If I Was… Spotify.

Every now and then on the podcast we do an ‘If I Was …” episode, where we grab an industry and walk through how I would apply the 7 Levers, if I was in that line of business.

But today I want to start an “If I Was…” blog series; but with a slight twist.

Unlike the podcast episodes where Dom and I look at an industry & fictional business – in this series, I’ll be taking existing businesses, and ranting about an idea I would champion if I was on the board or in the marketing team.

Now I’m not going to invest a lot of time researching my idea to ensure its validity. Some ideas might not be executable due to some small legal loophole, perhaps the idea has already been tried and failed, or maybe it’s already been suggested elsewhere.

If so, that’s cool … this series is just an outlet to spread ideas, start a discussion, and possibly seed an idea you can take, adapt, nurture and grow in your own projects.

Enjoy + Discuss.

Pete


Today’s Target: Spotify.

Spotify

The Idea: Tip Jar for Musicians.

I still remember working the late night shopping shifts on Thursdays and Fridays during university at Athlete’s Foot, and being super excited to see what mix tape CD, Simon (my usual late night co-worker) would have made.

It’s where my love of RnB grew thanks to Simon, and his ability to find the most obscure Ja Rule, Fabolous or Chingy remixes.

In the days leading up to the infamous late-night shopping shifts, which turned The Athlete’s Foot in Werribee Plaza into more of a club, than retail outlet… Simon would scour Kazaa ( a Napster clone) for the hottest new tracks, and as if he was making a mixed tape for a lover, meticulously arrange the tracks and burn the CD on the computer in his parents living room.

Oh how things have changed… In today’s modern office, it’s now a mix of Sonos + Spotify.

Now clearly these musicians were not earning a cent from DJ Salesman Simon…((let’s not get into the APRA/AMCOS side of mix-tapes in businesses.)

But how much money do musicians really get paid in this new digital marketplace?

What would you say if I told you your favorite bank makes only $0.00029 every time your Spotify playlist pumps out on of their songs!

A few years ago, created InformationIsBeautiful.net an infographic to answer the question:

For solo artists to earn a US monthly min. wage of $1,160 how much do they need to sell?

Spotify_Payment_Infographic_For_Click-2

Based on their research, it turns out an artists needs (at the time) a whopping 4,053,110 plays per month… which equates to $0.0016 per play to the label and $0.00029 to the artist.

If that still sounds absurdly low, keep in mind that it’s slightly higher than some of the more well-publicized estimates. Last January, music executives told the New York Times that Spotify pays around $0.006 per stream but that’s only when a song is played by one of Spotify’s paying customers, who represent 6 million of its 24 million users. Streams from free customers, they wrote, netted “as much as 90 percent less.” Spotify’s estimates are also far higher than the numbers Grukowski reported, saying that 5,960 plays netted his band only $1.05. (That’s only $0.0001 per play). [Source: http://pando.com/2013/12/04/what-spotifys-royalty-numbers-dont-tell-us/]

 

But wait…

This data from 2010 doesn’t quite paint an accurate picture… it’s a little worse different to that:

As Spotify explain on their website here, they split the total royalties paid out to the rights holders (labels, artists etc) in accordance with the popularity of their music on the service. The label or publisher then divides these royalties and accounts to each artist depending on their individual deals.

Wait, I thought Spotify paid per stream?

NOPE!

As David Holmes goes on to explain:

First, the “monthly revenue” Spotify makes off each stream has numerous variables, including whether the listener pays for a subscription, how many users are in that listener’s country, and how much advertising Spotify sells there. If Galaxie 500′s listeners do not pay for the service and reside in a country where Spotify sells little advertising, that has an impact on revenue (although Spotify does not explain precisely how).

Artists are also paid by their “market share.” The means the higher the percentage of Spotify’s total streams an artist comprises, the higher payout he receives per stream. Macklemore and Rihanna, the most streamed artists of 2013, receive more than Galaxie 500. Interestingly, Spotify calculates this by artist, not by song, so a modest hit by Galaxie 500 would earn a lower per-stream rate than an unpopular Macklemore song.

[If you want to delve further into Spotify’s business model I strongly suggest you check out the rest of ‘What Spotify’s royalty numbers don’t tell us by David Holmes’ and http://www.spotifyartists.com/spotify-explained/#spotifys-progress-so-far.]

Now back to my tip jar idea, as a way a fan can directly support an artist they love.

It’s a very simple idea… in fact I’m not the first to come up with this (as you can see here and here,) but essentially the concept is to provide Spotify users the ability to “tip” their favorite artists, and send them a few extras dollars.

