Will blog but also has something to add re: their advertising models and privacy and an email conversation I’ve had with their legal council.

Stay tuned people.

http://www.informationisbeautiful.net/2010/how-much-do-music-artists-earn-online/

“First up, stop talking about Piracy. It’s a stupid inane term.”

Please tell me what term to use for all the people consuming music for free by illegal means.

It’s music discovery, it’s listening, it’s sharing, it’s a whole lot of things. But has nothing to do with anything that could be traditionally thought of as piracy – whether perpetrated on a ship or not.

I assume you have checked bit torrent on public trackers. However, most music is found elsewhere. There are loads of private music trackers and several other ways for people to get their music fix without paying. One popular method is links to Rapidshare, Megaupload and similar services. And certain file sharing programs, like SoulSeek, are better for small indie artists in general.

As far as I know, there’s nothing of mine up there. I’ve looked around. If there is, I’m glad people are interested in it. Particularly because it’s perfectly legal for my music to be shared like that.

“ 325,000 doesn’t mean anything other than as a percentage of overall use, given that Spotify HAS to pay out a certain royalty on all plays.”

If my information is correct this is wrong. But the exact deals are confidential so who knows.

Clearly not you. Or maybe you should publish your information. It’d be helpful. Again, I’m happy to be wrong – I don’t have an axe to grind here..

Anyway, most artists are greedy enough to prefer a fixed rate rather than the Spotify “share of revenue” model. Sure, Spotify will pay you less now, but eventually they may end up paying much more than that fixed streaming rate.

“Most artists” based on what research? I’ve read nothing about Spotify offering me a revenue share. I’ve only heard about them giving percentages to the big labels in exchange for catalogue. That helps me how exactly?

It’s also worth noting again that high streaming rates is the best way to stop innovation in digital music. Just take a look at Germany…

‘the best way’ – you really are full of unsupported statements today. Go on, explain. Or not.

No, Warner is not pulling out, you got that very wrong, but since they are the label most stuck in the failing business models of old you never know what they will come up with in the future.

.

No defence of Warner here. I have no interest in them at all. But they have said they aren’t going to pursue streaming any further (whether that means they leave their catalogue on Spotify isn’t really an issue) – because they see it not working. If the perception of the people supplying the music to Spotify is that it doesn’t work, there’ll be no music. That’s not an anti-Spotify statement, it’s just fact. I hope Spotify get it right.

“It will be interesting to see if others follow, or if Spotify can make a compelling case for their business model to the various stake holders. If not, there’ll be no music to stream. If they can, they’ll do fine.”

And all the millions of Spotify users will go back to getting their music for free. Is that what they really want? Somehow I seriously doubt it. You have to take into account what is happening to CD sales and, more recently, digital sales.

…or they’ll go to a different service, or whole new models for distributing music or making it available direct from artist to fan will open up. Once again, you appear to be talking about Streaming in some Fukuyama-esque ‘end of history’ way. It may last, it may not. Music is bigger than Streaming. Streaming is bigger than Spotify.

“But none of us know what will happen, and anyone who says they do is a fool.”

There are certain facts to consider about how people want to consume music today and in the future. The point now is that artists and labels haven’t done anything to create something even remotely similar to Spotify in ten years time. Artists and labels don’t innovate but rather rely on others to do that for them. This is the sad state of music business today. I’m convinced that legal streaming is going to be a significant part of how we listen to music in the future.

..how *some* people want to consume music. And about how some artists feel about that. Spotify is a macro-industrial solution. I’ve no idea which parts of the indie-music scene are feeling the pinch, which ones are doing well, and which ones are finding new audiences through streaming/free downloads/sharing/vinyl/whatever. Why? because most of the stats available are about metatrends in ‘music’. Which are imbalanced due to the VAST majority of music sales/downloads/streams etc. happening to a tiny percentage of artists. the number of artist-still-producing-music that are part of those figures is smaller still. So the hundreds of thousands of independent artists across the world make up a small amount of the total revenue within the various music industries, but represent the vast majority of the stakeholders. Those stats don’t exist.

“Please explain the royalty structure if it’s not what I said it was.”

