8Sided Blog

the scene celebrates itself

Streaming’s Two-Sided Effect on Downloads

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TorrentFreak:

From the beginning, one of the key software engineers at Spotify has been Ludvig Strigeus, the creator of uTorrent, so clearly the company already knew a lot about file-sharers. In the early days the company was fairly open about its aim to provide an alternative to piracy, but perhaps one of the earliest indications of growing success came when early invites were shared among users of private torrent sites.



“People that are pirating music and not paying for it, they are the ones we want on our platform. It’s important for us to be reaching these individuals that have never paid for music before in their life, and get them onto a service that’s legal and gives money back to the rights holders,” {Spotify Australia managing director Kate} Vale said.



Of course, hardcore pirates aren’t always easily encouraged to part with their cash, so Spotify needed an equivalent to the no-cost approach of many torrent sites. That is still being achieved today via its ad-supported entry level, {General Counsel of Spotify Horacio} Gutierrez says. “I think one just has to look at data to recognize that the freemium model for online music consumption works.”



Spotify’s general counsel {also} says that the company is enjoying success, not only by bringing pirates onboard, but also by converting them to premium customers via a formula that benefits everyone in the industry.



The Guardian:

The digital download, ushered in to the mass market more than a decade ago by Apple’s iTunes music store, is in rapid decline as people shift to streaming services such as Spotify and Apple Music.



So how much longer do downloads have? A few years and they’re dead, says Mark Mulligan, music analyst at Midia Consulting: “It’s going to die before the CD. The CD has a fairly universal player, where there’s always at least one in a house. And the people who grew up buying CDs are the older music consumers – the CD will literally die out only when they do.”



“There’s no end date … our music iTunes business is doing very well,” Eddy Cue, Apple’s senior vice-president of internet software and services, told Billboard magazine in June. “Downloads weren’t growing, and certainly are not going to grow again, but it’s not declining anywhere near as fast as any of them [in record labels] predicted. There are a lot of people who download music and are happy with it and they’re not moving towards subscriptions.”



But in the long run, streaming is the only game in town – along, perhaps, with the CD and vinyl. The download once looked like the future; now, the question is how much more of a future it has.

The Gatekeepers of Streaming’s Long Tail

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Harvard Business Review:

Digitization has brought new strategic challenges, and falling revenue, to the industry. Yet it has also brought new opportunities to a wider variety of artists. By reducing search costs, the digitization of music makes it easier to discover new artists and albums. It is {also} less costly to release new music, leading to unpredictable successes from artists who might not have been discovered or produced an album in an earlier era.



With subscription pricing and the ability to easily skip among artists (as opposed to per-album or per-song charges, which were the norm), streaming pushes users to listen to explore new artists. This has the potential to reduce the concentration of the very top artists and albums, while also helping music lovers find what economists refer to as the “long tail” of the industry.



The Guardian:

“Spotify has democratised the universe,” is the dramatic, understandably Spotify-centric view of Spotify’s George Ergatoudis, who joined the service this year after a decade as pop’s most powerful tastemaker at BBC Radio 1. “One of our editors can find something, believe in it, put it in a playlist, see an interesting result from the audience then accelerate the song.” Systems inside Spotify automatically create playlists of what Ergatoudis describes as “emerging stories” (songs) which editors then trawl through when they’re compiling the playlists vital in achieving true hugeness. “There’s a lot of human curation time spent on saying, ‘Right, there’s some noise there, but what do we think about it editorially?’” Ergatoudis says.



It’s reassuring that discovery isn’t left entirely to algorithms, but this editorial aspect creates another question. Namely: has streaming liberated new artists from the constraints of regimented radio playlists and the whims of ego-crazed music critics, only to replace that system with a different set of gatekeepers? “The term ‘gatekeeper’ assumes we’re blocking something worthy coming through,” Ergatoudis insists. “I’d argue we’re not doing that. We’re letting good stuff through, and amplifying it.”



