Why Spotify can never be profitable: The secret demands of record labels

http://gigaom.com/2011/12/11/why-spotify-can-never-be-profitable-the-secret-demands-of-record-labels/

by Tomek_ • 15 years ago

253 124 15 years ago

Getahobby• 15 years ago

I know the Internet has seriously damaged the music label's revenue stream but why hasn't it done even more damage? It is 2011,the labels should not still have this much power, should they?

Swizec• 15 years ago

Simple, the law says so.

It's difficult to change in a decade what the law has been saying since 1662 (that's when copyright law came into the existence, around the time printing was invented).

What we've seen since then is simply a natural result of the slippery slope that resulted as a pretty good idea. It will take a long time to go back up such a slippery slope again.

calcnerd2562• 15 years ago

No, the law says that once they're in that position, that position has the power. The question was why we keep putting them in that position.

zmanji• 15 years ago

If labels have copyright over the song they have a legal monopoly over reproduction of the song (minus fair use). The Internet alone cannot destroy this type of monopoly for legal services.

daleharvey• 15 years ago

I fully agree, everyone talks about how disgusted they are by record labels, myself included, but we have been in this game a while now, artists have had the ability to sell directly the consumers, media services have been in the position to promote independent artists.

I remember some Steve Jobs quite about the scary truth about news organisations producing washed down trite because that is what people are asking for, is the same true of the music industry?

potatolicious• 15 years ago

Record companies are still relevant because they provide what is probably the most important element of a band/musician's success: marketing.

This is not something music fans are likely to admit, but their tastes are determined more by shrewd marketing than by some "objective" measure of talent or quality.

It reminds me of an article I read recently - a world-renowned violinist played in the DC Metro for a day. Not a single person recognized him, and very few people recognized the quality of his performances. Most just passed him by and some dropped quarters as if he's just a run of the mill subway performer.

IMO, people do not have the discerning taste they seem to attribute to themselves. This goes for movie buffs, music fans, video game connoisseurs. Everyone.

So, in an environment where people's perceptions of art and media is more determined by preconceptions and biases than any pseudo-objective measure of quality, the difference between winners and losers is who can shape their image the best. This takes a shitload of money, spent in a shrewd way - record labels are still very, very good at this.

hyperbovine• 15 years ago

They own rights to pretty much all music that was recorded in the 20th century. It would be difficult to overstate thr amount of money/power that affords them.

rmc• 15 years ago

the Internet has seriously damaged the music label's revenue stream

Has it? It's 10 years since Napster lost the court case and the music industry is still awash with money. Have the record labels lost much revenue in the last 10 years? I don't believe that "piracy is killing the record labels", because if it was, they would have been killed by now.

gburt• 15 years ago

The hot dog stand will be motivated to keep the store open (i.e., allowing it to make its bills, and generate zero economic profit) to keep the profitable rent behavior viable though. So we can expect Spotify to make just enough to be satisfied continuing along as a viable business, no?

CoffeeDregs4• 15 years ago

This is called the "normal profit" and, yes, there will be a set of businesses that earn the normal profit. What people are discovering is that the "normal profit" for a music business is not "oh-mi-god-Facebook-is-a-natural-monopoly!"-sized, but rather "oh-mi-god-the-content-owners-have-all-of-the-negotiating-power"-sized.

Ironically, this gets re-discovered about every 5 years...

robryan• 15 years ago

It's also possible that they only need to make just enough to convince other future companies to invest in going down the same path, so they can bleed investor capitol until they suffer the same fate but in doing so prop up the short term profits of the record industry.

jaysonelliot• 15 years ago

While the major labels are setting restrictive terms on Spotify, Spotify itself is turning around and treating independent labels like chumps: http://www.projekt.com/newsarticles/projekt-spotify.asp

From the article: "For a stream on Spotfy, on average $0.0013 is paid to Projekt's Digital Distributor." That means an artist would have to get one million airplays to make $1300.

I'm finding it hard to sympathize with Spotify if that's the terms they set when they have the position of power.

gwern• 15 years ago

Do they have a choice? I can sympathize with them fine if the choice is between 'screw over indies' and 'go bankrupt'.

mikeknoop• 15 years ago

As the article points out (and assuming it applies to Spotify):

7. Most favored nation. This is a deal term demanded by every major label that ensures the best terms provided to another label are available to it as well

... means that Spotify cannot offer small labels better deals else it would put them out of business because they would have to match the deal for every label.

wmf• 15 years ago

That would only apply if Spotify is already paying indies the same as majors, but it sounds like they're paying much less.