No. I can’t explain it in detail. All I can say is that premium plays do count.

Count in what way? That doesn’t help. If you don’t know, say so. If you do know, let us know how. My initial statement was based on a quote from Daniel at SXSW. If it was wrong, as I’ve said, that changes everything. So far you’re not giving me anything to go on.

“As for the Ads – I’ve NEVER heard or seen an ad that was useful.”

Is it the same if you watch TV? I have only used Spotify free for short periods of time and in those times there were many very useful ads.

I don’t own or watch TV. When I do watch TV programs via the web, it’s on the BBC iPlayer, so no ads.

“If Spotify plans to fund it self on a 60/40 split, how close is it to that now? Do you know? Will you tell us? Do you know someone who will?”

I don’t know. My guess is that they have a lot of work to do in the UK and Spain, but doing great in the other launch countries.

Based on what?

“I’m happy to be wrong – I want these things to work. I do. I don’t hate Spotify. I *may* pull my music off the service, just to see what happens. I don’t need it, it doesn’t need me…”

How many listeners do you have in Spotify and why would you even consider hurting them? Do you really want to anger your fans by actually pulling your music off Spotify?

My music not being on Spotify isn’t going to ‘hurt’ anyone. It may mean that some people come here to download it for free instead (Because they can). How many listeners do I have there? No idea. There’s no way of knowing. Spotify don’t publish any such data. Unlike, say, Last.fm…

As of today I haven’t seen any stats indicating that Spotify is taking anything away from artists. There is no cannibalization and yet you and many other artists act as if it is a fact. I find it both strange and frightening to see small artists think exactly like the very big ones in this matter. If you aren’t losing money, but rather making money, what is so bad about being there? If you have stats to show that you actually lose money because of Spotify it would be great to see them!

Now who doesn’t understand. You’ve been linking to my post about the economics of Spotify for artists for ages – I don’t think Spotify is remotely ‘bad’ for artists. I think, as I say in this post, that Spotify has failed to differentiate between Spotify lite and Spotify premium in a way that makes sense to me. They’ve broken a link that I see as vital between payment and expression of value in and gratitude for music. At the moment they don’t have anywhere near enough premium users for it to be a big issue. Largely because £120 a year is WAY more than 95% of music listeners have ever spent on music. That’s a lot of money going into the music economy. The big question is how it comes out.

There are loads of big questions over who’s getting it – every single bit of info I’ve seen about Spotify rates/payments/etc. has been speculative because they won’t/haven’t published any figures. Given that they are making money from playing adverts to people who are there listening to my music, it would make sense for them to tell me how much I’m getting, and how it compares to the rest of the artist there. That would seem to me like a fair, honest and open thing to do.

So *if* I do pull my music off Spotify, it’ll be for one of two reasons – a) because I’ve decided that I have an issue with ad-funded music services all round (a much bigger consideration that I need to think harder about) or b) just to see if I notice any impact… see if anyone bothers to contact me about it, see if I see a drop in plays/sales/etc. I’m willing to experiment with my own music career so that musicians can find out this stuff. At the moment, you and I speculating about what’s ‘good’ for musicians/music without any hard data on either side (unless you’re privvy to hard data but are unwilling to post it, in which case, I’d appreciate it if you’d stop commenting until you are willing to share it…) isn’t really getting to the bottom of it…

Please tell me what term to use for all the people consuming music for free by illegal means. I assume you have checked bit torrent on public trackers. However, most music is found elsewhere. There are loads of private music trackers and several other ways for people to get their music fix without paying. One popular method is links to Rapidshare, Megaupload and similar services. And certain file sharing programs, like SoulSeek, are better for small indie artists in general.

Piracy can be great for sure, but it doesn’t make sense to prefer it over something legal like Spotify. Yet, several artists first complained about piracy and the fact that there were no good alternatives and when there finally exists a good alternative (Spotify) they get greedy and want loads of money immediately. Strange!

“ 325,000 doesn’t mean anything other than as a percentage of overall use, given that Spotify HAS to pay out a certain royalty on all plays.”

If my information is correct this is wrong. But the exact deals are confidential so who knows. Anyway, most artists are greedy enough to prefer a fixed rate rather than the Spotify “share of revenue” model. Sure, Spotify will pay you less now, but eventually they may end up paying much more than that fixed streaming rate.

