7 ms·

Pandora and Spotify Rake in the Money and Then Send It Off in Royalties

63 points by jamesbritt 14y ago

miratom 14y ago
Aww, you mean a CEO can't stay rich by giving away other people's creations for free? What a tragedy.
- timmyd 14y ago
  I don't think that's fair. These 2 companies have done more for music and promotion of music than anyone in the modern age - from an industry renown for collusion between the four majors (one falls into line and they all do etc). They have basically rescued a dying industry that essentially built its modern day business model on litigating everyone through RIAA and so on. That's not innovative - that's stupid and idiotic. Instead, what you have now is two companies who are trying to save a dying industry through subscription and the music industry trying to milk every single penny out of them. The dichotomy that creates is that these companies aren't sustainable long term - they are hemorrhaging cash re-the article: Spotify’s accounts for the last year, recently filed in Luxembourg, show that it lost $57 million in 2011, despite a big increase in revenue, to $236 million ... On top of that it had more than $30 million in salaries, and more than $30 million for various other expenses. That is how you lose $57 million on $236 million in revenue. That's just sad. The only incentive these companies have is to be ultimately purchased by the recording industry who can then dictate pricing on their own terms - and that's bad for everyone because then they are going to push prices up insanely. In fact, if these were purchased by the recording industry - it might be the worst thing to happen to music because we are all again at the mercy of the industry. They will want to maximise pricing and I believe, given their history, they will maximize anti-competitive behavior by essentially price fixing competing services out the market. By staying out the USA for 2 years, it was evident Spotify pushed (to some degree) the music studios to capitulate on their pricing - they both gave a little because the industry was desperate for cash. It's obvious to anyone that's the only reason Spotify weren't in the USA sooner - it wasn't economically feasible because the model was already proven to be a hit in Europe. I don't, for one second, believe that the Music studio's are paying this out to the artists. They are dumping this straight into the bank - the industry in that regard is now basically running on live shows and tshirts for artists to survive. So don't be so quick to judge "giving away for free" - because thats not what they are doing. They have produced amazing services in my mind - and there should be some reward for that by the industry in recognizing and enabling them to create sustainable businesses.
  - willwhitney 14y ago
    Not to mention that Spotify and Pandora are making it possible for young, poor people to be active music consumers without turning to piracy. When I was in high school, my options were to pay $15 an album, and thus only have access and exposure to a tiny music collection, or pirate music, hear a lot of great music, especially from smaller artists, and drag my friends to their concerts every time they were in town. Now I'm in college and still broke, but I pony up the $10/month for Spotify, and I continually encourage my friends to do so as well. They've created an experience that's dramatically better than piracy (even with nice private trackers), pays out at least some to the artists along with the moneypile that goes to the labels, and enfranchises people like me. I've always listened to an extremely wide selection of music, and now that I can pay to do it, I'm very happy to. And I still drag my friends to every good concert in town.
    - nilliams 14y ago
      Exactly, I'm proud to pay my Spotify membership and I feel I get my money's worth... I'd probably pay more. I have now gone over 2 years without torrenting a single album (the exception being one quite-large Canadian band who happened to not be on Spotify at the time ... I'd already bought the album on vinyl so I didn't feel to bad about it). Before Spotify my best effort at trying to be legal was to splash out every couple of months on some vinyl copies (nice to own... I still do this sometimes) of albums I'd already stolen via bittorent. Spotify, is a music-lover's dream and it's how music distribution should work.
- Permit 14y ago
  What? The whole point is that Spotify and Pandora are doing things legitimately via advertising or subscriptions and paying the appropriate royalties. You can get very rich by giving away others' creations for free. Sites like the PirateBay are profitable and MegaUpload seemed to be doing very well for itself until it was questionably taken down.
pvnick 14y ago