Kolya• 15 years ago

$0.0013 doesn't sound a lot. But it's equivalent to about $1.50 if somebody listens to an album 100 times.

That's less than if they were to sell the album in a shop. However they don't have the same distribution costs and Spotify users are almost always going to listen to far more music than they would if they bought CDs.

So while $0.0013 per stream sounds stupid, it's closer to a sensible level than one would intuitively think.

yuhong4• 15 years ago

Wonder if there will be an anti-trust investigation over this cartel.

sukuriant• 15 years ago

"there's more than one label"

yuhong4• 15 years ago

But the merger mentioned in this article reduces the number of major labels to three.

waterlesscloud• 15 years ago

Barely.

prostoalex• 15 years ago

Labels typically handle their own negotiations, and music services have been known to launch with catalogs supporting some of the labels, but not the others.

The result is mainly an overwhelming 'meh' from consumers, who can find some artists but not the others.

twelvechairs• 15 years ago

I believe the correct term is 'cartel'

However, you are right - there should be....

yuhong4• 15 years ago

Thanks, edited.

secretwhistle• 15 years ago

Even though Spotify is a "piracy killer" (at least in Sweden, if not elsewhere), I think the labels will be more than happy to bleed it dry and leave its lifeless corpse on the side of the road as they search for the next Big Thing to strangle, bleed dry and leave behind.

Two reasons:

1. The major labels, like most of the big content producers, are extremely interested in short term gains, even if it means losses down the road. As long as something is still "down the road," it won't affect this year s/quarter's/month's profitability.

Take a look at Hulu. It's a shadow of its former self. It used to be a solid site with great content, but those controlling the content have decided it's not making enough money fast enough. The fix? Remove content. Move it around. Chop it up. Stagger releases randomly. Put X season on Hulu but have Y season exist only as a selection of clips or have it go missing entirely.

See also: Netflix. Because the major studios are unwilling to trade DVD dollars for digital dimes, they've gone about pricing themselves out of the market. Netflix is also a "piracy killer," but the studios are too concerned with getting the money up front to pay attention to how much content is being leaked out the back.

The studios also seem to think that people will follow them to their own sites or digital offerings, but the content they offer is generally crippled by DRM or requires the installation of proprietary software or another set of logins and passwords and people in general just do not have an interest in setting up yet another account just to watch a couple of Lost episodes.

2. Even though everything mentioned is a "piracy killer," the simple fact is that, for many people, the service (Spotify, Netflix, etc.) becomes the end product. The services don't lead towards more sales of other physical or digital goods. This doesn't fit into the major labels'/studios' plans at all. They want to sell more of their stuff, not necessarily collect royalties from someone else's service.

So, if they manage to drain Spotify completely or at least force it to give up its US operations, it won't hurt them much. By that point, another service will come along and they can pile on and bleed it dry as well. The plan, I suppose, is to keep riding these little income spikes until it's 1994 again, or something.

They must still harbor the belief that, once the other options dry up, people will head back to the brick-and-mortar and purchase content in physical forms that carry much higher profit margins.

yuhong4• 15 years ago

Makes me wonder if taking them private will help.

arctangent• 15 years ago

> I think the labels will be more than happy to bleed it dry and leave its lifeless corpse on the side of the road as they search for the next Big Thing to strangle, bleed dry and leave behind.

Absolutely correct.

The intermediaries in the music distribution network (i.e. "the labels") already know that they have lost in the long term.

They know that their best move now is to extract what revenue they can from the current examples of the types of service that will eventually replace them.

Maybe this is "evil" or maybe the execs think of it as their job to try to earn as much as possible, perhaps for their shareholders' sake.

Ironically, those services which seek to replace the labels in a way compatible with the law (i.e. startups rather than torrent sites) are the ones who will end up paying (perhaps too much) for it, and will risk going bust as a result.

Meanwhile, sharing via torrents etc. is gradually killing off the labels. It may be in the interest of everyone to just let this occur without starting up a business which tries to find a middle ground.

But there will always be companies springing up to take a gamble on being the first to exploit a new opportunity. If Spotify (or whoever) fails, perhaps the next music streaming service will be the one to meet a much weakened music distribution industry in the courts.

Once the labels are gone, services which offer subscription models for music will thrive without the threat of legal action. And the quality and variety of music available to the masses will thrive.