Ergatoudis argues that the gate being kept is now an extremely large one, or perhaps a load of different gates, through which different artists can pass. Demographics differ from service to service – Apple Music and Tidal skew urban – but as streaming services aren’t restricted by hours in a day, like mainstream radio stations, we’re looking at the possibility of multiple concurrent musical zeitgeists. For the first time, something like the UK’s long-trumpeted guitar-music resurgence wouldn’t have to come at the expense or, say, grime’s increasing popularity.

Spotify Ditches SoundCloud Bid (Again)

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Techcrunch:

The Financial Times reported in September that {SoundCloud and Spotify} were in “advanced talks” over an acquisition — things went pretty quiet after that, but we now understand that the deal died this past week. The source told TechCrunch that the company ultimately walked away because it feared that an acquisition could negatively impact its IPO preparation.



Spotify hasn’t officially said it will go public in 2017, but there has been plenty of speculation, including a funding round with incentives tied to a listing. The source said Spotify went cold on SoundCloud because “it doesn’t need an additional licensing headache in a potential IPO year.” That’s in reference to the complexity and financial cost that comes with negotiating with music labels, something that is hugely important to SoundCloud, which has a far larger catalog of tracks than other services because it caters to creatives, indies and remixers.



Spotify is reported to have declined to acquire SoundCloud two other times over the past two years, the FT said, with a proposed price apparently the sticking point on those occasions. Beyond expanding Spotify’s ad network and userbase, a deal was seen as key to strengthening its position as well-funded competitors ramp up their music services.

Music Industry Blog wondered back in September if SoundCloud has already peaked:

Throughout the 2010’s Soundcloud’s growth was impressive, growing from 1 million registered users in May 2010 to 150 million by December 2014. But registered user numbers only ever tell part of the story. The most telling statistic is Soundcloud’s Monthly Active User (MAU) number: 175 million. Impressive enough, and 50 million more than Spotify’s 125 million. But Soundcloud hit that number in August 2014 and it hasn’t reported a bigger number since. In fact, it could well be that Soundcloud hasn’t actually issued a new number since, but instead has simply being restating that number. If it had grown, you can be sure we’d have heard about it. If it had fallen, perhaps not.

On Exclusives and Windowing

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Jonathan Galkin, Co-Founder of DFA Records, in PIAS Blog:

“All of these ‘streaming exclusives’ are for the 1%. This is not my fight. It sort of feels awful all around, regardless of the scale of the artist. It’s like having to join a gym in order to buy a pair of sneakers.

“This is the least democratic way to hear discuss and enjoy new music. It shouldn’t be a scavenger hunt to find an album, and albums shouldn’t be used as bait to build tech companies.

“But, you know, good for Kanye and Drake and Beyonce. But it leaves little room to focus on the discovery of new music, which is what DFA is all about.”

Music Business Worldwide:

Per Sundin (Universal): “It’s exactly what happened in the US with physical product. Best Buy said, we’re going to buy 2m AC/DC albums, and it was: ‘Wow, 2m albums.’ But eventually when you looked at the real record stores, the Towers that closed and others, you’re killing the people who feed you.”

Mark Dennis (Sony): “It’s the wrong thing, without a doubt. People who believe that exclusives are going to bring the market forward are the most naive people in the world. We have to learn from what’s happened in the past: when people haven’t been able to consume music in the way they want, they turn to piracy. We’re just not learning! We’ve got to be realistic. What will move the market forward is having content across all platforms, giving the consumer the ability to make their decision and use great products.”

So, not much love for streaming exclusives. However, windowing may soon have a new champion. Via Music Ally:

With no free tier, Apple Music has been able to pitch itself as a premium-only option for album releases, as has Tidal. SoundCloud, meanwhile, made premium-windowing part of the industry pitch for its recently-launched SoundCloud Go subscription tier.

Sources have told Music Ally that Spotify was in advanced discussions with Radiohead’s management company Courtyard and label XL Recordings about a deal to make A Moon Shaped Pool the first album to be windowed to premium subscribers on the service.

