Arts Desk

Kicking and Streaming: Why Indies Tolerate Spotify’s Minuscule Royalties

“Hello, this is John Maus. Please listen to my new album on Spotify.” Direct and chipper, the in-house advertisement was nevertheless an ominous thing to hear between songs this week, a few days after the Minnesota electro-pop singer created an indie-rock controversy by telling Pitchfork he’s glad so many record stores “have little ‘closed’ signs on their door now”—and nearly a month since Spotify, the latest service that promises to change how we consume music, arrived in the United States. Maus later apologized for the Pitchfork comment—and offered the clarification that he was referring to big-box outlets like Best Buy, not mom ’n’ pops—but his point remained: Here’s a guy on the right side of history, losers be damned.

If you’ve been lucky enough to receive an emailed invite to the service—or paid to join—you know that being on Team Spotify rules. Spotify’s streamable library contains millions of songs, licensed with the approval of artists and labels. I’ve pulled up music from Chuck Brown, and The Cornel West Theory, and every album in the Fugazi catalog, for free, with the only trade-off being an audio advertisement interrupting the experience every few songs.

The Sweden-formed, London-based Spotify isn’t the first subscription-style streaming service, but with its free, ad-supported format (you can also pay for more perks, such as streaming to mobile devices), vast library, and sleek interface, it’s convinced plenty of tech writers and pop scribes that it’ll eventually outpace the digital-download model now championed by iTunes. In some European countries, it already has.

But guess what royalties Dischord Records gets from streaming services like Spotify? “They’re negligible,” says Ian MacKaye, the D.C. label’s co-owner and public face. Although specific deals are confidential, Spotify tallies its royalty payments in fractions of a cent per stream—meaning a label might only make a few dollars, even if tens of thousands users play “Waiting Room.”

So digital music streaming has put small independent labels—you know, the kind we care about, the kind that can document and foster scenes—in a tough spot. Because it’s free and legal, Spotify disincentivizes piracy; why break the law if you don’t have to? For bands, if they’re already putting out a physical release, there’s not much extra overhead involved in putting the music on Spotify. Although Spotify users might be inspired to buy what they stream, the fear is that streaming may ultimately supplant digital downloads. Those downloads typically net artists and labels 70 percent of the retail price per sale.

“Quite frankly, it’s terrible,” says David Andler, the president and CEO of the Baltimore company Morphius Records, which does wholesale and digital distribution for hundreds of indie labels and artists, including D.C. outfits like Sockets. He cites a quarterly sales report aggregating all of the labels Morphius works with. It’s from 2010, so it includes Spotify in Europe, as well as other streaming services that have been operating in the United States for years. Approximately 86 percent of the digital entries were for streams, but they made up only 2.5 percent of revenue.

“I love new media and the immediacy of putting music into people’s hands, but the reality of the current culture is people’s psyches have been modified into thinking music is something you get for free,” says Andler. “That perception is fallacious in that the artists have to make that music somehow.”

Still, Andler’s company—and D.C.-area labels like Dischord, Cuneiform, Fan Death, ESL, Fort Knox, and others—have opted in, never mind Spotify’s piddly royalties and potential to cannibalize other revenue streams. “Choosing to not participate is somewhere between being a technophobe and a Luddite,” says Andler. The topic can make people like MacKaye come off like fatalists: “I assume there will be a point when [labels are] selling zero records,” he says. “That’s fine. We started selling nothing.” But many labels’ willingness to work with Spotify despite its negligible payments may, in fact, be existential. In a recent essay for the AV Club, Sam Adams advanced a theory that every time a form’s technology changes, some of its history—a Luis Buñuel film that never made it to DVD, the seminal early albums of Hüsker Dü that are missing from Spotify—gets lost. A preteen with a Spotify account now has access to a vast chunk of the history of D.C. hardcore, but not music from equally important labels like SST and Kill Rock Stars. As the technology changes, it’s easy for moderately and even widely available content to end up in history’s dustbin.

