Opinion: Pandora and Spotify – 10 things I think I know and how they impact the music industryPublished by JB on August 22, 2013
Are Pandora and Spotify killing the music industry slowly, quickly, or not all?
What about Apple? Is it a good religion they’ve created or are they still the cause of death for physical sales?
What will change, if anything, over the next 2-4 years?
Why are artists really pulling their music off of Spotify?
So here’s 10 things I think I know:
1. The payouts to struggling songwriters are brutally low. Maybe they are, but whose fault is that?
Both Pandora and Spotify don’t pay them directly. Google up on ‘Spotify’, ‘Pandora’ and ‘songwriters’ and you’ll read a lot of venom about how both services don’t pay out proper, fair royalties. The problem for the songwriters and publishers is that Spotify and Pandora only pay ASCAP, BMI, SESAC (the collection societies) who then distribute the money to their members. For songwriters and publishers, battle #1 should begin with the negotiating power of those three agencies, not Pandora and Spotify.
Beyonce’s 2012 hit ‘Love on Top’, was streamed more than forty-two million (!) times in 2012. Forty-two million streams paid out a measly $3826 to split among the writers, composers and publishers of that song. How much was the share for one of Beyonce’s three writers, Shea Taylor? Exactly $574. That’s $574 for 42,000,000 streams. (1)
2. Pandora is lobbying congress to pay LOWER royalty rates to songwriters
This is a true statement. But it’s not as nearly egregious it sounds. Pandora wants to be in line with more traditional digital radio rates. Believe it or not, this reduction is needed for Pandora to be profitable. In 2012 Pandora paid about $200 million dollars in royalties, or 60% of their overall revenue. (2)
3. iTunes is still better than Spotify and Pandora – for the artists
True statement. It doesn’t matter if I’m an Apple guy or not. The fact of the matter is that for every $9.99 album purchase you make on iTunes, $7.00 goes to the artist, composers , record company and rights holders. iTunes is one of the simplest and most convenient ways to support the artists, own the music for the rest of your life, and be able to listen to it upon demand. You want to listen to a more fair and equitable option for radio streaming? Try the radio channel on iTunes. It’s outstanding. (3)
4. New music is needed for Pandora and Spotify to thrive. And new artists on Spotify are getting paid (quoting Thom Yorke) “fuck all”.
Nearly everyone is in agreement that streaming services are hitting new artists and their new music the hardest in the pocketbook. If Spotify and Pandora don’t change their pricing model for new music, there will be less new music to stream. One of the world’s top producers, Nigel Goodrich recently said, “Making new recorded music needs funding. Some records can be made in a laptop, but some need musician and skilled technicians.” There’s little or no chance that current royalties from streaming services will ever allow that funding to happen.
Without a fair return on their hard work, their art, their expensive studio time, their instruments – new artists will dissolve into the shadows as they see no upside financially for even sustaining a recording career. The industry should not force artists into a position of either stopping the creation of their art or dramatically altering how they create it (i.e., using b-level recording tools instead of higher quality or even more traditional in-studio options). Can you imagine if Radiohead couldn’t make OK Computer simply because their future returns on Spotify and Pandora wouldn’t be able to justify their expense of studio time? Or Pink Floyd never making Dark Side of the Moon, or being forced to compromise their artistic process (perhaps they couldn’t afford to bring in Alan Parsons to produce it?) in doing so. Not every artist on the planet desires to make a new album on an Android tablet. Pay them offensively low royalties and kill their sales that’s what we’re down to. (4)
Our 2012 article: Spotify vs iTunes vs file-sharing
5. Popular and respected artists (Pink Floyd) are speaking out against Pandora and Pandora and Spotify and removing their music from their service in some instances. But can any artist take their music off Spotify?
Um, yes they can actually. Artists have to opt-in to Spotify. If it’s so bad, why don’t they just pull their music off? Thom Yorke has. (4) So this is a very bad situation and this is where it gets confusing for the artists on what to do. The simple task of gathering all the facts about the money flow in the music industry currently is quite difficult enough. But it’s important.
