Last week, Music Week wrote these words: “Spotify is under pressure like never before. How it handles that will be crucial. For everyone.”
Well, we hate to say we told you so. Because, while at the time we were writing about the streaming service’s spat with Warner Music Group over licensing Warner/Chappell repertoire for its new India service, that pressure on their hard-won business model has now led to Daniel Ek’s company opening up a new front in its disagreement with rights-holders. And this one could prove to be much more fundamental.
To bring you up to speed: As Music Week reported way back in January 2018, the US Copyright Board decided to raise on-demand streaming subscription rates for publishers and songwriters from 10.5% of revenues to 15.1%, a move projected to lead to a 44% increase in revenues. Cue much rejoicing across the industry.
Then, last week, Spotify belatedly announced its plans to appeal against the rise. So did Amazon, Google and Pandora, although Apple Music said it was happy to pay the new rate. That led to a lot of emotive criticism that Spotify was “suing songwriters” – which it absolutely isn’t, by the way – meaning Spotify felt compelled to passionately defend its actions via one of its regular blog posts.
The blog, which is not attributed to any individual executive, lays out five things songwriters “need to know” about the dispute and positions the streaming company as a songwriter-friendly company trying to make the CRB ruling work for everyone. But can it be taken at face value? Music Week digs into the blog’s five key points – and examines what Spotify is really trying to say…
1. Is Spotify suing songwriters?
What they say: “No, Spotify is not suing songwriters. Spotify, Amazon, Google, and Pandora have each individually appealed the CRB outcome. The National Music Publishers’ Association, or NMPA, also filed an appeal. An appeal is the only avenue for anyone to clarify elements of the CRB ruling.”
What they mean: This is the blog’s least disingenuous section. After all, Spotify really isn’t suing songwriters. It’s just, erm, trying not to pay them any more money. And fair enough, most businesses – let alone yet-to-make-a-regular-profit ones – would probably resist a five percentage point increase in outgoings in a key area. But, while the CRB ruling is many things, unclear doesn’t appear to be one of them. Spotify and the other companies surely don't lack clarity on what the ruling requires, they’re just unclear on how they’re going to pay for it.
2. Does Spotify think songwriters deserve to be paid more?
What they say: “Yes - this is important to songwriters and it's important to Spotify. The industry needs to continue evolving to ensure that the people who create the music we all love – artists and songwriters – can earn a living. The question is how best to achieve that goal.”
What they mean: Spotify thinks songwriters deserve to be paid more. It just thinks they just shouldn’t be paid more by Spotify. Now Spotify is a public company, it’s increasingly focused on making that elusive profit. And, having gambled big early on by giving the labels a larger slice of revenues to secure their backing, the last thing it wants to do is do the same for publishers and songwriters.
3. Do you support the CRB rates?
What they say: “We are supportive of US effective rates rising to 15% between now and 2022 provided they cover the right scope of publishing rights. But the CRB’s 15% rate doesn’t account for all these rights. For example, it doesn’t consider the cost of rights for videos and lyrics.”
What they mean: If Spotify really was supportive of the new CRB rate, you might suppose it would take the Apple Music route and, you know, actually agree to pay it. But Spotify seems to argue that it’s actually much more supportive to question whether the CRB’s remit was correct in the first place. Unfortunately, the question of video and lyric rights wasn’t considered, because this ruling applies to mechanical rights. It’s a bit like complaining that UEFA’s Financial Fair Play regulations don’t address whether Burnley’s first goal against Liverpool on Sunday should have been disallowed ie, it’s not strictly relevant.
4. So why is Spotify appealing?
What they say: "The CRB rate structure is complex and there were significant flaws in how it was set. A key area of focus in our appeal will be the fact that the CRB’s decision makes it very difficult for music services to offer 'bundles' of music and non-music offerings. This will hurt consumers who will lose access to them. These bundles are key to attracting first-time music subscribers so we can keep growing the revenue pie for everyone.”
What they mean: To turn a profit, attract new subscribers and fight off competition, Spotify needs to expand its remit into other areas. This ruling makes that harder or, at least, more expensive. This may be true but, again, that’s not really the CRB’s problem, given that their job was to decide whether songwriters and publishers were being adequately compensated by streaming services.
5. So what’s the right way to split the pie?
What they say: “Music services, artists, songwriters and all other rights-holders share the same revenue stream, and it’s natural for everyone to want a bigger piece of that pie. But that can not come at the expense of continuing to grow the industry via streaming. The CRB judges set the new publishing rates by assuming that record labels would react by reducing their licensing rates, but their assumption is incorrect. However, we are willing to support an increase in songwriter royalties provided the licence encompasses the right scope of publishing rights.”
What they mean: Here, at last, Spotify gets to its central point (albeit in a “Hey guys” groovy-supply-teacher-trying-to-restore-order-by-threatening-to-call-in-the-headmaster kind of way). It tries to play labels and publishers off against each other (an age-old trick that, to be fair, usually works pretty well) by comparing their rates, but also with this less-than-veiled threat: “That can not come at the expense of continuing to grow the industry via streaming”. Spotify knows the labels are all doing very-nicely-thank-you out of the streaming boom. It also knows that the majors’ future projections are based on subscriber numbers continuing to boom and any stalling in that growth could see a return to the bad old days of music biz decline. But, these days, all rights-holders are rather more bullish about the potential for surviving without Spotify if they have to, while record companies and publishers are rather more aligned than they used to be, at least amongst the majors. And, Music Week sources indicate, labels will stand firm in the face of any attempt to drive down their rates in the imminent round of Spotify renegotiations. Driving a wedge between labels and publishers just might not be as easy to do nowadays, which means this might be Spotify's trickiest balancing act yet.
Spotify’s defence is already attracting criticism from publishers. So will they continue to appeal the rate? Or change tack and try to save money elsewhere? Will enough songwriters buy into Spotify's argument that a lower or bundled rate is needed for the service to expand to prompt a CRB rethink? Or will the labels give ground? Either way, the pressure – for Spotify, for rights-holders, for the entire streaming model – is well and truly on…