It’s also worth noting again that high streaming rates is the best way to stop innovation in digital music. Just take a look at Germany…

“The value in an ad is whether or not ads can cover the cost of the number of plays. If the value per impression. If you have 10 listeners and your profits are higher than your costs, it works. If you have a billion listeners and your running costs are above your income, it’s broken.”

Spotify could be profitable today if they wanted, but instead they choose to expand and go for bigger markets. Certain business models need scale to work out perfectly. Many people thought that YouTube never would generate any money and now it does. Same goes for Facebook. When you reach a huge number of people, there is plenty of money to be made. Nobody cares about YouTube bleeding money some years ago because today they are doing great.

“If you have a business model that doesn’t work for the people who give you the music to play, it also will fail, because they’ll pull out. Warner are pulling out.”

No, Warner is not pulling out, you got that very wrong, but since they are the label most stuck in the failing business models of old you never know what they will come up with in the future.

“It will be interesting to see if others follow, or if Spotify can make a compelling case for their business model to the various stake holders. If not, there’ll be no music to stream. If they can, they’ll do fine.”

And all the millions of Spotify users will go back to getting their music for free. Is that what they really want? Somehow I seriously doubt it. You have to take into account what is happening to CD sales and, more recently, digital sales. Again, read the Lefsetz newsletter for more on that issue.

“But none of us know what will happen, and anyone who says they do is a fool.”

There are certain facts to consider about how people want to consume music today and in the future. The point now is that artists and labels haven’t done anything to create something even remotely similar to Spotify in ten years time. Artists and labels don’t innovate but rather rely on others to do that for them. This is the sad state of music business today. I’m convinced that legal streaming is going to be a significant part of how we listen to music in the future.

No, I don’t work for Spotify and I’m not paid by them. I’m just a fan running a music recommendation blog. When a service miles better than the rest emerges, you will see that fans tend to be very dedicated about it…

“Please explain the royalty structure if it’s not what I said it was.”

No. I can’t explain it in detail. All I can say is that premium plays do count. Also, check out this interesting blog post from a small Swedish label: http://hybrism.blogspot.com/2009/12/about-spotify-vs-cash.html

“As for the Ads – I’ve NEVER heard or seen an ad that was useful.”

Is it the same if you watch TV? I have only used Spotify free for short periods of time and in those times there were many very useful ads.

“If Spotify plans to fund it self on a 60/40 split, how close is it to that now? Do you know? Will you tell us? Do you know someone who will?”

I don’t know. My guess is that they have a lot of work to do in the UK and Spain, but doing great in the other launch countries.

“I’m happy to be wrong – I want these things to work. I do. I don’t hate Spotify. I *may* pull my music off the service, just to see what happens. I don’t need it, it doesn’t need me…”

How many listeners do you have in Spotify and why would you even consider hurting them? Do you really want to anger your fans by actually pulling your music off Spotify? As of today I haven’t seen any stats indicating that Spotify is taking anything away from artists. There is no cannibalization and yet you and many other artists act as if it is a fact. I find it both strange and frightening to see small artists think exactly like the very big ones in this matter. If you aren’t losing money, but rather making money, what is so bad about being there? If you have stats to show that you actually lose money because of Spotify it would be great to see them!

fan to fan is already happening. It happens based on people just talking. That’s a given. Media coverage happens because of that. The value added is what’s actually in the service. The fans can’t talk about stuff that’s not there, and letting people know about what’s there requires artist engagement with it. Those exclusives for premium subscribers require artists/labels to allow that, to see the value in it – so either Spotify do deals where some people are promoted that way in exchange for a fee/extra promo OR they build an environment in which musicians feel like the premium service is in their best interests, at which point a large majority of musicians would probably make their music avaialable there first to capitalise on that. Which gives the users more great stuff to talk about, and Spotify a whole load of great content they haven’t had to pay extra for. Win/win.

