The Awkward, Unanswered Questions That Led to Coldplay’s Spotify Embargo

Coldplay have opted to not have their latest album Mylo Xyloto made available on streaming services…all of them, though of course Spotify is the core motive for this move.  It is yet another thrust of the wedge which is inserting itself between the streaming service and artists.

The download / streaming revenue disparity

Coldplay – with apparently begrudging support of their label EMI-  have made a business decision that they would prefer to have a smaller number of people listening to Mylo Xyloto to ensure that a larger number of them are buying it.  The problem with Spotify is that it generates so little income per activity to artists compared to downloads, but this is not just a Spotify issue.  In my earlier post showing PledgeMusic’s Benji Rogers’ digital income I showed how the average pay out per activity for streaming services (premium ones included) is over 300 times smaller than the average pay out per activity on iTunes.   Now to be clear, we are not comparing apples with apples here (no pun intended).  An activity on iTunes is a one-off paid download, whilst an activity on a streaming service is one stream and that play could occur multiple times for the same song.  Yet it still leaves a rather large number of plays required before you start catching up with an iTunes pay out.

The three possible reasons why artists get so little from streaming services

So what is broken with the model?  Streaming services already feel that they pay out too much to rights owners: services typically pay out in the region of 80% of their income to rights holders. So increasing their royalty payments would likely put many services out of business, unless of course they hiked their prices. But 9.99 a month is a hard enough sell as it is, let alone anything higher.

So where is the money going? Here are three possible scenarios:

  • The long tail is getting mined, and some.  One possibility is that users of streaming services are spending their time listening to such a vast diversity of catalogue that any one artist only gets a minimal amount of plays and thus only small pay outs.  However, with discovery features so weak on most services, the opposite is more likely to be true for the majority of users.  Indeed 24/7’s CEO Frank Taubert once stated that a third of 24/7’s catalogue had never been downloaded, not even once. (24/7 remember is the service that powers the remarkably successful TDC Play unlimited music service in Denmark).
  • Messy metadata is to blame. Streaming service metadata is a complex beast.  With so many different sets of fields from different rights holders having to be blended into one massive dataset by each service, and each time in a slightly different way.  There is always going to be room for error.  This may be causing some proportion – possibly a significant share – of plays not getting reported.  When Benji Rogers decided to test how well Spotify paid out, he left his albums on permanent stream for a month.  Yet his digital income reports for that month not only fell well short of that number of plays, some of the catalogue was listed as not having even been played once.  Given the complexity of rights reporting it is unrealistic not to expect at least some loss of  data quality along the path of point-of-listening: in-service reporting; in-service data cleansing; data warehousing; distributing data to rights holders; rights holder data analysis; rights holder accounting; rights holder pay outs to artists.
  • Rights holders aren’t distributing all royalties appropriately. The conspiracy theory is that the big bad labels are collecting swathes of digital income from streaming services and then secretly squirreling away the majority of it for themselves.  Though this is less likely than it may seem, there are a number of label practices which can cumulatively contribute to creating the effect.  All artist/label contracts have stipulations about recouping costs – some of which are skewed against artists – and most have different stipulations about digital pay outs.  So there are contractual and accounting reasons why some artists will not see all the income they expect.  The notoriously Byzantine accounting practices of major labels are another potential related factor.  The Achilles Heel of major label public relations, questionable accounting practices have resulted in many an artist horror story.   The possibility of sums of unpaid royalties, stuck in escrow somewhere until forgotten about is every artist’s nightmare.

The likelihood is that all three scenarios play a role.  I don’t believe that any party, Spotify or the labels included, have intentionally embarked on strategies to cheat artists out of money.  But there is a distinct possibility that not all involved parties are exactly incentivized to plug the holes in their processes to thus bring the increased accuracy and effectiveness which could result in larger artist pay outs.

Digital commercial practices complicate matters further

The waters are further muddied by major labels becoming stake holders in some digital services, raising the prospect of portions of income from those services being joint venture income and therefore not subject to reimbursement to artists.  Add to that the issue of the large advances services have to pay labels in anticipation of actual revenues, how much of that is paid to artists, and when, and especially if the service doesn’t ever generate the income guaranteed by its advance.

All these are valid issues that would benefit markedly from an open dialogue across the value chain.  Spotify is left looking like the pantomime villain but is likely no more than a cog in a machine that nobody seems to really want to fix other than the artists.

