Why is Everyone Mad at Spotify? Mailbag

I answer your questions about Spotify's royalty changes.

Spotify recently announced that, among other changes, songs that generate fewer than 1,000 streams per year will be ineligible for royalties. A few days ago, I broke down why I didn’t think was as bad as many people were making it out to be. This led to a lot of great discussion about music streaming and royalties. In a Can’t Get Much Higher first, I want to answer some of the questions that emerged during that discussion. Questions have been edited for brevity and clarity.

Spotify Ire Mailbag

Part of your reasoning for why this isn’t that bad is that distributors have withdrawal minimums. Many artists never hit those minimums, so the money is effectively unreachable. But money is withdrawn at the artist or label level, not the track level. Wouldn’t a stream minimum make more sense at the artist rather than track level?

Theoretically, yes, this makes more sense. That said, royalties are calculated at the track level rather than artist level because an artist’s catalog can belong to different rightsholders. My guess is that it would be more administratively difficult for them to institute the minimum at any level other than the track level. That’s not a great justification, though. With that in mind, I think this would make more sense.

Do these changes affect how Spotify pays songwriters?

According to Billboard, no. These changes only affect master recording royalties. To reiterate a point we discussed a few newsletters ago, there are two royalties associated with music. One royalty is associated with who owns the songwriting copyright. The other is associated with who owns the recording copyright. Spotify’s proposed changes only affect the latter group.

I always wondered how it was we could walk around with the world’s music, past and present, in our pocket for $10 per month. One way you suggest increasing payouts to artists is by increasing the price of a streaming subscription. What price would you recommend?

In 2002, Shuman Ghosemajumder published a paper called “Advanced Peer-Based Technology Business Models” that established the framework for the open music model, which effectively amounts to our current streaming model. The music industry wouldn’t really come to accept this model until a decade after Ghosemajumder’s publication.

In that paper, he tries to establish a market-clearing price for music streaming. He first cites a 1999 study from Bain & Company that suggests the price should be $110 per year, or $9.17 per month. He then argues that the industry would generate more revenue for around $4.99 per month because they’d attract more listeners. Adjusted for inflation, $4.99 is $8.53 in 2023 dollars, or pretty close to the current single listener pricing on many services. $9.17 is $15.68 in 2023 dollars, or close to what many services charge for a family plan.

Spotify’s family plan

Given how prescient Ghosemajumder’s observations are, I think we should take his suggestions seriously. But we should also consider everything else we’ve learned in the two decades since his paper was published.

• The industry has had a ton of success with the $9.99 price point in the last decade.

• Video streaming services, like Netflix, have increased prices dramatically in the last decade and users are still paying.

• Ghosemajumder’s pricing took into account the fact that CDs would be a popular alternative. That isn’t the case anymore.

• Ghosemajumder pricing took into account the fact that if people refused to pay, one of the very attractive alternatives was free, peer-to-peer services like Limewire and Kazaa. This also isn’t the case anymore.

What does all of this amount to? At the very least, $9.99 should be adjusted for inflation up to around $13 per month. But we also have to remember that streaming services are offering users dramatically more in terms of curation and personalization than they were a decade ago, along with the fact that those who refuse to pay will turn to ad-supported services rather than piracy. All of that considered, I think in western markets a fair price would be closer to $20 per month.

I’m surprised you took all of those options into account and didn’t consider getting rid of the intermediary. To me it seems like the most logical way to increase revenue for artists would be an artist-owned streaming service where everything above implementation costs would go back to them. What are your thoughts on that?