As Spotify Prepares to Go Public, Music Industry Divided on Royalties

"I've lost half of my income because of these clever fellas," says David Crosby. "I used to make money off my records, but now I don't make any"

As Spotify prepares to go public, music industry sources and musicians are divided on how helpful the service is to artists. Credit: Getty

Spotify's plan to go public, filed last week, could generate $23 billion and make the world's biggest record labels hundreds of millions of dollars richer — but the Swedish streaming giant has yet to soothe grumbling and litigious artists and songwriters who say its royalty payments are unfairly low. "They rigged it so they don't pay the artist," David Crosby tells Rolling Stone. "I've lost half of my income because of these clever fellas. I used to make money off my records, but now I don't make any."

Spotify's response to these types of criticisms has been the same for years: The service has paid more than $10 billion in royalties to artists, labels and publishers, according to its modified initial public offering, and the company has helped save the record business from online piracy. "Spotify was founded on the belief that music is universal and that streaming is a more robust and seamless access model that benefits both artists and music fans," reads the 260-page filing. Adds Jim Caparro, former president of Island Def Jam Records: "The winds of Spotify are blowing in the right direction for the music industry."

But Thom Yorke's infamous 2013 lambasting of Spotify as "the last desperate fart from a dying corpse" persists among many artists and songwriters. As with most streaming services, Spotify's royalty system pays big money to the biggest pop stars, leaving scraps for older and more cultish artists. The company pays roughly $7 for every 1,000 streams, which means Ed Sheeran, who led all artists with 6.3 billion Spotify streams, pocketed more than $44 million last year; meanwhile, jazz trio The Bad Plus makes fewer than $100 every three months in streaming and pointedly withheld its latest album from the service. Songs from Crosby's 2016 album Lighthouse streamed 2.2 million times on Spotify, but the veteran rock star says, "It was a good record. I haven't made a nickel."

"We have yet to be able to navigate the world of streaming," adds David King of The Bad Plus. "It's laughable. We get pennies from streaming on every royalty check."

"It was a good record. I haven't made a nickel," David Crosby on streaming his new album.

Songwriters have registered even more specific criticisms in recent years: Wixen Music Publishing, which administers the copyrights for songs by Tom Petty, the Doors, Neil Young and others, filed a $1.6 billion lawsuit late last year against Spotify for using its compositions without licenses or making royalty payments. "We're just looking to get reasonable compensation and go on," says Randall Wixen, the company's founder.

Adds Richard Busch, a lawyer who represents several Nashville publishers suing Spotify for similar reasons: "It's clear, willful copyright infringement."

A rep for Spotify declined to comment on any specific criticisms, but pointed to Spotify's filing and its $10 billion payment to artists. 

Last May, Spotify settled with songwriters David Lowery (of Cracker and Camper Van Beethoven) and Melissa Ferrick for a proposed $43 million. But many publishers, including Wixen, opted out of that settlement, alleging Spotify has yet to create an adequate system for paying songwriters. "It didn't matter who the songwriter was — for Bob Dylan, there are 700 versions of 'All Along the Watchtower,' and almost none are getting paid," says Jeff Price, founder of Audiam, a company that helps artists from Dylan to Metallica retrieve unpaid streaming royalties. "It just didn't make any sense."

Spotify, which began as a startup nearly 12 years ago, has slowly built itself into one of the most important companies in the music business. It launched in Europe at a time when music fans were illegally downloading songs, devastating artists and record companies, but over time the service's ad-supported "freemium" model largely knocked off the pirates. Thanks to Spotify, and competitors such as Apple Music and YouTube, the record business has returned to growth in recent years — streaming revenues have exploded from less than $1 billion in 2014 to nearly $3 billion in 2016, according to the Recording Industry Association of America. "Everyone realizes there's a lot of money to be made in streaming," says Jim Urie, Universal Music's former distribution president.

Not every artist is critical. Will Toledo, frontman for Car Seat Headrest, tweeted recently that he has raised $30,000 since 2013 just by posting older music on Spotify through a service called Distrokid. "Some artists are making money off Spotify," Toledo tells Rolling Stone. "It is not an across-the-board negative experience." Adds Alex Luciano of indie band Diet Cig: "A 13-year-old that doesn't have a job yet but has an allowance and Internet access — they can afford to listen to our music. The amount we've made via streaming is a number that is like, 'OK, I'm with this, it makes sense.'"

"Not only the record labels but the composers have a whole new income stream they've never had before, and in large part may have replaced what they used to earn on albums," adds Howard King, an attorney for Metallica, Dr. Dre, Kanye West and Pharrell. "It's a pretty good deal for artists."

"Some artists are making money off Spotify. It is not an across-the-board negative experience" - Will Toledo, Car Seat Headrest 

As with old-school record sales, the most popular major-label artists have been able to negotiate the best deals for streaming revenue — a new, unknown artist might get 12 to 15 percent of the royalties, while a Taylor Swift-level star might get 40 percent, sources say. That's partly why smaller artists see such low payments on their royalty statements, especially compared to more reliable CD or iTunes download revenue. But generally, artists are beginning to see streaming royalties turn upwards. "We are noticing very apparent differences in the amount of income coming from streaming now," says Richard Jones, manager of the Pixies, Teenage Fanclub and others. "The labels are certainly getting the money — how they're paying to the artists is the debatable point."

If Spotify's modified IPO generates anything close to $23 billion, Sony Entertainment, home of Beyoncé and Bruce Springsteen, could generate an estimated $1 billion-plus, and rivals such as Warner and Universal could make almost that much. All three major labels have pledged to share this windfall with their artists, but it's unclear how that will play out. "Nobody knows," says a source at a major label. "People say, 'Well, it's easy, you take the usage on the platform from the beginning of the service and you allocate it based on that.' But if Bruno Mars is driving the majority of recent usage, are you going to just write a huge check to Bruno Mars? This isn't easy stuff."

Such an explanation isn't satisfying to streaming critics such as Crosby and former Byrd Roger McGuinn (who recently ripped Pandora on Twitter). Geoff Barrow of Portishead, a Spotify critic, recently asked how many of his musician Twitter followers have made more than 500 pounds — prompting dozens of complaints and a retweet from Radiohead's Yorke himself. An IPO-driven Spotify windfall will help record labels, but artists question how much of this revenue will eventually trickle down to them. "Labels are part and party to the problem. That's why they don't want to change it — they're getting paid and we're not," Crosby says. "It can't keep going the way it is now."