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Penny Fractions: Spotify’s Business Is Breaking Before Our Eyes

Hello, I hope people are doing well! This week I’ll be going on a world tour of recent Spotify news b
Penny Fractions
Penny Fractions: Spotify’s Business Is Breaking Before Our Eyes
By David Turner • Issue #81 • View online
Hello, I hope people are doing well! This week I’ll be going on a world tour of recent Spotify news because the Swedish company just keeps making music. But before I do that, if you live in New York City, this Thursday evening I’ll be giving a humorous talk on a particular music conspiracy theory for the release of the book Republic of Lies: American Conspiracy Theorists and Their Surprising Rise to Power by the journalist Anna Merlin. Info about the event can be found here! My last note is that if you wanna further support the newsletter beyond telling a friend or co-worker, consider contributing to the Patreon page. Okay, let’s dive into the never ending Spotify news cycle.

Apple Music is Bigger Than Spotify (in the U.S.)
Last week the Wall Street Journal reported that, according to sources, Apple Music overtook Spotify in the number of American subscribers. A few readers might remember that the same reporter, Anne Steele, detailed this piece of news last February and pegged the date for an Apple Music takeover by the end of 2018. The explanation provided was that Spotify pushed heavily on bundles—like its bundle with Hulu—and discounts to stave off Apple’s market share leadership.
I don’t want to dwell too much on this story, but I wanted to ground this newsletter in the fact that Spotify is fighting many, probably too many, public relations battles. Many of these issues are self-inflicted because this now-public company is needing to prop up what appears to be a fundamentally broken business model.
Spotify's Loud Entry Into India
A month after Spotify’s launch in India, I wanted to circle back to one of the most contentious stories within the music business this year. Daniel Ek, Spotify’s CEO, has talked about getting the platform into India for years as if it were some final colonialist conquest. Unfortunately, Spotify spent most of 2018 pushing back its launch in the country, as major labels weren’t in a quick rush for the streaming service to continue its global expansion. I kept repeating in my newsletter that these companies would eventually come to an agreement because it was in the interest of the labels to make Spotify agree on better terms for them, not to be completely shut out of the country. Well, that didn’t quite work out that way.
Spotify scored deals with Universal Music Group, Sony Music, and a number of Indian record labels but ended up in a now-ongoing legal battle with Warner Music Group. The snag was that Spotify proceeded to launch in India despite not coming to a licensing agreement with the publisher Warner/Chappell. This court case remains unresolved, but as Billboard reported, if Spotify loses, it’ll just have to pay back the royalties it would’ve owed, whereas if Spotify wins (which no other Indian streaming service has been able to do), then it could harm the ability of publishers and songwriters to fight for better payments.
This highlights Spotify’s colonialist business practice of parading into a country and attempting to side-step the country’s laws so that the company can undercut payment towards artists. Spotify’s actions could actively hurt the musicians and workers of the Indian music industry, but that’s exactly what the company needs in order to survive. That’s why it’s not surprising that western and Indian music streaming platforms like Apple Music, JioSaavn, Gaana, and YouTube Music have all been dramatically lowering subscription costs after Spotify’s arrival. Suddenly, India isn’t only a new market for these companies to grow in, but it’s also become a race to the bottom to see how little can be paid to labels without completely upsetting the ecosystem.
Spotify vs. Songwriters
A few weeks ago, Spotify along with Amazon, Google, and Pandora appealed a ruling by the United States Copyright Royalty Board to increase mechanical royalties by 43.8% over the next five years. The appeal was immediately decried by the National Music Publishers’ Association and its leader David Israelite. Spotify responded with a bit of word salad that tried to position the company as loving songwriters, but also cravenly pushing for an appeal that directly hurts the pockets of these workers: 
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.
Whether this ruling does indeed back bundling harder is rather moot to me, because the type of bundles that Spotify offers with services like Hulu explicitly devalue music and how much they’ll be paying out to artists. So it’s hard to feel any loss right there. Spotify’s attempt to appeal towards consumers’ hearts via their wallets to pit them against the interest of songwriters is something that I find morally repugnant. Music consumers aren’t fans of Spotify (they’re just fans of the fact that it provides music that they enjoy), so if suddenly there was no music on the platform, users wouldn’t stick around for milquetoast ambient tunes. That’s why I found the anti-worker, pro-business angle that Ed Christman took in Billboard so jarring:
So while Spotify has so far been unprofitable on an annual basis, its road to profitability would have gotten a lot longer if the publishers had gotten what they wanted. And eventually, that wouldn’t have been good for the overall music industry – including music publishers.