So if we’re in the office one day listening to the latest Elli Golding track, and think she deserves more than the $0.00029 she gets per play, we can click a button, decide to “tip” her $5 for her talent.

Spotify can choose to charge my credit card then and there, or just tally up my “monthly tips” and charge me once a month when they run my card with my subscription fee.

Nothing more, nothing less.

Spotify can choose to charge my credit card then and there, or just tally up my “monthly tips” and charge me once a month when they run my card with my subscription fee.

If fact one group has gone as far as creating an online community and petition to show Spotify that people want to give back to artists via a donation model: http://www.spotifyartistdonation.com/. (However, I couldn’t find anything on their site that remotely represented a working model or idea of how they suggest Spotify makes this actually happen!)

Spotify_Donation+Petition

Now, I can understand Spotify’s response to this tip-jar idea:

Spotify pays out straight back to rightsholders, the record labels and collecting societies who in turn pay money to the artists, musicians, lyricists and composers that they represent. So we do not pay straight to artists…labels do that. For this reason and since all our music is based in the agreements with labels we can’t do anything about this…

Yeah we know Spotify, can’t directly send a check to John Mayer, as the agreements they have are with the royalty owners (obviously).

In fact, there is no way for fans to give money directly to an artist they like, short of finding the after party bar, and stuffing a fifty into Katy Perry’s shorts. (Which I am sure a lot of her fans have already fantasied about.)

So what options do people have right now if they want to support their favorite musicians financially?

Getting out of Spotify, going to iTunes and buying the album, so the artist makes a “reasonable” royalty.

I still purchase 2 or 3 digital albums from iTunes each year in an effort to support Kanye and Co … and I’m sure I’m not the only crazy one doing this. Right?

Unfortunately, it’s the easiest, and most frictionless way fans can financially support an artist.
Sure we’re all aware Apple and the record company take their pieces of the pie on the way through to Rihanna’s bank account, but at least we, the fans, know they are going to get something, anything… a lot more than they would if we listened to his album on Spotify repeat for a full week.

So why don’t Spotify just embrace THAT awareness.

Allow users to TIP artists they like, treat that revenue as a different income stream in their chart of accounts, and simply add that tip revenue to the royalty stack they pay each month.

I don’t think anyone is naive enough to think or demand, that every cent of a donation should go the performer themselves…

Yet it appears, from their response above, that this is the view Spotify & co are hiding behind.

My Idea Tweak In Action:

Let’s say for example; Lady Gaga’s Spotify plays total a check of $5184 for the month of March (based on their current popularity royalty model), but had an additional $16,045 in tips …

Why can’t spotify just put on the statement a total of $21,230.00 when paying the rights holder?

Sure, not all the revenue is going to the artist directly, but it shouldn’t. Unless they are independent, artists are part of a much bigger machine that absolutely deserves to get fed.

Promoters, writers, producers, labels who bankrolled the whole thing – all helped build Lady Gaga, so if you are supporting her via a tip, you need to support everything that goes into “Lady Gaga”.

The only issue I can see, from my desk here a long, long way from Motown, is that these tips are not driven by actual “song plays,” and thus may not be considered royalties under the traditional definition/laws.

Fair enough, but surely there has to be a very easy and creative way around this.

The labels have been very vocal in their position on what “digital” is doing to the music business, so they would welcome a model like this with open arms – even if meant working together to lobby for a definition change.

Wouldn’t they ?

  • http://www.WinWinWinMarketing.biz Joakim Hansson

    Awesome idea!

    • http://www.PreneurMarketing.com/ Pete Williams

      Thanks Joakim.

about-pete
Pete Williams is an entrepreneur, author, and marketer from Melbourne, Australia.

Before being honored “Australia’s Richard Branson” in media publications all over the continent, Pete was just 21 years old when he sold Australia’s version of Yankee Stadium, The Melbourne Cricket Ground For Under $500! Don’t believe it? You will! Check out the story in the FAQ section (it really is our most asked question).

Since then, he’s done some cool stuff like write the international smash hit ‘How to Turn Your Million-Dollar Idea Into a Reality’ (+ the upcoming ‘It’s Not About the Product‘) and he’s created a bunch of companies including Infiniti Telecommunications, On Hold Advertising, Simply Headsets and Preneur Group.

Lots of other people think he’s pretty good too! He’s been announced as the Global Runner-Up in the JCI Creative Young Entrepreneur Awards for 2009, the Southern Region Finalist in the Ernst & Young 2010 Entrepreneur of the Year, and a member of SmartCompany’s Top 30 Under 30.

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