Love him or hate him, Thom Yorke of Radiohead said, “Make no mistake, new artists you discover on Spotify will not get paid. Meanwhile shareholders will shortly be rolling in it.” (4) The artists that need it the most (newbies) are getting paid the least because they have no back catalog to earn from. Other artists that you will not be able to find on Spotify? Oh, just The Beatles, Led Zeppelin and AC/DC. It’s a tiny civil war in the making.
6. Streaming sound quality,…well it kind of sucks
Typical Mp3 quality versus a CD? It’s no contest. CD’s are still miles ahead. Mp3’s versus vinyl (analog) on a high quality turntable? Vinyl wins. Ditto for cassettes. It’s one thing to deal with the degradation of the sound quality of our phone calls versus 15+ years ago but I have a serious line to draw when I have to listen to the new Daft Punk album on a 128kbps or 320kbs stream versus the full, glorious version on CD or vinyl. Can’t tell the difference? Are you kidding? Upgrade your toys. Streaming quality on Pandora and Spotify is undeniably inferior sound quality to a CD that delivers output at 1440kbps. Spotify maxes out at 320. It’s simple math. 78% of those irreplaceable little digital audio bits are evaporated when you choose a 320kbps stream over the 1440kbps CD.
CD’s have been around since about 1984 and they sound better than what you’re streaming in 2013. Yes, I’ll often stream a true internet radio station such as ‘Indie Pop Rocks‘ on Soma FM with great delight to get exposed to new indie pop music in the highest-quality possible stream, but if I want to hear that same music sound better I’m ordering the CD or driving to the local record store. Don’t limit yourself to some fake sense of ownership by dragging inferior quality streaming tracks of your preferred artists to your favorite folder in Spotify. Buy the music in its best quality. Wish to challenge this notion? It’s simple. Play the CD on your laptop at the same time you’re streaming the song and toggle back and forth. For a better comparison, play that CD on a top notch home CD player.
Seriously folks, for a few measly bucks more you can own the actual CD, liner notes and rip the songs into any digital format you want.
7. You have other high quality alternatives than Spotify and Pandora
I’m a premium subscriber on Spotify but I rarely use it anymore. I’ve never used Pandora. I don’t need it. You’re being told they’re the best by an impressive marketing machine. Just because Beats by Dre are great looking headphones, they aren’t the best sounding. Ditto for Spotify and Pandora. If you want high quality streaming of new music that is both profitable for the artists and enjoyable for you, you have many more options:
some great alternatives
- SomaFM and its many contemporaries – in this authors opinion, it’s the highest quality, best new music streaming service on the planet with over 20 unique channels of music to choose from. See a song you like then click on the link in the playlist and it takes you to a site to purchase the artists music. Everyone wins and it’s the right way of conducting business. Consumers can’t pretend to ‘own’ a track on demand – new artists get exposure and royalties. (5)
- iTunes Radio – they pay higher royalty rates than Pandora and they offer the obvious shopping cart service via iTunes to purchase immediately. How much easier do you need it? For every $9.99 album you purchase on iTunes, $7 of that goes to the artists, publisher and songwriters. (3)
- Sirius XM – not as high on my list as SomaFM and iTunes Radio because Sirius XM doesn’t promote the purchase or ownership of new product, however, they do pay decent royalty rates to songwriters, and I like that tremendously.