This is a waiting game, and I think we all know exactly how this will eventually play out. Meanwhile we're still in the wild west, waiting for the shootout at the O.K. Corral.

b1daly2• 15 years ago

The lack of critical thinking about music copyright never ceases to boggle my mind. In this discussion Spotify is the intermediary. The labels and the artists do the heavy lifting here. Do you guys believe in the concept of intellectual property or what? It is vital for our whole economy (including FOSS).

The labels put up the money for the projects, and the risk is terrible. If you are a label almost every one of your products loses a lot of money. In fact all of the money you invest! You hope to make it back on a handful of hit acts. In some sense acts that fail commercially come out on the long end of the stick, in that they burn throughs hundreds of thousands in cash and are not on the hook to pay it back. This is why the classic case of hit acts not making any money exists, the deal is structured way in the labels favor. Without this the labels can't make money.

How you all feel about a company that agregated other companies software products and started giving them away for free? Any objections to that? Would you look down on efforts of developers to get as much as they can for their products?

A vital music culture cant exist without some kind of viable business model. Many attempts have been made to build a business on indie bands (my space , mp3.com) it can't work because indie artists don't have near the resources to create a true modern music product. Not to mention most indie music is not that good, and nobody wants to hear it.

r00fus• 15 years ago

> The intermediaries in the music distribution network (i.e. "the labels") already know that they have lost in the long term.

You have GOT to be kidding me. These entities along with their purchased congress-critters and executive appointees are ready to go nuclear vs. the Internet (which is the fundamental change agent that allows them to be disintermediated).

They are not going down without a fight - this is the same industry that decided suing their customers was a great idea, they would not think twice about burning down the commons by destroying the Internet as we know it.

As an analogy, we've had electric cars for sale since the 1970s, but only recently have we gotten any real options... imagine if the music mafia could achieve that kind of life extension? It's certainly a probability this could happen.

ChuckMcM• 15 years ago

I believe the labels see it as a simple proposition, they should get any monies that are generated by playing one of their songs. That this doesn't allow digital music services doesn't register, or that their songs in a vault some where generate no money. Collective stupidity, and it will kill the music labels, it already is. Now they might not die as fast as you or I would like, but they will die, either by legislative fiat or by musician revolt.

mMark• 15 years ago

Great analysis!

You've got to take into account the fact though that the labels don't give two poops about what they're doing to the services they're killing. Spotify. MOG. Rdio. Hulu. They're all fronts to appease those of us that are interested in a different delivery route for our content. They're the proverbial pylon that the industry can point to and say "there, we tried to innovate, piracy is bad, killing us!"

We talk about guaranteed failure of the labels and studios in the long run because of their pig-headed nature and their resistance to change - but they say "nay-nay". They know that these short term gains will accomplish a few goals that will guarantee their business model for decades to come. Paying their lobbyists to run up to capital hill and enact new favorable legislation...

If we've learned anything, having power is the key to business, not a good idea or a steady execution. Once you get to a certain point you're immune to the regular rules of market dynamics.

Just as the banks before them, we're currently seeing legislation being put forward to protect a broken, legacy, business model by ensuring a monopoly for a select few, and stifling innovation for many.

And just as the financially misguided before us, the people in black suits will soon be coming to take our homes, or in this case, our domains.

nitrogen• 15 years ago

So it sounds like the media companies are trying to do something like this:

1. Launch free to cheap streaming services like Hulu, Netflix, and Spotify, to draw people away from DVRs and piracy and dry up the pirate networks. Since the services are streaming only, users don't own archived copies of the media they enjoy.

2. Lobby governments and hire lawyers to crack down on the remaining pirates, flood their ISPs with DMCA notices, etc.

3. Once the pirate networks are dried up, kill the legitimate services that everyone used instead (mostly done on Hulu for many shows, work in progress for Netflix).

4. Since people don't have archived copies of the media they enjoy and stopped using their DVRs, media companies hope consumers shell out for the DVDs and CDs to restore access to the songs and shows they used to enjoy for free/cheap.

jonnathanson2• 15 years ago

The entertainment conglomerates will kill off plenty of digital distribution pipelines in the coming years, but ultimately, they'll kill themselves if they don't wise up.

Amazon, Netflix, and now Microsoft are getting into the original content business (MSFT is actively poaching TV execs to lead its new content division). Facebook has a few folks in Hollywood already. Google has been trying to make content deals for years now, and it's only a matter of time before it gets more sophisticated about doing so.

What's to stop digital music services from going directly to artists, and acting as labels? All it takes is one or two big hits to prove the viability of the model. And promoting self-owned artists through organic and inorganic discovery within the digital services can effectively replace the massive marketing efforts that major labels currently rely upon to break out new artists.

