he calculated one LP was worth 47,680 plays.

With major digital streaming platforms expanding, it’s hard for Krukowski to see financial conditions improving for artists. He worries just a handful of companies controlling what music consumers have access to will ultimately hurt artists and their ability to reach fans, without sacrificing part of their paychecks. “We’ve never had that huge of a monopoly on the distribution of music,” he says.

Krukowski’s meager royalties portray a grim picture, with several companies dominating the digital landscape. It’s kept large artists like AC/DC and Garth Brooks from working with Spotify. A growing legion of artists, including Atoms for Peace, Aimee Mann and LaRoux, have removed some or all of their catalogs from the service in protest.

“When you have people at the top of the industry saying they haven’t been fairly compensated, you know that no one’s being fairly compensated, not just me,” Krukowski says. “It’s [happening to] people getting [several thousand] plays, like David Lowery, or a millions of plays, like Thom Yorke, who feel grossly taken advantage of financially.”

Lowery, Krukowski and other musicians have helped lead the conversation on streaming services by publicly discussing their royalty statements. Lowery, who currently works as a lecturer for the University of Georgia’s music business program, received $12.05 for 116,280 Spotify streams for “Low,” Cracker’s huge 1993 single, over a three-month period. That’s better, he says, than the $16.89 he earned for more than 1,159,000 plays on Pandora.

While Lowery thinks Spotify treats artists better, particularly given Pandora’s attempts to lower the rates required to pay songwriters, he questions the Swedish company’s ability to increase payments to artists, which its leaders promise in the years to come.

“Paid subscribers must grow for artists to gain a greater share of revenue,” Lowery says. “That’s indisputable … The percentage paid to artists cannot increase unless the rate of premium subscribers grows relative to free subscribers. And it’s not clear that that’s going to happen.”

It’s important to note that some analysts think Spotify’s payouts only seem small, compared to downloads and radio plays, because they’re incremental verus paid up front or spread out. They argue that if artists aren’t seeing an equitable share of the revenue, the blame should be placed squarely on the record labels, not on Spotify.

Yorke expressed his views in blunter fashion when he tweeted in July:

Nigel Godrich, Yorke’s Atoms for Peace bandmate and Radiohead producer, added:

“We’re 100% committed to making Spotify the most artist-friendly music service possible, and are constantly talking to artists and managers about how Spotify can help build their careers,” a Spotify spokesperson replied to their remarks in Fast Company.

Recently, Yorke had even more pointed words for Spotify. In an expletive-laden interview with a Mexican website, he said fighting the service was a “massive battle” for the “future of the music industry.”

Macias thinks his artists receive a fair deal from the music platform, but that it’s too early to judge the service in the U.S. “It’s a tree that will grow into a very sustaining shelter,” he says.

He specifically cites Sweden, which he says has “grown into an entire forest,” as a prime example of the service’s potential impact on artists. The country has an estimated 1.5 million subscribers — 15% of its entire population. As a result, Spotify comprises 70% of the country’s entire pre-recorded music revenues, more than any other individual retailer. Macias says those figures still haven’t peaked as revenue has grown during each of the past five years, including a 14% jump in 2012 and a 12% rise so far in 2013.

“The impact isn’t just theoretical or hypothetical — it’s real,” he says. “How anyone can make the argument that this isn’t a viable business or they don’t pay rights holders?”

In a Billboard op-ed, the Thirty Tigers president applied the Swedish market to one of his American artists, singer-songwriter John Fullbright, as an example to project the service’s potential impact. He found a stark difference for the Oklahoma-based artist, who Macias noted had sold a little less than 20,000 records. Fullbright, who currently makes $2,300 from the service, could earn $65,000 if the U.S. had Sweden’s market penetration.

Parks says Spotify is the best thing that’s happened to Sweden’s music industry in a long time. It’s for those reasons, the ones Macias described, that he remains hopeful about the service’s longterm potential across the globe.

“Artists are earning a livelihood now in a market that was absolutely dead before Spotify came along,” he says, “It’s an incredibly efficient and compelling way to deliver music to users. A big fraction of that population actually pays for this service. A bigger fraction uses it. And scale will turn every market into the Sweden experience.”

 

spotify_office

Image: Flickr, Jon Åslund

In most markets, artists aren’t benefitting from Spotify as much as its execs would like to see. The Swedish example hasn’t transpired in many other countries, so the company is trying to prove its worth elsewhere. Beyond expanding its operations into new markets, Spotify hopes to curb illegal downloads and torrents. To do so, its officials have adopted an anti-piracy stance whereby it hopes the platform will be adopted by one-time illegal downloaders.

