The major labels have a problem, their streaming market and royalty share are decreasing on the digital music services. This is because the amount record labels get paid from digital services is based on the percentage of all the total monthly streams represented by each label in the digital service each month. For example, if a label represents 30% of all the streams on Spotify each month, then the label gets 30% of the royalty pot. However, music consumers are now listening to more and more DIY and independent artists on the streaming services causing the major labels to panic.
To solve their problem, the major labels launched a campaign to have DIY and Independent artists’ recordings classified as “unprofessional noise,” not worthy of being on the shelves of, or receiving royalties from streams on, Spotify, Apple Music, and other digital music services. To implement a “solution” to their fabricated, make believe, nonsensical problem, the majors, in conjunction with promoting this false narrative, are pushing the digital music services to not pay DIY and Independent artist their royalties from streams (or pay them less than major label artists) and/or for the DIY and Independent artists’ music to be removed entirely from the digital services.
As the major labels and digital services are aware, there is no problem created by having millions of DIY or Independent artists available to be discovered or streamed in a music service. Further, the digital services want as much of the DIY and Independent artists music on Spotify as possible. As Daniel Ek CEO of Spotify stated in a Billboard interview: “ The goal is to get “as much music on the Spotify platform as we possibly can”.
This is because the digital services want the music available if their customers look for it or allow them to discover it (who doesn’t want to discover a new song they like?). Unlike physical retail stores, digital stores have unlimited shelf space with virtual inventory that replicates on demand. This allows all music to be listened to or discovered at no detriment to any other artist. In other words, millions of DIY or Independent artists’ releases being available in Apple Music, Spotify etc. does not stop people from discovering or listening to Radiohead, Doja Cat, Taylor Swift, Drake or Morgan Wallen. The cause of the major labels’ problem is not that DIY and Independent artist’s music is available in the music services — it’s that people are listening to the DIY and Independent artists’ music.
Note that if this issue really was a problem for the digital services they would have simply stopped taking the releases of these artists at some point over the past sixteen years. Alternatively, the DIY and Independent artist streaming market share would have gone down, not increased. Further, if as the major labels claim, their artists are the only “professional” artists creating the “quality” and “good” music that people want, Apple Music, Spotify and other digital services could (and would) have created a “major label only” section of their services. Finally, Sony, Warner and Universal could create their own music streaming service featuring only their artists (they tried this, but these services failed). The reality is music consumers want to listen to music by DIY and Independent artists.
Thus the false narrative, lies and anti-DIY and Independent artist policies. The major labels want to go back to the old days controlling who got signed, distributed, and marketed and what artists the public had access to by allowing only a fraction of a fraction of the world’s music to be available. In this model, they win by default because “competition” (the non-major label artist) is not even available to compete. But digital technology changed the system allowing all music to be available. And with this change, consumers are choosing to listen to wider selections of music, including artists not controlled by the major labels. The result is the percentage of streams and royalties that the three major labels represent in Spotify and other services is significantly decreasing as people listen to music from DIY and Independent artists.
It’s important to note that another cause of the major labels’ problem is the ridiculous streaming royalty “pool” model they created of taking a percentage of the total amount of money Spotify makes, dividing it by the total number of streams of all recordings and then having the digital services pay the record labels royalties based on what percentage of the total streams each controls. They could have done a different model where the money a consumer pays to Spotify only gets paid to the artists they listen to, not to the ones they don’t, but the three majors projected they would make more money from this “pool” model. And now its biting them in the ass as they lose streaming market share and revenue.
So, they threw a temper tantrum, launched a PR campaign suggesting it’s a bad thing to have all music available in the digital services and demanded (leveraged?) that Spotify change how it pays royalties so the major labels can slow down or stop losing their market share and make more money under the guise of being “artist friendly”. Note that while they make this demand, the three major labels owned over 17% of Spotify before it went public and some still continue to own a percentage of it. Spotify, being Spotify, of course acquiesced and came up with some polices I have little doubt that the majors did push or contribute to Spotify implementing.
The first policy change is that Spotify will stop paying artists royalties earned by sound recordings streaming less than 1,000 times over the prior 12 months (recordings which come predominantly from the DIY and independent artists) and instead, pay these royalties to the artists whose recordings stream more than 1,000 times in the prior 12 months (recordings which come predominantly from major label artists). More on the insanity of that here and here.
The next policy change is when one of Spotify’s customers violate Spotify’s user terms and stream recordings that Spotify unilaterally determines to be “fraudulent streams” Spotify is going to charge a fee of $10 to the music distributor that distributed the recording to Spotify. So basically, the distributor of a recording is going to be held responsible and pay a $10 fee to Spotify for the actions of a Spotify customer that created a user account directly with Spotify and then violated the legal terms that Spotify created despite only Spotify knowing all the streaming and other the information on the Spotify user. This of course puts the distributor (effectively the entrance point to get on Spotify) at a competitive disadvantage compared to the major music distributors.
It is not the fault of a third-party distributor if a Spotify customer breaks Spotify’s rules. And even if it is suggested that the distributor is somehow culpable, how in the world does it make sense to charge a distributor a fee for the actions of the Spotify customer? Spotify does not provide the distributor direct and total access to all the internal mechanisms and data that Spotify has on every single one of its users necessary to police Spotify’s legal terms (which it can change at its discretion). Finally, who gets to decide what is or is not a “fraudulent” stream and what if the distributor disagrees with Spotify’s determination?
The real issue here is that the major labels are using Spotify, who apparently are happy to be used, to try to treat the symptoms of the problem that the major labels are losing streaming and market share to the DIY and independent artists, which isn’t really a problem unless you are the majors.
And one final note, one does have to wonder if the three major labels (some partial owners of Spotify) collaborating/colluding with the digital services to take the royalties from the DIY and Independent artists and give them disproportionality to the major labels, all while charging fees to the non-major label distributors, violates anti-trust laws and/or is the basis for a class action lawsuit from the constituency which estimates indicate that up to $500 million annually in royalties will be stolen from them.