In his piece, Christman crunches the numbers and discovers that if music publishers got their way, then Spotify would potentially be paying 87% of its revenue to rights holders, but if Spotify and the other tech companies won, it would result in them paying less towards songwriters than they do today. This court case isn’t about tech companies simply wanting to pay less, but about them willfully attempting to further reduce down payments to their labor force. What’s odd is that Christman’s analysis doesn’t investigate why Spotify’s business model would suddenly become unsustainable if the company were to make minor work concessions. Instead, Christman implies that songwriters, because of their desire to get paid more for their work, could potentially hurt the music industry.
Spotify may rightfully call out Apple’s monopolistic behavior with regards to how the company runs its app store, but the Swedish company wants to do the same with songwriter wages so that its unprofitable business can continue to operate. Christman and Spotify’s logic is the kind of austerity pabulum that I expect to hear against striking teachers that simply want higher pay, reduced class sizes, and better resources for their children. However, songwriters aren’t sitting out this public relations fight. Yesterday, a number of songwriters, who were part of Spotify’s Secret Genius program, penned an open letter to the company—including one of my favorite songwriters Babyface—calling for it to drop its appeal to the CRB. An encouraging sign that songwriters can organize around such an issue, and it’ll be interesting to see Spotify’s response given another recent tussle with American organizing labor.
Spotify Indifference Towards Organized Labor
Last month, employees at Gimlet Media, which Spotify just bought for $230 million, announced a union drive with the Writers Guild of America East (my former job at the defunct music site TrackRecord was a WGAE shop). This was met with a bit of excitement because this is the first major unionization effort within the podcast space. What’s taken place over the past month as the union continues to wait for voluntary recognition isn’t too surprising.
The Gimlet Union Twitter account stated that management attempted to cut the bargaining by 30 staffers and continues to not recognize the union. These kinds of anti-union tactics are well over a century old and certainly aren’t unique to Alex Bloomberg and Matthew Lieber, who in an interview with Recode got emotional over how much money they were able to give to early company investors (while the same generosity was not extended to the actual workers that provide real value to the company). Now that Spotify owns Gimlet Media, there is ‘suddenly’ a labor issue on its hands.
Gizmodo reported on an internal message board post made by Dawn Ostroff, Spotify’s Chief Content Office, where he said, “This does not directly affect Spotify but we’d like to take this opportunity to say that we respect Gimlet employees’ right to decide whether to seek union representation…we expect that Spotify will be mentioned in ongoing media coverage but we will refrain from making any external comments from Spotify so that both parties can continue their dialogue without distractions.”
The fact that Spotify wants to keep a ten-foot pole between this awkward story in light of everything I discussed above isn’t surprising. Author Nick Srnicek once described platform companies like Spotify as being held up by venture capital welfare and right now, every attempt to squeeze out marginally better deals to the detriment of workers across their business shows exactly just how precarity is built into businesses like Spotify.
6 Links 2 Read
I’ll be entirely honest: I wish I wrote this piece. But Brian Feldman did a lot of great legwork in working through the pre-viral fame of buzzing rapper Lil Nas X. This piece also helps to further complicate just how much effort it takes for artists, then songs, to get in a position to find a mass audience.
The music industry is making money, who would’ve guessed it?!
This story is really great for providing a rather detailed account of YouTube’s systematic desire to value growth over any other potential harms the platform caused its workers/society as a whole. Personally, I didn’t find much of this too shocking, but I always appreciate seeing this story put into a single narrative.
This isn’t a newsletter where I give betting advice, because lottery and many forms of gambling are a regressive tax on the poor, which further hurt communities they’re said to be improving. Now with that being said, sure, yeah, I bet this will happen sooner rather than later.
Major Labels Demand More Money from Opaque Licensing Deals Attached to Music Being Consumed by Children on an App Mostly Used by Children.
If you’ve gotten this far, I’d actually love to see what people’s thoughts are on this particular bit of news. I have my own and will elaborate a bit more next week, but I wonder how others perceive this.
The Penny Fractions newsletter arrives every Wednesday morning (EST). If you’d like to support it, check out the Patreon page. The artwork is by graphic designer Kurt Woerpel whose work can be found here. The newsletter is copy edited by Mariana Carvalho. My personal website is davidturner.work. Any comments or concerns can be sent to pennyfractions@gmail.com.
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