“If you’re not going to pay for music, you’re going to steal it,” Levick says. “Spotify is a much better place to house your music legally and make it accessible for people so that they don’t have to choose other options like piracy. “

Will Page, Spotify’s director of economics, released a study this past July suggesting the digital platform may help lower piracy rates. Based on his research in the Netherlands, a country where the service has grown its presence, he reported that artists who opposed Spotify experienced a higher illegal download rate than musicians streaming their music through the service. Based on the study’s findings, the company suggested it could minimize piracy in other markets where illegal downloading runs rampant.

Krukowski isn’t convinced Spotify is fighting piracy for the right reasons. While company executives claim that want to end piracy for the sake of artists, he thinks it’s merely a self-serving attempt for the company to improve its bottom line. It’s a financial play more than benevolent goodwill toward musicians, he says.

“They don’t have relationships with artists,” Krukowski says. “They have relationships with shareholders. They are shutting down piracy for their own gain, not for the gain of the artists.”

The company does stand to gain from shutting down piracy websites. According to Levick, it’s an option that’s better for artists than illegal downloads, which offers them little-to-no cash. “We have to license that music with rightsholders,” he says. “That’s what sets us apart from companies like Napster, which had a similar model as ours, except the difference is that they were technically stealing the music that people were listening to.”

George Howard, an associate professor of management at Berklee College of Music and chief operating officer of the parent company that owns Wolfgang’s Vault, Daytrotter and Paste Magazine, believes Spotify offers non-financial rewards, often overlooked since artists aren’t receiving their money’s worth. The longtime music business veteran says musicians now possess an important and undervalued tool to reach new listeners, who can become fans and may support their careers by purchasing records, tickets and other merchandise. More than anything, he says the platform’s ability to connect bands to active listeners remains critical in helping artists make a living.

Austin-based songwriter Matt Hines hasn’t broken through to a true mainstream audience at this point of his career. The founder of The Eastern Sea, a one-time bedroom project, currently sees the indie-rock group as a startup. In order to be successful, Hines believes it’s crucial to get the word out about the project’s music and thinks Spotify will help them achieve their goals.

“As a new band on the market, the majority of the music listening world is resistant to unknown names,” Hines tells Mashable. “Spotify makes it easy to digest something new. If we keep the content high in quality, we can rely on Spotify listeners to deviate from their usual playlists and take a chance on something we know they’ll enjoy.”

In placing music on Spotify, Hines had made its catalog available to users beyond the group’s active fan base. Fans of indie-rock acts California Wives or Mother Falcon can stumble upon The Eastern Sea in each band’s “related artists” section. If cuts like “The Snow” or “The Match” gain enough traction, the songs can find their ways into Spotify’s Radio rotation, on certain stations. Spotify may also help The Eastern Sea through its Discover tool, which creates an individualized homepage for consumers, based on their unique listening habits. If a user listens to The Eastern Sea, she might learn about one of the band’s upcoming shows in her hometown.

So far, The Eastern Sea’s exposure to new listeners has netted the band some fans and prompted them to buy records and attend shows. While Hines hasn’t earned his keep from Spotify, the streaming platform has helped build a foundation with unlikely audiences who otherwise might have missed its music.

 

“Allowing our full albums to be streamed on Spotify is worth its bandwidth in gold,”

“Allowing our full albums to be streamed on Spotify is worth its bandwidth in gold,” Hines says. “We meet people every night on tour that discovered our music by streaming, which ends up being dollars in our pocket in the long run.”

Ogawa has had some fans, who discovered his work from digital services like Spotify, reach out to him. But he’s also been on the consumer end and purchased concert tickets — Twin Shadow, Beach House, Alt-J — after using his premium subscription to check out new artists.

Not everyone believes in Spotify’s promotional value and ability to drive digital and physical sales. While the service has launched features like Radio and Discover to improve user experience, they’re also relatively new and not always used by listeners. And Lowery doesn’t believe people are using features like Discover and Radio enough to actually provide much benefit to artists.

For emerging artists like Hines and Ogawa, Howard thinks it’s particularly important to develop multiple revenue streams.

 

Could Spotify pay artists better as it grows? Possibly.

Could Spotify pay artists better as it grows? Possibly. But the music businessman believes that speculation at this moment doesn’t help acts make money today. What matters most, he says, is reaching fans through a variety of different avenues. And Spotify is part of that equation.

 

spotify_house_sxsw

The Spotify House at SXSW 2012.
Image: Flickr, Johan Ejermark

At this point, Spotify will likely continue to increase its revenues and expand its footprint. The company will launch into new countries, grow its user base and convince more people to fork over $10 per month. What remains uncertain, however, is the rate at which consumers follow in lockstep as tech titans Google and Apple grow their presences in the crowded streaming music service market.

Remember Ek’s promise to do right by artists? That can still happen, Levick says, if the company can continue its current levels of expansion and convince users along the way to buy into its relatively affordable premium model.

