Spotify’s Financial Viability and Pernicious Fallacies (Op-Ed)

David Macias is the President of Thirty Tigers, a label services, management and distribution company that represents the master rights for Flogging Molly, Matisyahu, Trampled By Turtles, Jason Isbell and others.

Spotify is once again on everyone’s radar, thanks to the recent decision by Thom Yorke and Nigel Godrich to pull their works from Spotify, with Mr. Yorke saying on his Twitter account, “Make no mistake new artists you discover on Spotify will not get paid.” These objections follow in the wake of similar objections by other artists, most notably Damon Krukowski in his widely disseminated and discussed article on Pitchfork entitled “Making Cents.”

For the record, Spotify pays rights holders 70% of the income that is generated from subscriptions and advertisements on a pro rata basis based on the percentage of streams each song receives. This is the same percentage iTunes pays.

It is estimated that Spotify currently has slightly more than 1.5 million subscribers in the US (having only passed 1 million in December 2012) or market penetration of .5% of the US population. If you’re looking for Spotify to deliver sustaining revenues here in the US, you should remember how incredibly tiny their market share is here. Spotify is currently responsible for just 2.5% of Thirty Tigers’ revenues.

To more properly gauge the effect of streaming on the overall market, one must look at a market where Spotify has garnered sufficient market share. Might I suggest Sweden, where Spotify has a market penetration of 15% of the total population and generates 70% of all prerecorded music business revenues (according to the GLF, the Swedish recording industry trade organization)?

The result in overall revenues in the Swedish market? Up. Up by 14% from 2011 to 2012, and up another 12% so far in 2013. In fact, up every year since 2008. If streaming services were detrimental for music business revenues, then you’d be hard pressed to explain away Sweden.

One of the more pernicious fallacies is the comparison between what one makes from a download and a stream without due consideration of the repeatable transactional nature of streams and the revenue derived from significantly more transactions. Let’s look at Macklemore and Ryan Lewis, an act that one could safely say is relatively new.

Eyeballing their page on Spotify, it appears that they have registered over 300 million streams. If you divide that number by 10 to approximate the number of times an album would have been listened to, that would be 30 million. They would never sell 30 million, or even close to it, even if you included TEA (track equivalent album) sales. That is because a download is a one-time transaction, and a stream renews the transactional relationship with every listen. At an estimated rate of $.005 per stream, that comes out to an estimated gross of $1.5 million. Given that they own their work, they are almost assuredly keeping the vast majority of it. Not a bad take from one account that has such small market share.

A little closer to the ground is Thirty Tigers artist John Fullbright, who is also new, but has not had quite the amount of airplay that Macklemore and Ryan Lewis have had. He has over 400,000 streams, which have generated $2,307, the vast majority of which he retains. If that seems like a small amount, I’ll remind you that Spotify represents 2.5% of our total revenues. Multiply that number by 28 (70% divided by 2.5%) to get a sense of what the total effect would be for Mr. Fullbright if the US had the same market share as Sweden. That would yield $65,000 in gross revenues, not exactly chicken feed for an artist that has scanned just shy of 20K units.

The naysayers have never provided any sound economic rationale as to why they think that streaming is an unfair model, other than narrow anecdotal evidence from their own statements with no recognition of the miniscule market share that Spotify represents in the US, the vastly improved state of the Swedish music business, or the radically different consumption patterns of downloads and streams. Some of the “supporters” of streaming will concede that money cannot be made, but streaming provides exposure opportunities that an artist should embrace regardless of the financial ramifications.

I concede nothing of the sort. When one examines the facts, streaming is a viable financial model that pays rights holders fairly and can and will grow the overall business. Simples.

Billboard.biz welcomes responsible commentary, please send your guest posts and Op-Eds submissions to [email protected].