But fixed it must be.  Spotify and YouTube massively outpace most other digital music services in adoption and usage, yet they deliver a tiny fraction of the income.  Artists cannot afford for these services to behave like radio (i.e. the tool to drive sales) when they are also becoming the end product for many music fans.

The case is clear for a transparent and robust dialogue between labels, artists and services.

Coldplay have the benefit of being big enough to dictate terms.  Most other artists don’t have that benefit.  Greater transparency, effectiveness and accuracy in revenue reporting and distribution will help drive not only artist trust, but, via increased income, greater support too.  The alternative is that piracy gets another free shot at goal, which is what Coldplay have already likely delivered, driving many Spotify users back to Torrents to find Mylo Xyloto for themselves.

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12 thoughts on “The Awkward, Unanswered Questions That Led to Coldplay’s Spotify Embargo

  1. “When Benji Rogers decided to test how well Spotify paid out, he left his albums on permanent stream for a month.”

    I’m sure all streaming services have taken measures to combat this kind of deliberate cheating from artists/labels.

    As for the myth of Spotify paying too little, how come they are generating more digital income than iTunes in a number of European countries? Maybe artists/labels should stop delivering music to iTunes since the overall income in, for example, Sweden is so low in comparison with Spotify.

  2. Hi Joe

    I think it’s an unfair characterization to position Benji’s test as trying to cheat the system. Your point is valid but there is no contractual mechanism from labels to prevent anyt song being played any amount of times. There are ceilings on the total pay outs for plays at a macro level but a ceiling implies a certain level of plays. In this instance some tracks weren’t listed as having been played even once. By anyone.

    As to the point about the ‘myth of Spotify paying too little’, this is my point entirely. Spotify is clearly generating meaningful rights income, however it is not generating meaningful artist level income. Especially when compared to iTunes. So there is somethign broken somewhere. in the case of Sweden I’d be very surprised if most artists don’t still make much more money from iTunes than they do from Spotify.

    But this isn’t just about Spotify, it is about revenue from streaming services in general. Take a look at this previouss post to get a sense of the disparity in artist income across digital channels, particularly look at the income per activity column: http://musicindustryblog.wordpress.com/2011/07/11/making-freemium-pay-an-artist%e2%80%99s-perspective/ If you don’t trust mine and Benji’s numbers take a look at this source also: http://digitalmusicnews.com/stories/091311artistmakes

    Mark

  3. great post. interesting that most of the media horror stories about artist income from streaming have focused on major label artists who are likely to suffer from the known lack of transparency in that sector’s reporting and accounting. would an independent artist with a reputable distributor perhaps tell a slightly more favourable tale?

    could it also be a factor that people are making judgements based on the infancy of this model – basing their assessments on the payouts from early days, where per stream rates were likely to be lowest?

    it doesn’t help that most streaming services currently seem intent on acquiring as many free users as possible in the hope that they just might upgrade to paid. with so many additional streams to pay for and hardly any income to cover the royalty obligations, it puts the services in a tight spot, whilst offering little hope of better payout to artists. the fact that key repertoire is now almost routinely missing also makes those upgrades to paid less likely to happen.

    If streaming services more clearly separated their free and paid offerings, artists would maybe be more willing to take a risk on supporting the paid model, without the feeling that they’re giving themselves away.

  4. Hi

    Stumbled upon your post whilst searching for Mylo Xyloto on Spotify. Interesting post!

    It will be interesting to follow how this move turns out; if people go out to buy the Coldplay (and other) album instead of downloading illegally or listening to something else. The former seems more likely to me, but personally I find myself listening to such a diverse catalogue that artists who don’t appear on Spotify don’t get listened to. And since I choose something else then, I never miss the ones who choose not to participate.

    Perhaps it’s different for the huge bands compared to smaller ones, but for example I never listen to Metallica anymore although I used to. Why? Because they don’t appear on a Spotify search and then I choose something else.

    Hopefully, from my point of view, Coldplay doesn’t sell more albums because of this, has to admit being wrong and changes their mind (label included).

    Keep up the good work! Thanks!

  5. As if where the money goes in this biz wasn’t complicated enough already! Despite how long streaming services have been around, I think there is still uncertainty about what their role in the industry and some artists’ decision not to use these services is more a reflection of that than the money itself. My two cents…

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  8. I would add to the conversation that I’m now listening to “The Gift” by the Jam on Rhapsody. I’ve owned this record since 1989–first as a cassette and now as vinyl. I don’t travel with my record collection though so I’m streaming it. Thoughts?

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