A recent, slightly analogous example: Few execs in the network TV business took AMC seriously until it produced "Mad Men." After that, people took notice, though many assumed it was a fluke. Then AMC produced "Breaking Bad." Suddenly, this basic cable channel -- this two-bit backwater -- was on the map in a big way. The rise of on-demand and time-shifted viewing sufficiently democratized content discovery, allowing a relatively small outlet to produce high-impact hits. AMC's rise arguably could not have taken place in a pre-DVR, pre-on-demand world. I suspect many more small shops will generate big shows in the coming years. And some of those shops will not be traditional TV, or even cable, networks.

I'm not as familiar with the dynamics of the music business as I am with those of the TV business. But I have to imagine that they follow a roughly similar pattern.

[Full disclosure: I work in TV, though increasingly, I will probably be saying that I work in "content." The world is slowly becoming network-agnostic, and it's only a matter of time before it becomes medium-agnostic in earnest.]

MatthewPhillips• 15 years ago

Those companies are getting into content because they have no choice. Content owners have priced Netflix's old business model out of existence. Music, on the other hand, is ridiculously cheap. Spotify pays based on how much the music gets played. If they become a label they have to start giving advances to artists, a considerable risk.

Think about it, if traditional label struggles with people no longer buying full albums, how is a subscription label going to survive on $10/month?

akg• 15 years ago

I think as the distribution channels of music become more prominent through services like Spotify, it will give them a significantly more bargaining power. I think consumer behavior and notable popular services will change the music industries archaic practices. If they want to stay competitive, they'll have to change.

I also see this as a boon for indie musicians. They have access to a much more accessible means of distribution through services like Spotify, Pandora, Rdio, etc. and the ability to compete with the big labels.

CoffeeDregs4• 15 years ago

More generally, this is why no one who owns neither content nor un-disintermediatable distribution will ever be seriously profitable. Netflix is figuring this out right now: pipe owners (e.g. Comcast] make money and people-who-fund-and-front-for-content make money [e.g. NBC]. People who sit in the middle of the pipe and the distributor get squeezed. Even friends of the distributors [see: Hulu] can have a hard time.

And by "un-disintermediatable distribution", I mean: distribution without viable substitutes. If Spotify were so awesome that I'd never switch, then they'd be in the money. But I also use GrooveShark and Pandora, so Spotify is in for pain.

Sure, you can make nice money for a short time [again, see: Netflix], but the folks that own the content will raise prices as the market becomes attractive.

iandanforth• 15 years ago

"If Spotify were so awesome that I'd never switch, then they'd be in the money."

The article implies that even this is not the case. If there were a single distributer who could increase pricing, the labels would simply increase their take accordingly, leaving the single distributor in the lurch.

Until the labels are forced to deal with standard market economics directly, rather than using VC funds to back a series of failed distribution schemes, I don't see why they would allow anyone else to make money.

CoffeeDregs4• 15 years ago

Note: I said that:

    If Spotify were so awesome that I'd never switch, 
    then they'd be in the money.

You (or the article) are arguing that they couldn't be that awesome. I tend to agree that is the case, but it only takes one billion dollar music [self-publisher-supporting-and-that-actually-makes-money?] service to prove me wrong.

Again, it comes down to bargaining power. Non-content-owners and non-disintermediatable-distributors don't have it. TFA is saying so but is doing so in such a way that suggests that the music industry is novel. It isn't.

seanalltogether• 15 years ago

I'm really curious what netflix is gonna do when each of the big 6 studios start demanding $5-$10 per subscriber for content access.

CoffeeDregs4• 15 years ago

Amen, sister!

I pay $14/month for cable (so that I can get cable modem access). How in the hell can Netflix offer the full range of content for $8/month when that would cost me an additional $80/month if I bought it directly from Comcast?

Comcast negotiates directly with HBO to carry HBO's content. Is Netflix going to do better as they negotiate to carry HBO's content over Comcast's lines? Net neutrality helps, but the logical conclusion of that is to have the distributors representing themselves on the Net, not to have Netflix represent the distributors on the Net.

dockd• 15 years ago

The question is whether the pipe owners or content creators are capable of creating a distribution channel of the same quality (Netflix, iTunes) or less cost (Hulu).

mbeswetherick2• 15 years ago

Making money in music today's music industry is absurd. In fact, I wouldn't be surprised if major record labels vanished in the next 100 years.