QUOTE OF THE DAY


“Build this day on a foundation of pleasant thoughts. Never fret at any imperfections that you fear may impede your progress. Remind yourself, as often as necessary, that you are a creature of God and have the power to achieve any dream by lifting up your thoughts. You can fly when you decide that you can. Never consider yourself defeated again. Let the vision in your heart be in your life’s blueprint. Smile!”
-Og Mandino

Sean ‘Diddy’ Combs Names Keith Clinkscales CEO, Andy Schuon President of Revolt TV

Sean “Diddy” Combs’ today officially announced the executive team for his music-oriented cable television channel Revolt TV naming Keith Clinkscales CEO, Andy Schuon president, and Val Boreland EVP of programming and strategy.

“Keith, Andy and Val are the perfect combination to run Revolt – they are my executive dream team,” said Combs, Revolt TV’s chairman and founder, in a statement. “This launch could not be done without their talents, experience and drive to create the best new network the industry will have seen in a long time.”

Sean ‘Diddy’ Combs Pitches Music Cable Channel Revolt At Cannes

Revolt TV,  which has national carriage deals with both Comcast and Time Warner Cable, is set to launch this fall.

Before coming to Revolt, Clinkscales founded The Shadow League, a digital sports platform, in partnership with ESPN, where he previously worked for seven years as senior vice president. Prior to that Clinkscales served as founder, chairman and CEO of Vanguarde Media, publishing HONEY, Heart & Soul and Savoy magazines; and was president/CEO of VIBE which he helped launch with Quincy Jones.

Schuon’s vast experience includes working as president of artist services and head of digital for Ticketmaster, running Elevated Music Group and co-founding “C” Student Entertainment. He also worked as president/CEO of International Music Feed, president of programming for Infinity Broadcasting, CEO of the Sony/Universal venture Pressplay and president of Vivendi-Universal multiplatform media company Farmclub.com. He served as EVP and general manager of Warner Bros. Records and worked MTV as executive vice president, programming & production.

Boreland previously served as senior vice president, program, promotion & multiplatform strategy for Comedy Central, working at the network’s offices in New York. Before joining Comedy Central, Boreland served as vice president, scheduling, planning and acquisitions at Lifetime Television

Revolt TV plans to be a “real-time, socially connected television network” operating on different platforms with programming focusing on “live performances, music videos, news and interviews, as well as talk shows and original series, with a mission to equally reflect and impact popular and music culture.”

PANASONIC GX7

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Micro Four Thirds enthusiasts have a new camera to lust after, the robust and retro-inspired GX7. Panansonic’s new flagship sports a 16MP sensor, a 90-degree tiltable EVF, a maxmium shutter speed of 1/8000, ISO sensitivity up to 25600, in-body image stabilization, built-in WiFi, NFC, tiltable LCD, and a magnesium alloy camera body.

Via Photo rumors

Miley Cyrus gets naked for Marc Jacobs T-shirt

Miley Cyrus has stripped down to grace a black and white image for a Marc Jacobs T-shirt. The shirt is the latest in the “Protect the Skin You’re In” campaign, which raises awareness and funds for skin cancer research.

Other celebs who have been part of the campaign include Naomi Campbell, Kate Upton, Heidi Klum, Eva Mende, Hilary Swank, and f Victoria Beckham.

Jacobs runs the campaign along with business partner Robert Duffy.

The $35 black-and-white printed tops are available now at nine Marc Jacobs boutiques across the U.S.

Apple updates: fingerprint scanner coming in iOS 7

The first bit of information is that iOS 7 will have a fingerprint sensor in the home button. Many analysts have speculated that this option was in the cards for this fall. The fingerprint sensor would allow for increase security options for iOS devices. No smartphone on the market has a fingerprint sensor. Getting the technology to market first would be a nice coup for Apple. The fingerprint scanning technology was tipped due to code discovered in the most recent beta release of iOS 7.

The second piece of news is a confirmation that Apple will offer a plastic iPhone this fall – likely the iPhone 5S. A plastic casing would significantly lower the price of an iPhone, and would also allow Apple to market more colors to consumers. The downside to the revelation was the source – a New York-based labor rights organization. The group, China Labor Watch, specifically mentioned workers putting together plastic iPhones that are not yet in production. China Labor Watch has accused Apple suppliers of labor violations – an issue that Apple has dealt with in the past – and will likely continue to be forced to address in the future.

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