8. The music cannot sustain itself as successfully in the past with the current streaming model
There simply won’t be enough money to encourage or even allow new bands to make music. Not under the current model. Spotify and Pandora must at some stage, stop offering a free service – or offer a free service that doesn’t allow for on-demand streaming (i.e., where the consumer gets to choose the exact track they want to listen – similar to their iTunes library). Spotify for example, pays 3x higher royalties to artists for each dollar spent on their premium subscription service versus the free one. (6)
There must be some impetus in place (right now its mostly sound quality and portability) that encourages the sale of physical or even digital music beyond a streaming subscription, unless those paid premium ($9.99 for Spotify) streaming subscriptions dramatically increase and that money trickles down to the royalties paid to artists, publishers, songwriters, etc. In the long run, no one (including Spotify and Pandora) benefit from squeezing out new artists into real day jobs and away from the studio. The music industry won’t survive forever on royalties from Dark Side of the Moon.
9. Napster, Apple, Spotify and Pandora changed the music industry forever and it will likely remain this way for many years
So here we are towards the end of 2013. Declining CD sales, an increase in vinyl sales that is nothing more than a blip on the radar, an increase in on-demand streaming, and digital sales that remain strong but might fall off slightly in years ahead. The $5 full digital albums you can buy on Amazon may keep revenue for digital sales on the climb but Apple forever damaged the price of music by offering the $9.99 album. In 1986 an album on CD was about $15. In 2013 it is $9.99 or less for a full digital copy. Nevermind that digital downloads are inferior quality, they continue to squash physical sales. That will never reverse.
Napster created the mp3 craze and the thirst for free, stolen ripped tracks. Apple picked that up said let’s charge 99 cents for each song as Napster had it’s power unplugged in court. As streaming services began to gather a little steam several years back it’s been Spotify and Pandora that pulled off an Apple-like cult-following from tiny niche to mainstream power. With Napster now long gone, the trifecta of Apple, Pandora and Spotify rule the music world. Audiophiles, collectors and die-hards will still buy physical products as we turn our nose to the streaming quality others endure.
With no other medium gaining serious steam (HD Tracks, which are uber high quality digital downloads, has potential but not until the price comes down and portable devices can play them), the music industry of today will probably be the music industry as we see it for the next 2-4 years as the big players fight for positioning and battle over royalty rates.
10. Spotify and Pandora have their proper place in the music industry
It took me a few weeks of research to pull up my big boy pants on this one. Being very much a traditionalist and an avid supporter of artists and songwriters I wanted to wax poetically at my hatred for the impact of Spotify and Pandora on the music industry. But I can’t. Do they suck in some ways? Yes, read above at tiny pieces of 1-9. However, they are no worse that the labels that made it difficult for artists to reap proper benefits from CD sales several decades ago. New bands in years long gone were having to suck up to label hot shots with no plan B in place such as dropping songs on the internet like they can now. Even if you suck now, you can still release music. Even if you’re broke you can make an album on an iPad. Spotify and Pandora, if anything else have provided an enormous (nearly planet-wide) platform for new music to be heard. Obviously some of that impact trickles down to additional music sales, t-shirt sales, concert tickets and fan followings.
However a proper balance must be found. New bands must get financial support and fair royalties for their art to continue. I wish that Spotify and Pandora would push harder for sales of their premium service and increase their fees. They could then pass that revenue onto the artists and allow the economic 101 rules of supply and demand to balance out while ending this undeclared war with artists and songwriters. What we must watch for right now and over the next couple years is the battle over royalties. We need to be vocal to ensure that we don’t lose a generation of new artists while this tug of war between the behemoths (Apple, Pandora, Spotify, etc) plays out.
References:(1) http://thehill.com/opinion/op-ed/314531-stop-short-changing-songwriters#ixzz2bnhU252y (2) http://www.businessweek.com/articles/2012-12-20/pandora-is-boxed-in-by-high-royalty-fees (3) http://thetrichordist.com/2013/02/08/music-streaming-math-will-it-all-add-up/ (4) http://www.theguardian.com/technology/2013/jul/15/thom-yorke-spotify-twitter (5) http://somafm.com/about/ (6) http://www.prefixmag.com/news/spotify-premium-pays-artists-and-labels-three-time/67366/ (7) http://money.cnn.com/2013/04/25/technology/itunes-music-decline/index.html