Almost everyone I interviewed expressed this worry about digital consumers: That if they can’t find something on a streaming service (which pays a pittance) and that is their preferred mode, they won’t seek it out in other ways (like through legal downloads, whose royalties are more generous). Brian Lowit, Dischord’s manager and the owner of local label Lovitt Records (which isn’t on Spotify yet), cautions that at the end of the day, indies just don’t know. The technology could change again. Streaming’s revenue model might become more favorable. Or it might not. “I’m guessing someone looking for [Lovitt artists] Des Ark or Pygmy Lush on Spotify and not seeing it aren’t going to then go out and buy the MP3 or the CD because of it. They will just listen to something else,” he writes. “Hard to prove of course.”

For a time, Dischord weighed setting up its own digital store separate from iTunes, eMusic, and other platforms. But that process was slow, and the label’s bands wanted to sell downloads. In late 2003 or early 2004, Dischord started selling MP3s; now you can also find the label’s music on many streaming services. “The wider access is not within anyone’s control. It’s just the weather,” says MacKaye. “Our position is no exclusive. I think ultimately our job is to make the music available, and that was [always] the point.”

Certainly, there’s money in streaming already. Spotify paid 45 million euros in royalties in 2010, having the most success in countries like Sweden, where a significant chunk of its users pay for the service. Some major recording companies own shares of Spotify and earn from its revenues. In the United States, “noninteractive” streaming services like Pandora—on which, unlike Spotify or Rhapsody, users are recommended music but can’t choose it—distributed $250 million in royalties last year, according to Laura Williams of SoundExchange, the performance-rights organization for digital transmissions. Lots of artists receive checks in the six or seven figures, but to get a check at all—SoundExchange cuts them only for amounts above $10—you need to clock about 45,000 plays.

The key is scale—which is something boutique labels can never safely count on. For now, MacKaye says, Dischord wants to keep its options open: “Money streams in from different places, so the question is, Do you turn on the tap or not?” He admits that under the current pay models, things would be dire if streaming services replaced digital downloads as the label’s dominant digital-revenue source. “But there was a time when there was no money for everything, and artists managed to be artists then,” he says.

Illustration by Brooke Hatfield

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  • Curious

    I've always been really curious about something: When small, cool, good labels and the same kind of musicians talk about how we live in an era where everyone expects music for free and how they are going broke, they never seem to mention that everyone is going broke, no one can afford a thing, no one has job protections, etc.

    How come articles about this topic always treat it in isolation? I mean, where is all the consumer spending to pay musicians going to come from when we're all piss broke?

    These conversations always devolve into arguments about intellectual property and that seems to not have much to do with it outside of the distribution argument.

  • reply

    Curious, the difference is that under any other premise, you or anyone expects that someone who works will get paid. That's why work is work, and not slavery. The point people make when they say people expect music for free, is that the expectation is that artists should work for nothing, but that in itself means no more art can be created. we don't expect any other industry to work for free or at losses, so the fair concern is that if delivery of product is at a rate that that doesn't make business sense for the future of the industry than how do we resolve that. It's hard times for everyone but we don't expect cars, food, tickets to the cinema to be free, so we should extend the same standard to everything else.

  • http://deleted Curious

    My point wasn't "why should musicians get paid for music?"

    No one is getting paid particularly well for work unless they are within a particular upper middle class professional circle (maybe), assuming they are lucky enough to find work.

    The discussion around this thing inevitably devolves into a split between a reactionary clinging to the fairly shitty payment mechanisms of years past and the completely numb-nuts anti-intellectual property argument of years past wherein everything is owed to people are nothing but perpetual consumers for free. I notice that rarely does anyone talk about the larger economic dynamic--who the fuck can afford anything anymore and why is it that the only time people seem to be anti-intellectual property is with regards to music and movies not, say, bigger things, like pharmaceuticals?

    And I'm not entirely sure why food shouldn't be free. Food, unlike music, is something I would literally die without, poetic testaments and blahblah to the importance of art aside.

  • http://deleted Curious

    "people who are" i mean. sorry, run on sentence as a consequence of teensy little text input box

  • fakebook

    Let's be real: Folks who follow music from the independent labels that you've cited here won't be "consuming" music exclusively through Spotify. These are knowledgeable fans who have cultivated their tastes: they buy stuff and they are more aware of the bigger economic picture and its consequences than your dumb Gaga/Bieber/insert-name-here fan of pop music. It isn't likely that the average listener on Spotify in America will be tracking down anything from Dischord or anything of that ilk. If these labels are not making money from Spotify royalties, then this is nothing new. Independent labels--not all, but those few that have real identities and loyalties of their fans--will continue to get a small slice of the pie the old-fashioned way, the way that they have subsisted since their beginnings: having good acts, spending wisely, and maintaining good customer relations. (Do they really want/need/deserve a bigger cut of that bigger pie?)