Yes, I do know people who have stopped buying CDs and are using Spotify lite. They grumble about the ads, and eventually if the level of ads gets intrusive enough, they *may* be convinced to subscribe. Probably not at a tenner a month, and also probably not without trying the other services that are either already out there or emerging… Spotify for many people is currently the only game in town (I’m surprised at how few people talk about We7 in this context…) They exist. I’d be interested to see numbers mapped for that against numbers of subscribers – who, despite the raw figure of 300,000+ subscribers, are still a relatively small percentage of users…

However, your point about ad users accumulating payment is a crucial one – thanks very much for making it. I’d missed that as a key element in any of my posts on the subject. It’s why making the ads more valuable is vital. Because as an ad view is better targeted, has better click through potential, is more relevant, better integrated into the service, the value of it goes up all round. At that point, Spotify lite *could* become more valuable to Spotify than the subscriber base. Would be interesting to see the numbers. I’d love to know of currently Spotify are covering the cost of ad-driven plays with ad revenue. My hunch says ‘no way’ if the payment figures are indeed as they say a lot higher than the initial payment.

But again, what we hit on is the rather distasteful veil of secrecy that they have over their accounting procedure.

Thanks for your comments – most helpful. For me, the conversation here has come down to ‘do I want to be on an ad supported service at all?’ Which is an interesting question I’ll be pondering over the next few days. Fortunately, whichever way I choose, I don’t think too many people’s Spotify experience is going to be affected

That’s a really valid point. That being said, when offered the opportunity to express oneself on whether or not they like an ad, most people would say they dislike them, even if they are fairly targeted.
So I’m not sure that would really work.
The problem is the targeting. When you advertise on the internet, you’re generally pitching to a specific demographic. If you have an ad on a women’s magazine website, chances are you’re selling a product that you believe could be of interest to women, and in most cases, you have a fairly good idea of the age group, social status, etc,

When you put an ad on the radio, it’s a similar story. The radio had data on the demographic of their listeners.
On radio stations that focus mainly on music, a record label can advertise by plugging a song. On less music focused radio stations, the advertising is geared more towards other things. ie: you’ll hear an ad for a bank just before a programme that specialises in finance, etc…

But Spotify is not a website, and it’s not a radio station. It’s an on demand music service, where its users choose what they want to listen to. It’s not a passive experience. You choose an album you want to listen to as opposed to just listening to what the radio station has to offer. So how do you target ads? Can you determine a person’s demographic just by analysing their taste in music?

Spotify only knows my postcode, the country I live in, my age and whether I’m male of female. So they can try and sell me men’s underpants if they want!

Another problem faced by Spotify is the production and implementation of ads. If you advertise on the internet, you can go through Google AdSense, or similar advertising services, based on keywords, etc… Everything is text based. And the normal website ads generally include text, images and in some cases sound. You can choose what kind of website your ads appear on.

I don’t know about you, but I don’t look at the Spotify application very often so the only way of grabbing my attention is by playing an audio ad. So it seems to me, Spotify is missing out on a large amount of potential ads because their medium doesn’t fit very well with the current advertising models. So you’ll hear crappy homemade ads or see a large takeover in the application. Based on the quality of some of the ads, it’s pretty clear the advertisers didn’t spend much money on production, so it seems pretty obvious that they didn’t spend much money on their advertising campaign either.

If they want to start making some money without annoying people, they should do something like Last.fm powerplay or Jango Airplay. You choose a bunch of artists that are similar to your bands, and you pay to have your music played to people who listen to those artists. It solves the recommendation issues in Spotify (to a certain extent) and will make Spotify some money in the process.

Another idea I had for Spotify is for them to build a custom platform for ads that changes the background music of the ad based on your taste in music. A lot of the ads don’t even have background music and sound terrible.
If you do a mash up of both ideas, what you get is a less disruptive ad because you move seamlessly from the music you like to music you probably like with an ad sitting on top of it and an opportunity for unknown bands to provide their music for an ad in exchange for a some exposure. In this case, the band would just provide the music for free of course.

Spotify wouldn’t even have to worry about how to choose the music because the bands providing their music would select artists they think they sound like and the targeting could be done based on that.

It doesn’t solve the problem of whether or not the contents of the ad is well targeted or not, but it would certainly improve the user experience and increase their advertising revenues.