“We are always looking for new ways to create a better experience for our free and paying listeners, and to maximise the value of both tiers for artists and their labels. We explored a variety of ways to do that in conjunction with the release of Radiohead’s latest album,” said {Jonathan} Prince {of Spotify}.

“Some of the approaches we explored with Radiohead were new, and we ultimately decided that we couldn’t deliver on those approaches technologically in time for the album’s release schedule.”

Reading between the lines of Prince’s statement, it seems that this is less a case of getting cold feet about premium windowing, and more a case of Spotify wanting to make sure the technology to make it work was robust.

Moving Past The Jukebox Model

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Wired:

Spotify announced today that it’s acquiring two companies: Soundwave and Cord Project. Both are small-ish startups, founded in the last couple of years, that have won accolades for their design chops. Soundwave in particular makes perfect sense for Spotify. It’s a social tool for finding, sharing, and talking about music, which are all things Spotify would like to be as well. Cord Project is a more curious fit: it’s an audio-first messaging app, a sort of walkie-talkie for the smartphone age.



What Cord really did—what founders Thomas Gayno and Jeff Baxter do best—is design audio experiences. “For years,” Gayno says, “we’ve been listening to music on phones and on laptops kind of the way we listen to music on our hifi stereo, by just looking for a song and hitting play.” We find and listen to music like we’re at the world’s biggest jukebox. Spotify has recently started experimenting with variations on that form, with features like Running and Party and the brand-new Behind the Lyrics feature it created with the folks at Genius. They’re trying to do more than just find you music you’ll like—they want to change the way you experience it altogether. That’s a hard problem to solve.



Through The Echo Nest’s incredibly detailed tech and its years of usage data, Spotify has a ridiculous trove of data about much more than just music. The Cord crew is the start of a new team at Spotify dedicated to turning that data into entirely new kinds of auditory experiences, “leveraging all the amazing technology that is available on my MacBook Pro, on my iPhone, all these things,” Gayno says. “The accelerometer, the geo-localization, all the social network data I have provided, is available for Spotify to create a compelling music experience.”



“The place to innovate is on the consumption side,” Baxter says. “So we’re still working on that. It’s still, what are unique ways that you can serve up audio to people, on phones, but also on devices of the future?” It’s not enough to have 30 million tracks in your library anymore. The streaming wars will be won by the company with the best experience, the best discovery, the best tools for listening to the right thing at the right time in the right way.



As SoundCloud seems to be moving towards Spotify’s model, Spotify in turn appears to be implementing tools for more SoundCloud-like interaction among users. And the idea of playlists and suggestions based on one’s activity, location, and such is intriguing. The streaming wars are apparently moving on from who’s the best at ‘discovery’ and into the social, user-experience terrain. Apple has had a history with social integration in their music services but, with the failure of Ping and the underwhelmed reaction to Connect, it’s an area that’s still up for grabs.

Soundwave presents some interesting concepts that Spotify could easily adopt. Here’s an interview with Soundwave co-founder Craig Watson on an episode of the Music Biz Podcast from a few months back:

Untangling Streaming’s Copyright Conundrum

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For publishers, purchases result in mechanical royalties that are paid by record labels, which must match their recordings to the associated songwriters and pay the publishers accordingly. In contrast, streaming royalties are paid by the streaming service, shifting the administrative burden to companies like Spotify. Both purchases and on-demand streams require mechanical licenses to be obtained from publishers. This is where Spotify appears to have problems — it does not have publishing licenses for all the songs it streams.

A key problem is the compulsory license used by subscription services. A subscription service doesn’t need to secure mechanical licenses from publishers in advance of adding their musical works to its catalog. It can send what’s called a notice of intent and simply pay the appropriate royalties. But it’s not quite that easy in practice.

Because record labels are not required to provide publishing information associated with their sound recordings, services don’t always know which publishers they’re supposed to contact and pay. The end result is an incomplete record of songwriting credits and publishers for tens of millions of tracks.

