Eriksson and Colleagues Expose How Spotify is “Tearing Down” the Music Industry

In Spotify Teardown: Inside the Black Box of Streaming Music, Maria Eriksson and her colleagues, Rasmus Fleischer, Anna Johansson, Pelle Snickars, and Patrick Vonderau investigate the inside operations of the music streaming service, Spotify, in an attempt to address concerns regarding the ethics, regulations, and financials of the company (including how they pay artists and record labels). The authors began a research study in order to find accurate information about the company, determine how streams are distributed on the platform, and “expose some of the service’s underlying norms and conventions” (Eriksson et al. 72). To do so, the authors created their own nonprofit record label, where they made and released songs on Spotify. Specifically, their experiment allowed them to “monitor, in detail, how recorded sounds are aggregated, packaged, and shipped as cultural goods,” and, their releases “became a testing ground for exploring Spotify’s infrastructure for royalty payments” (Eriksson et al. 72, 76). However, they eventually received a letter from Spotify demanding they shut down their research immediately. In the book, the authors write about their research findings, as well as discussing the historical background of the company, changes in Spotify’s business model, its effect on the music industry and streaming as a whole, and its profitability. Further, the book reveals many ethical concerns about the company. Despite highlighting the good and bad of Spotify, the authors ultimately claim that there are significant issues regarding the company’s ethics and overall framework, including things like pay, promotion, and their relationship with the three major labels. The issues regarding Spotify go beyond just the notorious issue of pay; they disguise themselves as being beneficial to all artists, however, that is really not the case. This provokes many concerns for artists in the music industry, and, thus, there must be a call to action in order to address these issues immediately to create a fair space for all artists.

Founded in 2006 by businessmen Daniel Ek and Martin Lorentzon, Spotify began as a small music service startup in Stockholm, Sweden to help stop the massive piracy problem in the music industry, help people discover music, and to “make music free” (BBC, Eriksson et al. 43). Prior to Spotify, consumers had to pay for downloads of individual songs and albums on iTunes. As a result, in the early 2000s, companies such as Napster began to pop up where people could listen to pirated music for free. This began to severely hurt the music industry as more and more people were purchasing less music. Thus, Spotify became the first legitimate music streaming service where consumers could listen to music for free in exchange for listening to advertisements as well. The company would “[rely] entirely on advertising for revenue,” and would use such revenue to pay copyright holders (Eriksson et al. 43). All that being said, the making of the company was not so smooth and easy, nor entirely legal, and some of such issues still remain today. The company officially launched in Sweden in 2008, however, for a year and a half prior, during the testing (or Beta) period, Spotify, ironically,“had, in effect, been run as a pirate service, distributing music to invited users without any license to do so” (Eriksson et al. 45). The company finally became legalized when they publicly launched in 2008, and then they began to enter new markets within the EU. In addition, in 2009, the company evolved from being a solely free service by introducing a subscription feature, which allows users to listen to music ad-free, and download music onto their device, in exchange for a monthly fee. Spotify finally launched in the United States in the summer of 2011, after they signed licensing agreements with the “Big Three” record labels, Warner, Universal, and Sony. Spotify waited to enter the US until they had such agreements, and, at first, all three companies were hesitant to sign on, in fear of entering the free streaming market (Eriksson et al. 52).

Over the years Spotify has continuously updated its platform to improve consumers’ experiences. Starting in 2010, the platform focused on “sharing” and becoming more social: users can build a personal profile within the app, add friends, follow artists, and easily share music (Eriksson et al. 52). Further, Spotify also introduced a recommendation feature, which suggests music to users based on who they follow and their previous listening history. In addition, Spotify added editorial playlists on the platform, which categorizes songs by genre or moods, to further help people enjoy and discover a wide range of songs. These editorial playlists are a key feature of the platform, and a main source of promotion for artists, as being in a major playlist heavily increases streams. All of these personalization, social, and playlist features of the company are some of the key aspects of what has made Spotify so successful and popular to this day.

Since its launch, there has been significant controversy around Spotify, specifically regarding artists’ pay. Thus, investigating Spotify’s payment structure was a priority for the authors. In general, payouts to artists have also been a major controversy regarding streaming music due to reduced royalty rates; however, of all the streaming services, Spotify particularly has been heavily scrutinized over its pay rates, as they pay the least of any service. Statistics regarding royalty payouts are hard to find and vary on each agreement; however, in 2019, it was calculated that Spotify paid on average $0.0032 per stream, while Apple Music (their biggest competitor) pays $0.0056, similarly to the other streaming services like Google Play Music, which pays $0.0055 per stream (Soundcharts Team). Thus, Spotify pays the lowest royalty rates by a considerable amount. To count as one stream, a song must be played for at least 30 seconds. On average, artists on Spotify are paid around $4 for every 1000 streams (Ross). Spotify’s payment structure is skewed to help those who received millions of streams, thus helping “[reap] huge profits for major labels and for superstars while decimating smaller-scale musical incomes” of smaller artists (Ross). With Spotify’s current royalty rates, it is essentially impossible for a small, low-streaming artist to make a substantial or livable income.