You'd imagine a band that's put out a record on a successful label and toured the world multiple times would be covered in wealth. That's not the case at all. In fact, most touring bands don't even make enough money to be in the black. At the end of the day, past the flights, cost of gas, and cheap meals lies an elastic state of negative to mediocre profit.

Why then do small acts still tour? Well, it's fun and it's probably been a dream of theirs for some time now. I for one am extremely thankful that bands continue to put out amazing music with only enough money to barely support themselves.

Here's the thing: bands don't need major labels anymore. That's because it's basically level playing field now: you can make an amazing album on your laptop in a barn in rural Massachusetts and still have the ability to compete with the major labels. No longer are people sucked into the radio aggregate of the 90's when all you could discover were boy bands. Now we have these amazing things like Bandcamp and Spotify that allow you to stream virtually anything! That's pretty amazing, but what's the use if everyone is listening to the demands of a major label?

So with that being the case, couldn't this problem be solved? All it will take is a push for bands to stay away from huge labels and for listeners to find that music. That's where Spotify should come in.

What's interesting about this entire thing is that a long tail company like Spotify is potentially able to shift the power from the shit that most major labels produce to better and more meaningful music. If Spotify can find a way to direct people's tastes away from most major label garbage, they might be able to solve this issue.

Maybe Spotify will push for more independent artists and incorporate musicians on Bandcamp into their catalog.

Although I'm pretty sure that musicians who put their music directly on Spotify only receive a pretty small cut, Spotify should be able to overcome their major label woes by putting a focus on smaller more niche based music.

It is my hope that musicians stay away from large labels. And no, I am not some indie purist, I just think that major labels are diluting the quality and diversity of music and that we have the power to change that.

wyclif• 15 years ago

Obligatory link to "The Problem With Music" by Steve Albini: http://www.negativland.com/albini.html

mss6• 15 years ago

"So with that being the case, couldn't this problem be solved? All it will take is a push for bands to stay away from huge labels and for listeners to find that music. That's where Spotify should come in. What's interesting about this entire thing is that a long tail company like Spotify is potentially able to shift the power from the shit that most major labels produce to better and more meaningful music. If Spotify can find a way to direct people's tastes away from most major label garbage, they might be able to solve this issue."

In response to this there was an older article posted here about some of the numbers behind Spotify: http://pansentient.com/2011/04/spotify-technology-some-stats... One quote in particular speaks to your point, interestingly in a section called "The Short Tail?":

"During a week-long analysis of all music played via Spotify: 88% of track accesses were for the most popular 12% of all tracks on Spotify. 79% of server requests were for the most popular 21% of all tracks on Spotify."

While it might be a nice idea that Spotify could somehow shift user taste towards more independent artists, the numbers here seem to say that people go to Spotify for mainly popular, culturally relevant tracks. I think a company attempting more of what you're saying is the YC company Earbits with their model focusing on discovery of smaller artists. Personally I'd rather listen to popular music I know on Spotify, and I think most people feel the same way. I just wish there was a viable business model there. Music is a very tough vertical.

mseebach3• 15 years ago

> "During a week-long analysis of all music played via Spotify: 88% of track accesses were for the most popular 12% of all tracks on Spotify. 79% of server requests were for the most popular 21% of all tracks on Spotify."

It also says that only 60% was ever played: 79% of plays are for 35% of the played catalogue. There are some numbers missing, but I would expect those 35% to represent a far greater selection of music than what was available in even the largest record shops in the 90s - and totally eclipsing the combined play lists on the radio at any one place at any one time.

Also, Spotify is available anywhere, not just to those living in big cities with many radio stations and big record shops. Oh, and then there's the 21% of plays for the other 65% of the catalogue.

Sounds a lot like the long tail to me.

untog3• 15 years ago

* No longer are people sucked into the radio aggregate of the 90's when all you could discover were boy bands.*

Don't be so sure about that. Labels still offer what they always excelled in- marketing. Bands that self-promote often have no idea what they're doing, and even when they do they are up against thousands of other bands making their best efforts at self-promotion.

Accessible music production + the internet != your music reaching it's audience. It's still a massive uphill climb. And most people are still listening to the radio and discovering boy bands.

mbeswetherick2• 15 years ago

Very true, untog. I just feel like Spotify should try and make that uphill climb.

tgrass3• 15 years ago

Yesterday HN rallied a post on Louis C.K. to the front page - a post which celebrated his deference to the inevitable reproduction of his work, a post which celebrated Louis as a hero for his ignoring this reproduction, for nobly enduring it like the good little artist he is and merely asking for a donation for his work.