“A global Spotify, and a Spotify with hundreds of millions of consumers on it, presents a massive opportunity for artists,” he says. “[At that scale], in Daniel’s vision, he’s right. Artists will be able to support themselves on that line of revenue when you’re talking at that level.”

Parks thinks it’s unfair for Spotify’s critics to point out the company’s flaws in its infancy. The platform needs to scale first before it can be adequately judged. He remains confident it will eventually mature just like other online services have over the past decade.

“In 2003, iTunes was a small business,” he says. “They weren’t paying out a lot of money either. We’re paying out a significant amount of money to our rights holders, and we’re still just starting. This is something that can reach potentially everybody on the planet, and we’ve only sort of just touched the surface.”

Apple, Parks adds, endured controversies with iTunes before the online retailer became a wildly successful venture. Radiohead, as he recalls, initially refrained from making its music available on Apple’s digital retail service. To an extent, musicians who withheld their songs from digital retailers were fighting an ownership model based on the same basic principles as traditional record sales. Spotify is different given its access-based model, which could make battles even more arduous.

Parks acknowledges it could take even longer than iTunes to convince certain holdout artists to see the Spotify benefits. Metallica and Pink Floyd, two legacy acts that have reluctantly shared their catalogs, have made their music available on the platform during the past year. For those unwilling to work with the service, Howard says owners of master recordings have the ability to withdraw their catalogs. That’s not an option all streaming services offer.

“They allow artists to drop from Spotify if it’s not working for their model of how they want to make money,” Lowery says. “That’s actually a good thing to have [that] choice.”

For Camper Van Beethoven’s next record, Lowery says his longtime band cold-experimented with a “nuclear option.” If all goes according to plan, his group will withdraw their digital rights so they’re not webcast. It’s difficult to make that happen, but other bands like Tool have successfully done so. He thinks that route may give artists an alternate option that leads to higher profits.

“We’d have this window, six months, where it’s only [sold] on analog or only on some streaming service that wants to pay us a premium,” he says.

Spotify doesn’t publicly skirmish with it detractors, but rather points out how many are on the platform. Levick guesses that “99.9%” of all artists work with the company. For the remaining batch, they have an entire team, including Parks, who are willing to answer questions, engage in constructive dialogues and talk to artist management. But at the end of the day, he says it’s making less and less sense for musicians to hold out.

“For an artist to deny their fans a way to listen to their music, that’s not a good long-term strategy,” Levick says.

 

colby-core_3

Image: Flickr, Blixt

If one thing’s certain, Spotify is nearing a tipping point as it celebrates its fifth birthday. The Swedish company has persuaded many observers of its merits, but still has a significant amount of work left to fulfill its promises. For every band like Spirit Animal that’s able to pay its bills, there are plenty of musicians who see pennies on the dollar.

In some musicians’ eyes, Spotify is the lesser of evils in the music industry. It’s not as bad, some artists say, as companies like Pandora and Grooveshark, which are respectively lobbying to change laws in their favor or allegedly stealing from songwriters. Musicians do think the Swedish startup can treat them better en route to its grand vision.

One way to accomplish that goal, say artists, is to increase the transparency of how Spotify deals with musicians and ownership. The company could also place more limits on the service’s free access in order to push additional listeners to subscribe. In addition, Pink Floyd drummer Nick Mason even suggested that a “50/50 split” of streaming revenues between artists and labels would be ideal.

As an inevitable watershed moment approaches, Spotify has a strong shot at redefining the music business.

 

The platform has the potential to disrupt what’s long been considered a broken and dying industry in need of major overhauls.

The platform has the potential to disrupt what’s long been considered a broken and dying industry in need of major overhauls. Many believe the service is in the best position to right the sinking ship.

While Spotify may be able to help some artists today, enormous expectations have fallen upon the Swedish startup. Some opponents want the company to stop acting as a neutral third party unwilling to interfere with the music industry’s longstanding practices. Like anything with promise, be it a one-hit wonder or a rising startup company, Spotify’s praise at times has been overshadowed by its critics. Levick says even more patience is required, given its potential longterm impact. Perhaps he’s right — maybe all Spotify needs is more time and a big enough window of opportunity from listeners and artists to prove its valor.

As Levick said, legions of consumers have already raved that Spotify has changed their relationship with music. But if Spotify’s employees are really that obsessed with music and serving musicians, shouldn’t they go one step further and disrupt the way artists get paid? If the company wants to be music’s last best hope, couldn’t it work toward redefining the music industry on all sides?

The remaining question isn’t whether Spotify is capable of going that far, but whether its execs want to go all-in on their promises to artists. Only then will musicians truly look to Spotify as their savior.

Advertisements