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