I now see why it is popular here on HN for artists to give away their work when we as 'entrepreneurs' would never dream of giving away ours: the artist is labor, and we want to minimize that cost.

arete• 15 years ago

The majority of real hackers here on HN have almost certainly contributed to an open source project and many have released their own work as open source.

The startup ecosystem exists, in large part, because a huge number of hackers created and freely gave away things like GCC, *BSD, Linux, PostgreSQL, MySQL, Redis, Apache, Nginx, Ruby, Python, etc. Without free, open source, software large amounts of funding would be necessary just to acquire the tools needed to build software systems.

People admire Louis CK's position because it strikes a good balance between the need to make money and the desire to share.

tgrass3• 15 years ago

I agree in part.

The distinction to me is one's work on open source is generally considered charity, pro bono, representing a fraction of one's total work.

Louis C.K. on the other hand, and digitally replicable artists generally, are not producing their work for free as a charitable gift to mankind, nor is this free work being produced within a small fraction of their total working time.

We here on HN, as producers and consumers, hope for the success of efforts like Spotify because it makes our lives better. Our own business plans become more likely to be realized, our own entertainment consumption becomes easier and fuller.

And yet efforts like Spotify require artists to accept that they must ask for voluntary donations.

ddw• 15 years ago

Not quite. Louis CK wasn't asking for a donation, he said that it cost $5 to watch his special.

But the point was that he made it available for everyone at a small price. You didn't need HBO for $10/month (typically where a comedian of his calibre would air their new special) and Comcast at $60/month on top of that. You didn't even need to pay Netflix $12/month or whatever. You didn't even need a PayPal account. Just pay for what you get in a DRM-free format.

I don't think this was even a sacrifice on his part. Sure he could sell DVDs through Amazon but how much of that does he actually profit? His costs for this experiment were the actual production of the performance (he smartly paid for it himself so he owns it, comedians are doing this more often now) and whatever server costs he has. His advertising costs are $0 through Twitter, positive press and retweets he's getting for this.

It's a win for everyone and I think bands would be wise to do the same.

It's not about lowering the cost for labor, it's about getting rid of the artificial, unnecessary middlemen.

WettowelReactor• 15 years ago

I believe he actually stated that after the traditional sales channel gets their cut he ends up with about $5. So he is selling it for the same profit he would of seen and just cutting out all the middle men as he did not believe they where actually adding any value.

funkah• 15 years ago

That is quite an unfair summary of the discussion you're referring to.

tgrass3• 15 years ago

Funkah is correct. My comments are a hyperbolic defense of my own very subjective opinion.

For anyone who would like to form an opinion of their own here is the link: http://news.ycombinator.com/item?id=3338065

gabaix• 15 years ago

I don't understand why copyright exists.

Are there studies showing that copyright brought an increase in creativity or art excellence?

ra• 15 years ago

Imagine you are Stephen King, and you write a book.

Without copyright I can just copy your book, claim it as my own, sell thousands of copies and you don't see a cent.

learc832• 15 years ago

Under the legal framework most anti-copyright people propose, claiming something as your own would still be fraud, and illegal.

It wouldn't stop you from publishing it, but it would stop you from claiming to be the original author.

marvin• 15 years ago

Or imagine that you're not Stephen King, but an owner or founder of a large software company. A disgruntled employee on your team downloads the source code for your entire software product (which you spent millions of dollars along with years of development work and market research creating) and sells it himself, undercutting your prices and taking all your profits. Copyright is essential for any field that involves intellectual property.

snowwrestler2• 15 years ago

Copyright probably did not bring about an increase in total creativity or art excellence. (How would one measure those metrics anyway?)

What copyright did was create financial incentives for distributing the existing levels of creativity far and wide--so people other than rich patrons can enjoy creative works.

calcnerd2562• 15 years ago

How can non-disclosure of terms be legally binding? How can the label sue without disclosing the licensing terms?

jmtulloss2• 15 years ago

That's besides the point. They can break the contract, and then you don't have the content. They've already won at that point, if they want to pile one, there's no reason not to.

jgeralnik• 15 years ago

A brilliant comment from the article, posted by KenG:

I’m guessing a lot of hot dogs would get stolen, and then the hot dog supplier would lobby the government to hire guards for hot dogs. If a guard saw a person eating anything that looked like it might be a hot dog, the guard could confiscate all of that person’s food, without any kind of evidence.