The book highlights that the “Big Three” have allegedly used their power to set better royalty deals than smaller competitors and labels (Eriksson et al. 37). In addition, they get free advertising space, exclusive access to insight data, and they are all partial owners as they negotiated to get shares in return for license (Eriksson et al. 38). These benefits give artists who are signed to one of the “Big Three” labels an unfair advantage to be promoted and paid more, despite actual talent. In addition, the authors mention that playlists have also become a way to generate revenue, stating that “an artist who is not featured on a certain playlist gets zero revenue” (Eriksson et al. 76). Therefore, since the major labels are able to work with Spotify to have their artists on these playlists, they have additional opportunities for greater pay. The authors continuously references the “Big Three” throughout the book, even comparing them as an “oligopoly that can act as a cartel when dealing with any music streaming service” (Eriksson et al. 32). I agree with this comparison as the three companies basically form a triopoly in the music industry, since they account for approximately 70% of all recorded music in the world. Thus, these three major labels have an immense amount of power and control over the industry, putting all other labels and artists at a much greater disadvantage. The authors also point out how Spotify being owned in part by all of the “Big Three” companies, further makes business unfair and adds to signs of collusion. Additionally, they feel that their ownership complicates all discussions regarding fair pay for artists, songwriters, and independent record labels (Eriksson et al. 46). Overall, while Spotify disguises themselves as being beneficial to all musicians by being easily accessible and allowing anyone to share their music on the platform, in reality, they do not care to help the average artists succeed and are “highly skewed toward major stars and record labels” (Eriksson et al. 3).

As someone who has been working in the music industry for the past few years, specifically at record labels owned by one of the “Big Three,” I agree with the authors’ findings on Spotify’s relationship with these companies. I see how major labels are able to connect with Spotify to push their artists to be featured on their playlists and be promoted on the app. The authors expose how independent artists, and even those signed to small, indie labels, are at an incredible disadvantage both in terms of pay and promotion on Spotify. The “Big Three” have negotiated to get better royalty deals, and ensure their artists’ songs will be on the main Spotify playlists, further contributing to better promotion, success, and pay for their artists (and themselves). This is extremely unfair to all artists who use the platform as they are not on an equal playing field. Moreover, this is also problematic because Spotify’s mission statement claims to help all artists and provide “a million creative artists the opportunity to live off their art” (Ingham). However, based on the payment structure and unfair nature of the platforms, the majority of artists on the platform struggle to obtain adequate income, as it seems you must be in the “top tier” of artists on Spotify to be able to “live off [your] art” (Ingham). Therefore, Spotify can be seen as “hostile to the interests of working musicians” (Ross).

The final piece which confirmed the authors’ concerns with Spotify, was that their research project was abruptly shut down by the company. When Spotify became aware of the authors’ study, they contacted them and the Swedish Research Council and requested that the research study be shut down immediately. In a letter Spotify sent to the book’s project team, they claimed the research team deliberately violated Spotify’s Terms of Use, by artificially increasing the number of plays on songs and manipulating their services, “among other things” (Eriksson et al. 185). However, the authors dispute this claim, stating that the study did not violate any rules or users, and made sure to respect the platforms “interests” and “integrity” (Eriksson et al. 185). Thus, the study should not have been shut down, and Spotify doing so confirms that the company operates unethically and perhaps there is more they are hiding. In response to the shutdown, the authors express that Spotify’s “action taken against the freedom of academic research should be taken seriously” and “its confluence of ethical, methodical, and legal standards therefore deserves closer scrutiny” as well (Eriksson et al. 189, 186).

Spotify Teardown uncovers the many problems regarding Spotify, from its development to its current unfair pay rates and superstar biases. Overall, the authors conclude that despite being a great distribution service, the nature of the platform only benefits major players and does not help the average artists succeed, as they get lost in the dust in the heavily polluted platform with small paychecks. I agree with all of the claims the authors made against Spotify, and feel it is an important book for anyone to read, whether you are working in the industry or just a user of the app, as all people should be aware of these problems. Being an avid music consumer and working in the industry has always made me aware of the controversy regarding Spotify, and have uncertainty about the platform; however, after reading the book I have even more concerns about the company, and feel that there must be immediate action to resolve these issues. More needs done by industry officials and relative policy makers to come up with and implement solutions to solve the many issues regarding Spotify. For starters, I feel that there should be more transparency from Spotify and more regulation from industry organizations. In addition, Spotify must promote all artists equally and not lean towards bigger artists and those signed to one of the Big Three. Spotify needs to create a fair playing field for all artists and help smaller, independent artists gain more success, as they have claimed to help in their mission statement. To do so, they need to promote these artists more and include their songs in Spotify’s major playlists. Moreover, Spotify’s payment structure is not set up in a way to help smaller artists make any money. They should increase their royalties per stream, at the very least meeting the other DSP’s at a rate of $0.005 per stream. While these changes cannot happen overnight, Spotify must take action immediately to begin implementing these steps toward creating an equally beneficial platform for all artists. Spotify is an amazing music distribution and streaming service which has revolutionized the music industry. They should use their power for good, by seeking to help all artists succeed.

Works Cited

Eriksson, Maria, et al. Spotify Teardown: Inside the Black Box of Streaming Music. MIT

Press, 2019.

“How Spotify Came to Be Worth Billions.” BBC News, BBC, 1 Mar. 2018,

https://www.bbc.com/news/newsbeat-43240886.

Ingham, Tim. “Spotify Dreams of Artists Making a Living. It Probably Won’t Come True.”

Rolling Stone, Rolling Stone, 3 Aug. 2020,

https://www.rollingstone.com/pro/features/spotify-million-artists-royalties-1038408/.

Ross, Alex. “Reasons to Abandon Spotify That Have Nothing to Do with Joe Rogan.” The New

Yorker, 2 Feb. 2022,

https://www.newyorker.com/culture/cultural-comment/imagine-a-world-without-spotify.

Soundcharts Team. “Market Intelligence for the Music Industry.” Soundcharts, 26 June

2019, https://soundcharts.com/blog/music-streaming-rates-payouts.