A New Business Model For Spotify
Moving on from a simple cost per stream.
I love Spotify. I’m not a massive user of it by any means, but the way it has provided a genuine alternative to piracy is to be applauded. I’ve discovered tons of new niche stuff but I do wish these little guys would get rewarded better, especially the smaller ambient artists whose gentle melodies I love to listen to while studying (currently Ascension by Christopher Lloyd Clarke).
The way I see it is that there are three problems here:
- Artists increasingly hate it as it doesn’t pay them enough, and are threatening to remove their work. Spotify can’t afford to lose them.
- Spotify’s economic success is tied to the record labels, who will never allow them to make much profit. But they need Spotify to fight piracy.
- Artists increasingly don’t need labels as we move into the self-publishing world. But they do need a great digital distribution platform to take the place of record labels, and they’d probably pay for it.
I’m a long-tail listener as per Chris Anderson’s illuminating book, and I do think this is the way many of our music habits are going. Smaller, authentic, more unique music. Because of this, Spotify needs to become a much more significant revenue source for the artists I listen to as they don’t have merchandise income, concert income or endorsement income like the big artists have. In short, the fall in CD sales due to digital streaming (without replacement income) is hurting them much more than the big guys.
Increasingly, there are enemies at Spotify’s gates. Artists are beginning to get vocal, and at $0.004 per play (4/10 of one US cent), it’s easy to sympathise with them. With 100,000 streams, they’d stand to earn just $400.
But this isn’t the real issue.
That $400 is just 10% of what’s paid out to the labels, who receive $3600 for those 100,000 streams according to the model described here. Unfair for sure, especially in this age where we are overloaded with free digital music distribution and engagement platforms like YouTube, Soundcloud, Facebook, Twitter etc.
So, where do we go from here? Here’s an alternative model that might compensate artists better, while allowing Spotify defined income for them to prosper as a company.
The $10 paid by a user to Spotify each month has 25% deducted from it by Spotify, which is used to run the company, operate servers, invest in the future etc. In effect, this is Spotify’s charge for acting as a record label. They could even invest in a publicity arm of the business, which would charge artists for promo work performed by them at far more reasonable rates than what labels currently ‘charge’ artists. Based on 2012's revenue figures, Spotify could have earned nearly $146m from this 25% charge.That should be enough to run the company.
The remaining 75% is used to directly compensate artists, based on their share of that user’s total listening time for that month. (The artists can then come to their own arrangements with paying labels for work done for them on distribution, publicity etc).
So if I listened to 90 streams of Jonn Serrie but just 10 streams of John Mayer, Jonn Serrie would receive 90% of $7.50 ($6.75) and John Mayer would receive $0.75.
This would be in contrast to the current model, where Jonn Serrie receives $0.36 and John Mayer receives $0.04.
Naturally, this would look very different with many more streams and artists per month and there will be a crossover point at a very high usage level where artists are worse off than under the current system, but it’s a system I would feel much more comfortable with personally.
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