Also, since backpacks were often used to hide stolen hot dogs, the government would be asked to charge an annual fee to everyone who used a backpack, so that the money could be given to the hot dog supplier to cover the cost of stolen hot dogs. Even vegetarians, who never eat hot dogs, would have to pay the annual fee.

adrianbye• 15 years ago

amazon may end up solving this problem for us by becoming a good distribution outlet for music

jmtulloss2• 15 years ago

the problem I see with Amazon is nobody uses their consumer facing media services. They need to get people to use them to have an impact.

hendzen• 15 years ago

They are making an impact (with authors) by starting their own book publishing service. I could see Apple as the party with the market position to do something similar with music.

gcb• 15 years ago

What do you mean? This I'd the reason they can be profitable.

There's tons of good bands doing original stuff. Screw the big names, I'm tired of listening to the same dozen on Pandora anyways.

The problem is not the keepers of the status quo. It's the people that can't see past it.

a13xnet• 15 years ago

am I the only one that noticed who the author of the article is?

nikcub• 15 years ago

no you're not

dlss• 15 years ago

Anyone else notice all the about:blank links in the article?

guelo• 15 years ago

I believe it is immoral to in anyway pay money for anything that even indirectly benefits the members of the RIAA or MPAA. These companies have been subverting our democracy and undermining our civil liberties for decades. They are evil, do not give them money.

worldvoyageur2• 15 years ago

Forget the labels, Spotify is dead. The corpse just hasn't hit the ground yet:

"I am paid $0.00029 per stream of a song on Spotify, and even this amount depends on whether the song is being streamed by a paid user or someone using the service for free. This means it will take upwards of 3,500 streams of a single song on Spotify to earn $1.00 versus that same revenue for one iTunes song purchase...I’ll go even further to say that I actually prefer illegal downloading over Spotify because when you get music illegally it’s at least implicit in the transaction that what you’re doing is potentially harmful to the artist. But with Spotify, your conscience is clear because you’re either enduring ads or paying to use the service and access the music. But from the blue-collar artist’s perspective...there’s little discernible difference between $0.00029 and $0.00...which is why I will withhold any new releases from Spotify in the future."

http://derekwebb.tumblr.com/post/13503899950/giving-it-away-...

Read the whole blog, it jam packed with more than enough insight to make it worth multiple readings.

Even absent the labels, Spotify is a lousy deal for individual music makers.

The search for a viable, sustainable online business model for music is still underway, but unlimited streaming for a low monthly fee is not it.

ecaradec• 15 years ago

Corrolary : if piracy leads to anything above 1 sell for 3500 illegally downloaded songs, it is actually more beneficial to majors that Spotify is.

krambs• 15 years ago

Maybe a good point - but 3500 listens isn't the same as 3500 downloads.

weazl• 15 years ago

How much do you make per listener if one of your songs is played on the radio? Honestly, I'm asking because I want to know.

In any case, you can not compare Spotify's subscription model to direct sales, it is just not the same thing.

Rusky• 15 years ago

How much is that affected by the record labels, I wonder?

mseebach3• 15 years ago

> Forget the labels, Spotify is dead.

Let me guess, Netcraft confirms it? I'll believe it when I see it.

Spotify (and similar services) is transforming the way we can listen to music, and, at least for me, I vastly prefer the Spotify experience over anything else I've tried. Also, with Spotify, I'm spending more money on music than I ever did before, and I'm not even considering bothering with piracy. I'm living the promise that if only accessing music legally is easy enough, the pirate will stop being pirates.

So small artists are getting screwed over. Is that in Spotifys interests to sustain that? I would not think so, because the value proposition falls apart if the available collection isn't comprehensive. But right now, they're preoccupied in a land grab, for which they need to focus on the big labels, as the land grab will be possible without small indies, but not without Rihannas full back catalogue.

If you're an artist and you don't think Spotify is a good deal, feel free to withdraw your music - that will push them to think about how to adjust their business model to better accommodate indies.

Spotify is nowhere near having finalised their business model. Declaring the whole thing dead on the back of a few blog posts is just a little bit premature.

worldvoyageur2• 15 years ago

OK, to be less glib and more constructive. A sustainable music distribution model needs to work for:

- the distributor (iTunes or Spotify, for example) or it is not sustainable - the users, or they won't use it - the makers of music, or they won't put their music on it - the owners of music, or they won't put their music on it

If it works for all four, then things are aligned for a sustainable business model. If any one is missing, then the thing can't stay together.

iTunes, check, check, check, check. Four fingers fold in, thumbs up.

