Holders Demand More Cash Even As Streaming Music Services Struggle To Be Profitable

from the because-that's-how-it-always-works dept

For years, we've pointed to the legacy entertainment industry's history of trying to kill the golden goose any time a new and successful service has come along that actually helped drive them into the modern era. These services never actually come out of the industry itself, and thus are almost always hated (often with a passion) by the legacy players who failed to innovate, and now fear the potential alternative power in their industry. It's no secret that the legacy record labels and studios maintain their position by trying to control every aspect of their market, rather than by innovating to what the public wants.

In the music space, there have been a growing number of complaints from industry insiders about just how unfair it is that companies like Pandora and Spotify are successful. You see complaints that these services don't pay enough and a search for regulatory changes to demand more cash from these companies. And yet, Pandora and Spotify are both having tremendous difficulty reaching anything approximating profitability -- in large part because the existing costs of the music they stream is so ridiculously high.

John McDuling at Quartz has a good overview of the state of the streaming music space, which (among many other points) highlights this problem:

Spotify, by contrast, needs to negotiate directly with content owners (record labels and publishers) and maintain a huge library to satisfy all of its users’ different tastes, even though a large proportion of those songs are apparently never played. So its royalty costs are fixed at a high proportion of its revenues.

Ultimately, this means Pandora has a much leaner cost base than other services do. It paid out around 50% of its revenue in royalties last year. For Spotify, that figure is closer to 70%.

And yet, Pandora is still not really making money. Since its IPO in mid-2011, the company has eked out a quarterly profit just twice (Wall Street is expecting another small profit when it reports earnings on Thursday, July 24). Over the last two financial years it has racked up more than $75 million in losses. And despite these losses, content owners (record labels and publishing companies), perhaps envious of its growing user base and elevated share price, have been aggressively trying to squeeze more out of it in royalties. For some, this offers evidence of structural flaws in the Pandora business model.

It doesn't seem like a structural flaw in the business model, so much as the legal regime that assumes that it's the content alone that is the value, and that the service has no value at all. The legacy content guys see any profits at all as a sign that they're somehow being screwed over and underpaid, and thus they have to angrily demand more and more. It's happened over and over again. Remember how popular ringtones were? Part of the reason they went out of style was that the industry desperately saw it as a place to get ever more money from. Ditto for music video games.

The industry systematically overvalues the content and undervalues the service. That's not to say that the content shouldn't be paid for. But it's incredible how long a history we have of the legacy recording industry consistently smothering innovative new services with oppressive costs, frequently driving them out of business. They consistently kill the golden goose because they hate the idea of any outsider having success, even as they fail to innovate.

Filed Under: compulsory licenses, cost of goods, golden goose, music industry, overvalue content, profitability, streaming, undervalue service
Companies: pandora, spotify