The Finger’s on the Self-Destruct Button

The Ugly Truth about Apple, Google, Spotify, and the Rest of the Music Streaming Universe

By Anil Prasad

These are insanely complex times for musicians. With virtually no consultation, musicians and independent labels are being led down the path of the streaming music construct controlled largely by technology companies. Streaming royalties for these services remain mired in mystery. Nobody is privy to how royalties are calculated or assigned to different players in the streaming ecosystem.

In what other industry would suppliers offer their goods to distributors without being told precisely how much they’ll receive for their inventory?

Yet here we are, with the majority of musicians and independent labels playing ball with the Apples, Googles and Spotifys of the world, as if their industry vision is the only way forward. It isn’t.

Many wonder why Apple is shifting away from iTunes over to Apple Music. It’s clear Apple’s hand was forced and it had to enter into the streaming world, just to maintain credibility and market momentum for its device ecosystem. Without a streaming play, that ecosystem would suffer. Apple’s success is built on end-to-end control of its distribution channels and Apple Music plugs a big hole for them. With the majority of the iTunes catalog available on competitors’ streaming services, Apple looked behind the times. Market forces were working against Apple’s device ecosystem with the erosion of iTunes’ paid downloads as streaming became the dominant model.

But for Apple, Google, Spotify and all the rest, the impact of streaming on musicians and independent labels was always irrelevant. While these companies intimate that economies of scale may one day benefit participants, the truth stands in dark contrast.

“Streaming makes it very difficult for cult bands who sell 1,000 copies of each release,” the noted British guitarist and composer Matt Stevens told me. “If 1,000 people stream an album 10 times, we probably make a few pennies versus 1,000 download sales which create a model that will pay for modest recording expenses. At present, with downloads, it’s roughly sustainable, but not profitable. If we move to streaming and that income disappears completely, we’re in serious trouble.”

Essentially, we’re in the middle of a perfect storm. Once the storm concludes, we’re looking at the decimation of the commercial music industry.

It began with Napster and listener complicity. Industry panic and an increasingly entitled, self-centered public that came to believe music should be free emerged. Musicians and independent labels jumped along for the ride when Spotify, Rhapsody, MOG, and the rest of the streaming companies essentially constructed services with payouts so low, the end result isn’t much different than piracy. That, however, doesn’t hold true for the core investors in these services, which include the old major label guard. For instance, Spotify’s key backers include Warner, Sony and Universal.

Discussions about “payouts to rights holders” emerged. Note, you will never once see them talking about “payouts to musicians.” The rights holders are mostly the investors. That’s right — the streaming services model largely involves investors paying themselves back.

In conjunction, musicians have been misinformed about the outcome of these services. Time and time again, they’ve heard that streaming companies will someday raise their streaming fees. The actuality, as documented by The Trichordist, is that as the services scale, the streaming royalties actually shrink. Only ad and subscription revenue grow for the services, not royalty payouts.

The grand irony of all of this is that no streaming service is yet profitable. That doesn’t mean there aren’t investors making incredible amounts of money, but the bottom line is in the red, not the black. Because of the incredible complexities of licensing and the ponzi-inspired nature of these organizations, money is rolling in. In Spotify’s case, they are looking at a giant monetization event in the form of an IPO or acquisition. If either occurs, everyone — including the major label backers — will cash out, and all that will be left is a feeble shell that will eventually collapse.

It’s obvious virtually all the insiders of the streaming companies see this model as a short-term, unsustainable play. They’re all in it for a quick buck and are just fine with pushing the self-destruct button.

Those that are unable to make a liquidity event happen are doomed. You will see the remaining companies rapidly die off. As George Carlin once famously said, The game is rigged and nobody seems to notice.”

My advice is for musicians and labels to opt out of the commercial streaming services, and seek out other options available to them, such as Bandcamp and PledgeMusic, which remain honorable territory. Another option is to create your own infrastructure. I’m aware of at least a couple of teams that have a fair-minded, artist-driven structural concept in mind for streaming that can’t be rigged to benefit a few.

The big question musicians and independent labels need to ask themselves is why allow these companies to determine the value of your music?

While the streaming companies propagate a myth of mass-availability offering greater possibility of mass-adoption, the truth is it almost never works this way. It’s up to you to create your own audience and accompanying ecosystem via community, social media, virtual events, and non-electronic outreach, be that gigs, touring, and creative guerrilla tactics related to physical spaces that cater to musical interests. None of these things depend on your music being on one of the big streaming services. You can send people interested in what you do anywhere to access your music.

The inevitability is musicians and labels are eventually going to be on their own again as the streaming services begin to collapse one by one across the coming years. It’s time to plan for that future by establishing your own model now, apart from these companies. Reclaim your independence and ensure your music benefits the people that really believe in it, not soulless streaming companies seeking to take you for everything you’ve got.

Be sure to read part two of this article: “A Fair Music Streaming Model is Possible.”

Anil Prasad offers further in-depth perspective on the history of streaming, including a deeper dive into the issues, in his keynote presentation “The Economic Reality of Streaming for musicians.”

Prasad is the founder of Innerviews: Music Without Borders, the world’s first online music magazine, established in 1994.

Image by Danomyte, used with permission.