Spotify. Works for users, at its existing price point. Doesn't work for makers of music, unless the price point changes, at which point it won't work for the users - unless we are all missing that Spotify can charge significantly more and users would still be happy. Can work for large music owners, but as the original article points out the large owners can achieve this for themselves in a way that no longer works for Spotify.

Spotify is a valiant attempt at a new business model. If anyone can make it work, they are the ones and I salute them for trying. I just don't see how they can succeed.

onemoreact2• 15 years ago

It also takes more than 1 purchase for an artist to make 1$ on iTunes as well. Still, for a lot of people Spotify is a substitute for the Radio and Piracy not just music purchases at which point Spotify is probably a significant net gain for artists.

tomjen32• 15 years ago

Indeed.

But it is properly not the labels that killed it.

I have no problem with paying reasonable prices for stuff (I have brought way too many books on kindle, plenty of music on iTunes, etc) but I see no reason to use spotify/last.fm/pandora over grooveshark.

It lets me stream what I am interested in (whether a specific song or a particular genre of music) when I want it. That is really all I want in a music service.

The irony is that it makes me a pirate (maybe, I am not quite sure if it is still called that when I don't upload) but I am a paying member of grooveshark (and has been for years). If the music guys makes a legal clone of grooveshark, I would properly be a member there instead.

thomaslangston2• 15 years ago

BandCamp.com charges $0 to listen to streaming songs, but charges to download.

It seems to have a pretty sustainable business model.

Derbasti• 15 years ago

I don't believe this one second.

Item: If record labels state that they invest a ton of money in musicians and nearly all of them do not make money, this means that the foremost goal of any musician must be to become one of the few acts who actually do make money. Hence, they don't really need to sell a lot of records at first, they need people discovering them. Spotify is like radio: it does not make much money, but it advertises musicians. I have discovered more new music on Spotify in a month than on iTunes in half a year.

Item: I really really like Spotify. All the friends who have seen it like it. I have given Spotify the same money I have given iTunes before. And Amazon before that. If streaming services will attract a big number of people, they will get better deals.

Item: Any time an 'industry veteran' says that 'something can not be profitable' I sense fear. What he is really saying is that he does not want it to be profitable the same way record labels did not want iTunes or Amazon to be profitable.

At the end of the day, its people who drive the market. If people want to listen to streamed music, they will. Maybe some companies can dry up some sources, but they never succeed in the long run against their customers.

Tangurena2• 15 years ago

> If record labels state that they invest a ton of money in musicians and nearly all of them do not make money...

It means that record companies fraudulently inflate their "expenses" in order to bleed off all profit from the industry.

For a record band to make money, they have to avoid record companies at all costs. Unfortunately, even with the internet disintemediating the record companies, it is still very difficult to get around the blood suckers.

leeoniya• 15 years ago

are digital music companies compelled to keep secret the amount of plays/downloads that a specific song gets? why not report these play counts directly to the artists and let them calculate the difference between the average asking price and what they are making in revenue?

once they see how much is being skimmed off the top, they can easily not renew contracts with major labels and go to straight online distribution directly, bypassing the labels.

jstanderfer• 15 years ago

To simplify - Spotify can never be profitable because they do not create or own the product they are selling. Also, the product they are selling is not a commodity so they cannot source alternate suppliers.

Why is this a surprise?

redrobot50503• 15 years ago

All of these reasons could apply to iTunes and Amazon's music store?

So why are they posting profits?

brugidou• 15 years ago

When do they start a service where instead of doing unlimited, they let the user pay "by the stream"?

One of the reasons why Spotify cannot make money is because they don't tell the user how much they pay for each song. And I bet prices vary wildly among different labels/albums. Letting the user pay the correct price is the only way.

At least if people think it's too expensive, they can only blame that this specific song/artist is too expensive, others aren't.

I think it's a fun idea to pay by the stream, you could make it very easy to use, with some capped monthly budget or something. And then after so many listens of one song, it makes you "own" the song (when you reach the iTunes price for example). That would be transparent, less risky and understandable for customers.

neworbit• 15 years ago

The only way Spotify can avoid this problem is by becoming too big to ignore, a la iTunes for digital distribution or Walmart for physical goods. At that point the labels have a hard time saying "we're going to pull our inventory unless we get a better pay rate" because though it may dent Spotify's customer experience, it will also mean a substantial hit to the bottom line of any given label who walks.

If you can't get to the point where you're the 800 pound gorilla, however, you are very much still at the mercy of the content owner.

Why Spotify can never be profitable: The secret demands of record labels

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