Major music companies, which have equity in Spotify, want the streaming space to grow and believe imposing damages “could trigger mutually assured destruction,” one industry participant told Billboard. That could explain why some publishers are trying to reach a resolution with Spotify through the NMPA that would deliver back royalties in return for foregoing legal action.

Here’s the thing about copyright law: historically, as new technologies come along, copyright has a lot of trouble dealing with them. And, typically, the pattern is that the industry freaks out and tries to stop the new technology, but eventually someone duct tapes on a new bit of copyright law to cover it. Unfortunately, this means that there are all these weird periphery sections of copyright law that are supposed to apply to specific circumstances, which then get made obsolete by later technological situations, and it leads to lots of confusion and anger… and lawsuits.

There is also a complex bit of copyright law, known as Section 115, which gives the specifics on compulsory licensing of mechanical licenses in certain circumstances, if certain rules are followed. But here’s the crazy thing: it’s 2016 now, streaming services have been around for years, and still no one’s entirely sure if Section 115 compulsories actually apply to them. It’s never actually been tested and many services (including Spotify) assume they do, but a potentially big question is whether or not they really do.

Spotify can (and likely will) argue that it complied with the rules required in Section 115(b) for a “notice of intention” in order to get the compulsory mechanical license. Basically, Spotify would argue that it did what is necessary to get a compulsory mechanical license when it was unsure of who held the publishing/songwriting rights on a song. If it actually did do this, {David} Lowery’s case may be dead in the water — though I’m guessing Lowery’s lawyers will argue that it failed in some aspect of properly using Section 115 — or, as mentioned above, that Section 115 doesn’t actually apply to streaming services. If Spotify did not actually follow Section 115’s rules, then Lowery’s case suddenly is a lot stronger. Similarly, if a court suddenly determines that Section 115 doesn’t apply… well, then a lot of streaming services are in serious trouble.

Make no mistake, people … we – the music industry – are at fault here. Our data is fucked and in some cases non-existent. We all know it.

Some labels / distributors don’t upload the relevant meta or do and it’s corrupt and thus this situation arises. We need a global rights database … we’ve needed one for years. It’s time for this to be actioned properly with full support from every corner of the business. Until now much of the industry has been a bunch of lazy bastards cutting corners or uploading bad data at the expense of our life blood – the artists. That is unacceptable. If the meta was there Spotify would pay.

And despite having blanket licenses in place we are letting the services we deliver to take the blame for our industry-wide tardy incompetence. It actually saddens me that of all the digital service providers {David Lowrey} could have chosen to go after he’s going after one that actually recognizes this fact and are actively trying to build one. If Spotify are found to be at fault here every DSP will be guilty of this without exception. But I believe the fundamental fault here lies with us, the industry. Not the service … and we have a collective responsibility to sort this out.

Spotify Hit With $150 Million Class Action Over Unpaid Royalties

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Camper Van Beethoven and Cracker frontman David Lowery, retaining the law firm of Michelman & Robinson, LLP, has filed a class action lawsuit seeking at least $150 million in damages against Spotify, alleging it knowingly, willingly, and unlawfully reproduces and distributes copyrighted compositions without obtaining mechanical licenses.

The lawsuit comes amidst ongoing settlement negotiations between Spotify and the National Music Publishers Assn. over the alleged use of allowing users to play music that hasn’t been properly licensed, and also without making mechanical royalty payments to music publishers and songwriters. According to sources, Spotify has created a $17 million to $25 million reserve fund to pay royalties for pending and unmatched song use.

The complaint states that Spotify has “publicly” admitted its failure to obtain licenses and created a reserve fund of millions of dollars for royalty payments which have been “wrongfully withheld from artists.” The complaint further notes that statutory penalties allow for judgments between $750-30,000 for each infringed work, and up to $150,000 per song for willful infringement.


