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Should Spotify Change the Way It Pays Artists?

Some in the industry claim that the streaming giant’s setup unfairly advantages A-list pop stars. Could a new payment system be the answer?

No Filter Tour 2017: The Rolling Stones live at the Esprit Arena, Duesseldorf, Germany - 09 Oct 2017

The Rolling Stones live at the Esprit Arena, Duesseldorf, Germany on October 9th, 2017.

Keuenhof Rainer/Action Press/Shutterstock

“Got paid £8 for 90,000 plays. Fuck Spotify.”

British electronic-music pioneer Jon Hopkins, writing on Twitter back in 2011, is definitely responsible for the most succinct public attack on the world’s biggest music subscription service.

The most memorable attack, however, undoubtedly came from Radiohead’s Thom Yorke. Five years ago, Yorke told Mexican publication Sopitas of his view that “as musicians we need to fight the Spotify thing,” before suggesting that the platform’s relationship with the record industry was akin to “the last desperate fart of a dying corpse.”

Surprisingly for one of the most revered lyricists of his generation, Yorke was speaking tautologically (a corpse, by its nature, is already dead) — perhaps a sign of his irritation in the moment. He was also flat-out wrong. Since Yorke’s anti-Spotify diatribe, the service’s user base has grown by more than 400 percent, from 36 million monthly active users in 2013 to 191 million today; its paying subscriber base, meanwhile, has risen more than 1,300 percent, from around 6 million to more than 87 million.

Streaming, driven by Spotify, has propelled U.S. recorded-music industry growth for three consecutive years. And 12 months ago, Yorke’s solo material was quietly made available on Spotify for the first time in four years — reflective of a general softening of anti-Spotify rhetoric from Camp Radiohead, in addition to fellow star performers like Taylor Swift and the Black Keys.

The debate over Spotify payments to artists, however, is far from over.

The music industry is poised for another fiery public dispute over the money Spotify gives performers in 2019; but this time, the discussion will center on how, rather than how much, cash gets handed over.

Spotify, in accordance with other leading audio streaming services, currently pays money to music rights-holders via a simple “pro rata” model. Essentially, this means that the firm pools all of the distributable riches it generates each month, then divvies up this cash based on the popularity of individual tracks. So, if five Drake songs pull in two percent of all subscriber plays in December, Drake (and the other folks who own rights to those five tracks) will get two percent of Spotify’s user-paid money.

Sounds fair, right? Depends on who you ask. Some in the industry claim that this setup unjustly advantages blockbuster pop stars, leaving those operating in more niche spaces (like Jon Hopkins, for example) without their just deserts.

Instead, they argue, Spotify and its rivals should be adopting a “user-centric” payment structure. In simple terms, this means that if you pay $9.99 a month for Spotify Premium and play nothing but Jon Hopkins, the distributable portion of your money (around $6.99 per month) should go to no one but Jon Hopkins — as opposed to being dumped in a big pot o’ money, before lining Drake’s pockets.

One controversial study out of Finland, published in November last year and co-authored by multiple local music trade orgs, has sparked squabbles over this topic. Digital Media Finland’s report crunched anonymous user data, provided by Spotify, across premium subscribers based in Finland in March 2016. The study analyzed over 8 million streams across 10,000 tracks and 4,493 artists, and was later verified by a sample five times this size.

Its key finding? In Spotify’s existing pro rata system, songs recorded by the top 0.4 percent of artists (in terms of overall popularity) got 9.9 percent of the money. However, when the “user-centric” system was hypothetically applied, the researchers got very different results. With this model, said the study, those 0.4 percent of artists would have received just 5.6 percent of the total cash.

The 4.3 percent difference, the study suggested, would have instead gone to the other 99.6 percent of artists. The paper concluded that the financial difference between the two models was “quite dramatic,” and that “the user-centric model favors artists with a smaller number of streams.”

It added, “It is also clear that the pro rata model favours the few top-tier artists who get the biggest amounts of [plays].”