  • Steve

    I just read yesterday in a press release that new site is being launched called Radical Indie. This site allows independent bands to upload their music and get it streamed through "genres" they pre-select. Also, there is a link to where they can add a buy link for users to purchase their music. The site is free and the company is NOT taking any royalties for the music the is purchased. All monies go directly into the artists hands.

  • Dale

    I think Fakebook hits it on the head, somewhat. While Spotify's royalty payments are clearly on the paltry side for everyone, any smaller label or lesser-known act expecting some massive payout from Spotify is clearly deluded.

    Spotify should not be seen or treated as a source of direct income. It's a promotional tool, nothing more, nothing less. One for which you don't bear the staffing or hosting costs. You're going to get three different types of people listening...

    - People who want to check out an artist - either through a recommendation or hearing a song somewhere or whatever.
    - People who already like the artist and who spend money on your stuff.
    - People who already like the artist but are too cheap/poor/whatever to spend money.

    The hope is that your presence on services like Spotify will convince the first group to join the second group - coming to shows, buying music and merch, and all that jazz. You can't worry about the third group, just hope they'll come around too when they have the money.

  • getting off topic slightly

    The reason food (and other commodities) aren't free should be patently obvious. Intellectual property and physical commodities are inherently different. That's not to say the intellectual property shouldn't be protected but its an indisputable fact that it is much harder to protect than a bushel of soybeans.

  • Food Stamps For All!

    I see zero reason why food shouldn't be free. Try explaining how food really should require you to fork over hoarded bits of paper to Haiti and see ifyou get a calm response. And it's not like food is a free market, what with massive farm subsidies

  • son of a farmer

    There are tons of problems with the so called "free market" but if food was really free, farmers wouldn't bring food to market. Why? Because farm land, labor and the various inputs have value. And of course, just b/c you get food stamps doesn't mean someone else isn't paying for the food.

  • Ace

    I agree with Dale a lot. Spotify, in a lot of ways, is a really large radio station. You can look for anything, and you can listen to it, but only on their terms (read: a high bitrate internet connection). If you want to listen to it on your long road trip through Montana, you're going to have to cough up some money.

    I've been a long believer in the idea that I will, most likely, be able to get an album. I know enough music people so that can happen. I put my money back into the system by going to shows, buying merch if the band is good (and I have enough money, which I, frequently, don't. believe me, this bums me out a lot), and buying stuff digitally when I get some cash of a band that I liked. They get more money that way. Legal means like spotify are good, but they are still really only secondary to you doing your job as a music listener: going to shows and support them while they are doing their jobs.

  • Televiper

    You're kidding yourself if you're equating Spotify to a radio station. Spotify is much closer to a digital download site without the downloading. Spotify gets close enough to ownership that you can almost say that it's simply doing away with the inconveniences of ownership. While there will always be a core group of hard-to-the-core fans who will buy physical albums and merchandise. I believe the record industry as a whole has always relied on everybody else to break even. Where they really get hurt is losing that 1 in 10 fair weather fans that actually buy the album, or receive it as a present.

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  • DGM

    Half the fun of the indie scene was using your network to find the music you couldn't get from the obvious places. That's what made it YOURS and not THEIRS. See that kid in the Telegraph Melts shirt? You should probably talk to him!

    Just because something isn't on Spotify doesn't mean it is dead. It just means you have to reach out to find it.

  • Tom

    John Maus is so Overrated.

  • Mishkin

    Spotify (although my band makes a pittance through it) at least pays something. And it's really good at recommending other artists that I wouldn't have discovered without it.

    If I love a band, I want it on my ipod so I download it. If we weren't able to try before we buy like we can now, my house would be even more full of crap that I bought by just looking at the cover, only to be disappointed.

    The fact that people aren't making as much money is just part of the times changing, music will always survive and evolve, and hopefully the independents will be able to continue. I do it because I love music, not to make money. If that's not enough for you, then you're probably doing it for the wrong reasons anyway.