I admit I’m not the biggest David Lowrey fan in this sphere, but any eyeglass pointed at artist royalty in these early days of streaming is important as it may help interpret and set future policy. If Spotify is knowingly withholding royalty that can be remitted then most certainly they should pay up. However, I’ve heard of reserve funds being held by other services until rightsholders can be identified, most notably by SoundExchange (though they aren’t actually transmiting the compositions themselves), so the practice may not be as outlandish as the suit implies. One can also assume that if Spotify is doing this with regards to mechanical licensing then Apple Music, Tidal, etc. are probably doing the same … ?

Update:

Spotify is currently in the middle of a settlement with the National Music Publishers Association, after being sued for failing to accurately keep track of royalty payments. In a blog post last week Spotify admitted that it had a problem managing royalties, and that it would work with the NMPA to build a “comprehensive publishing administration system” to ensure artists and publishers are properly compensated.

If the NMPA opts into the settlement, which allows publishers to request royalty payments in exchange for dropping legal claims over licensing fees, it will likely weaken Lowery’s case.

The Freemium Quandry

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Music Business Worldwide:

According to a new report from the Wall Street Journal, Spotify is ‘caving in’ to demands for certain artists to be able to keep their records off Spotify’s free tier.



The newspaper says: “In private talks, Spotify has told music executives that it is planning to allow some artists to start releasing albums only to its 20 million-plus subscribers, who pay $10 a month, while withholding the music temporarily from Spotify’s 80 million free users.”



MBW understands that the latest internal Spotify figures show that the platform now has close to 100m active users, and 25m+ paying customers around the world.



Atom Factory’s Troy Carter via Digital Music News:

There have been times where I had to get on the phone with really big managers, and — who have really big clients, and tell them what the downside was for them leaving their product off of Spotify. All of the music is still available on YouTube for free. It’s still available on the piracy services for free, so you’re missing out on a big audience and you’re missing out on a revenue stream.



I don’t know if Spotify needs to get over the Taylor Swift problem, as much as it is… people have to see the future. Because free already exists, it’s a flawed argument when you say ‘I don’t want my music on any service that offers free,’ when free already exists.



Update: Music Business Worldwide:

Those weeping for the death of Spotify’s ad-supported bonanza are forgetting something: it’s only for a quirk of recent history that freemium was ever allowed to bloom in the first place.



As sites such as The Pirate Bay (not to mention YouTube) were left unfettered by international lawmakers, {Spotify founder Daniel} Ek’s argument in the lead up to Spotify’s 2008 launch – basically, hi guys, nice to meet you, we’re your best worst option – was cast-iron. This year, despite all of Spotify’s success, that contention has started to look a little more fragile.



If Ek’s offer of all music, all free, all the time was forever destined to be quashed, you have to say he’s made the most of it. By ‘rescuing’ an industry plunged into paranoia and desperation by piracy, Spotify has raced to a near-100m user base (and an $8bn+ pre-IPO valuation) with what hindsight may prove was a once-in-a-generation freedom to dice with price.

Revenue Neutral

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Slate:

In a new working paper, University of Minnesota economist Joel Waldfogel and Luis Aguiar of the Institute for Prospective Technological Studies in Seville, Spain, estimate how Spotify has affected both music sales and piracy during its fast expansion across the globe. Their method: comparing countries where the service grew rapidly between 2013 and 2015, and those where it didn’t. The upshot? According to the authors’ calculations, Spotify does seem to have put a damper on piracy, but it’s also displaced some digital sales (neither is exactly a shocker). Add it all up, then factor in the payments Spotify itself is sending to labels, and the effect appears to be roughly “revenue neutral” for rights holders. They don’t make any more money. They don’t make any less.



If these findings hold up (again, it’s just one working paper), it should put the ongoing debate about Spotify’s treatment of artists into some new perspective. If the platform’s business model hasn’t shrunk the total pie of cash being divvied up by rights holders, but some artists really are seeing their paychecks shrink, it suggests the problem (insofar as one exists) has to do with the way record labels are distributing the cash.