So, in the interest of fairness and democracy, is it high time that Spotify started pinching from the rich in order to give to the poor(er)? Not so fast.

A subsequent study, co-authored by Spotify’s own director of economics, Will Page, recently called this conclusion into question. Page’s research paper, published in August this year, noted that there “are significant financial costs to adopting and implementing user-centric distribution” due to “creating and maintaining several million unique accounts linked to several million unique artists.”

As a result, it argued, the total amount of money paid by Spotify to artists would “significantly” reduce due to rising administration costs. Page’s paper displayed a hypothetical example whereby the average artist (within those 99.6 percent of non-“top tier” acts) “would be no better off under the user-centric distribution model” due to these extra costs.

The research also pointed to comparable models in other industries. When you pay a monthly fee for gym membership, it noted, you are offered “access to all machines, or none, for the same bundled subscription.”

Another angle on this debate is connected to an ingenious scam on Spotify that MBW uncovered in FebruaryThe racket, which operated out of Bulgaria in 2017, saw the culprits purchase more than 1,000 Spotify premium accounts, which they then used to play music on a loop, 24 hours each day.

The trick: The tracks rinsed by these faux accounts (across numerous months) were all owned by the scammer. He or she generated around $1 million in profit from their royalties – a far greater sum than the cash it took to subscribe in the first place.

Spotify, which has since bulked up its anti-fraud team, failed to shut down the swindle precisely because these were paid-for subscriptions – i.e., it simply didn’t expect that a ne’er-do-well would pay tens of thousands of dollars to pull off such a masterstroke.

(This story plays into a bigger fear circulating at the top level of the music industry right now: that “stream farms” are manipulating play-counts on Spotify et. al, using countless devices to rack up millions of “fake” plays on an industrial scale. See this eye-popping — and unverified — video, uncovered last month, to see what a “stream farm” looks like.)

In the wake of the Bulgarian Spotify scam, the U.K.-based Music Managers Forum, which represents top-level artist managers in the region, openly called for user-centric licensing to be adopted by Spotify and other streaming services.

The org’s CEO, Annabella Coldrick, suggested that a user-centric system would “prevent scams such as ‘the great Spotify swindle,’ as you could never get back more than you put in.” She added, “Our members increasingly believe that, despite the complexities of introducing a user-centric model, it is inherently fairer . . . with the additional benefits of greater transparency and accountability throughout the streaming value chain.”

Other significant figures in the music business echo her thoughts. Midia Research founder Mark Mulligan, who first used the phrase “user-centric licensing” back in 2015, tells me, “User-centric licensing clearly has a lot of strong attributes, but its actual impact on distribution of artist income is less obvious. Yet it is in many respects fairer [than the pro rata system], and if we want fairness toward artists, which most people do, you can’t pick and choose which type of fairness you prefer.”

Spotify rival Deezer has been looking closely at a shift to user-centric licensing for more than a year, while high-level whispers suggest that Amazon is now also investigating its potential impact on services like Amazon Music Unlimited.

You might assume that, if anyone was against the adoption of user-centric licensing, it would be the world’s biggest record companies and publishers. Judging by the research, these firms are commercially benefiting the most from the pro rata system.

Yet Hartwig Masuch, CEO of BMG — the world’s fourth-biggest music-rights company, which turns over more than $500 million each year and counts the Rolling Stones (pictured) among its clients — says he’s all in favor of a change.

“For me, it is simply a question of fairness,” he tells MBW in an upcoming interview. “Some services may like to say it won’t make too much difference, but that does not matter as much as being able to tell artists, ‘This system is fair, and this is how it works.'”

He adds, “The user-centric licensing debate should be a next very clear battlefield in the evolution of streaming.”

Tim Ingham is the founder and publisher of Music Business Worldwide, which has serviced the global industry with news, analysis and jobs since 2015. He writes a weekly column for “Rolling Stone.”

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