Taylor Swift and The Music Distribution Channel

Or, to borrow a phrase from Bob Dylan, "The Times They Are A Changin' ".

I have to admit, I've never found Taylor Swift terribly interesting as a musician (but I haven't really listened in a while).  I first heard a few songs of hers back in '07 or '08 when she burst on the scene.  I think I recall her saying at the CMAs that the award would make her senior year of high school the best year of her life and got a smile out of such a kid's world view.   

Earlier this year, I happened to catch a news story where she seemed to go out of her way to help a sick young girl.  Then another.  And another.  And more.   Suffice it to say, she visits children's hospitals all the time, using her celebrity in the best possible way: to help bring a few moments of joy to people going through the horrible ordeals of a being treated for a deadly disease.  My opinion of Taylor as a person skyrocketed. 

Taylor made some news in the music industry lately by "breaking up" with Spotify and pulling her entire collection from the streaming service.  This move worked for her and her latest album, 1989, sold a million copies in its first week, making her the only artist ever to have three albums with million-selling first weeks.  To put this in context, a few weeks before 1989 was released, it was widely thought that no one would sell a platinum CD (million unit sales) in 2014, and some were saying the days of platinum sellers were ending.  

In an online article in the Wall Street Journal, Taylor said she considered Spotify along with piracy and file swapping.  But Spotify is a subscription service.  The tech-head newsletter MakeUseOf goes into a long discussion of Spotify, and her decision to get off the service. 

She said, “In my opinion, the value of an album is, and will continue to be, based on the amount of heart and soul an artist has bled into a body of work, and the financial value that artists (and their labels) place on their music when it goes out into the marketplace. Piracy, file sharing and streaming have shrunk the numbers of paid album sales drastically, and every artist has handled this blow differently.”

Spotify has a free membership service, sponsored by commercials like your local radio station, but a continually growing number of people go to the $10/month membership level.  Since they started in '08, they've grown to over 50 million subscribers around the world; that could be $500 million per month of income, but only about 20% of their subscribers pay the $10/month, choosing the commercials instead.  

Their business model is that they pay a royalty based on the number of plays a song gets.  They pay between 0.6 and 0.8 cents per listener per song. They get their revenue to pay the record companies from either subscribers or advertisers, and they do pay.  As Spotify's CEO shot back:

“Taylor Swift is absolutely right: music is art, art has real value, and artists deserve to be paid for it” writes Ek; he continues, “Piracy doesn’t pay artists a penny [while] Spotify has paid more than two billion dollars”.

From the record company's perspective, if a Spotify user listens to a song more than 150 times (at the lowest royalty price), they get more payment than if the user bought the song on iTunes. For a popular song, the record companies can make more with Spotify than from straight sales. 

There are two things going on here.  First: Taylor Swift is a megastar.  Again, she's the only act ever to have three albums sell over one million copies in their first week.  She can ignore Spotify and stay with the "old-fashioned" music industry model.  Spotify estimates that if she had stayed with them, she would have made more than $6 Million from them alone, and they estimate twice that amount next year.  But plays on Spotify don't count toward that platinum selling week, and making history like she did, and if she wants that fame, she needs to stay off Spotify.  Or the music industry needs to change to recognize streaming services.   

The second thing is more subtle: how about the acts that aren't megastars?  How does an indie (independent) group get noticed?  How do they build an income?  I think most people know that the music industry has some mega-rich stars like Taylor Swift, but the vast majority of the professional musicians are "working class" like the rest of us who get up and go to work every day.  I work with an engineer who is a great saxophonist, and who has been a studio musician on a few jazz albums.  One of his favorite jokes is, "what's the first thing the saxophonist does when gets up every day?  He goes to his day job".  MakeUseOf points to an article explaining that many of the "huge" bands in the UK have day jobs.  Spotify pays those small Indie albums, too, along with royalties on old 1960s albums.   

With a service like Spotify, you might hear groups you otherwise wouldn't know of and grow their royalties.  While I admit to not knowing enough about their service, I know with Pandora and I Heart Radio, you can create custom profiles and their software finds songs that it thinks you'll like based on your feedback to what you're hearing. 

I understand that streaming is growing rapidly and sales of conventional distribution methods, like buying a CD or buying a song from a service like iTunes, are decreasing.  In Europe, artists get an average of 13% more from Spotify payouts than they do from iTunes royalties. There are performers on the road who got started by putting up videos on YouTube and attracting a following (the case with Pomplamoose - as far as I can tell).  Things like that tend to take power away from the record companies.  I don't know if Spotify can or will pay "rights holders" who aren't record companies, but they should.   

De-centralizing power is one of the things the Internet does best.  Which explains net neutrality in one sentence.