As someone who was entrenched in the music startup world for a while, I've concluded that the only way to save the music industry is for the major labels to die or become obsolete and for new, innovation-friendly content producers to emerge in their place. We need for music what Netflix is trying to do for movies/tv (see Lillyhammer, new Arrested Development season). It's that broken.
- willwhitney 14y ago
  I would be very excited for Spotify to start signing artists directly, without the major label middleman. It could let Spotify turn a profit on those artists while simultaneously paying out more to the people making the music. As an insider, pvnick, do you think Spotify could ever pull that off without burning the bridges of its current label deals?
  - pvnick 14y ago
    They could, but only for a short while with small artists until the labels start seeing them as a competitor rather than something to be exploited. Once the labels start to feel threatened you can be 100% certain they will take their ball and go home. That and probably litigate against Spotify.
  - rm999 14y ago
    Spotify already lets unsigned artists add their music through music aggregators like cdbaby: http://www.spotify.com/us/work-with-us/labels-and-artists/artist-page/ http://www.spotify.com/us/work-with-us/labels-and-artists/ar... I suppose the music aggregators are a modern day take on record labels.
    - k-mcgrady 14y ago
      Not really, a label does much more than get an artists music in a store. Distributing the content is probably the easiest thing for artists to do on their own. Marketing, touring and merchandise are more complication and labels are still the best solution.
deleted 14y ago
[deleted]
ricardobeat 14y ago
I wonder how much of that combined $380m ended up in the artist's hands and wasn't consumed in industry "fees".
- tijs 14y ago
  That would be very interesting. Is this simply not a viable model without raising prices (in the case of Spotify) or are record execs really the fat-cats that we all think they are and would they be able to save themselves by simply being less greedy and taking out a smaller cut.
  - 001sky 14y ago
    Its arguable that today's IP law => more weath for intermediaries than Artists. e.g. a book: Retail: $10 $-5 publisher $-2 printing costs $-1 marketing =$2 So, in ths example, assume a 10% amazon click through = 1 or 1 over the profit 2 of the original artist. Ratio of distribution cost to artist benefit = 4 to 1. If a charity was run like this[1], it would probably be a crime. Given the file/size quality needs for music (vs books), there is no justification for huge payouts to a long-chain of multi-lelevel marketers / middlemen. ------ Edit: relevance [1] A net payout at 20% of donations receipts for a non-profit, is generally considered dubious.
    - dasil003 14y ago
      When have businessmen not been wealthier than artists? And when have artists not been more popular than businessmen?
      - 001sky 14y ago
        Looking back, ok but what about going forward? Tech is obviating the economic "function" of legacy music biz. The only thing proping them up is gov't monopoly rights. At some stage (of remediable innefficiency), it makes more sense to have an "art tax" and pay the artists directly. why should society pay functionaly usesless intermediaries 80 cents on the dollar? to duplicate files and send them over the intenet? Cmon. If an alternative (irs) can do this via taxes and NP foundations for 20 cents overhead, without reducing the artist production incentive? There dies the public policy argument supporting "recording" industry. It goes without saying that artists make all their money performing live and through sales of T-shirts. This would continue...Society is better off...No? Whats not to love. Spotify and soundcloud and you-tube et al could still have a role (they pre-suppose the existence of product in any event).
paulhauggis 14y ago
Pandora and Spotify may rake in the money, but they never actually created the content. It would be like me starting a business that resells Microsoft software and complaining that it's too difficult to make a profit because I have to pay Microsoft for the content. I would be much more impressed if they signed their own artists and made a huge profit.
- JasonFruit 14y ago
  A popular and easy-to-use medium for finding and listening to music is a valid product, and they deserve to be paid for it. Spotify is useful enough to me that I'm happy to pay for it, and I listen to more music than I would without it. I hope that labels make enough from these services that they allow them wide enough margins to stay in business.
Sambdala 14y ago
"With artists and labels hit hard by declining sales over the last decade, it’s hard to argue for lower royalty rates." It isn't really. Changing times sometimes call for drastic measures. What you were able to charge in one medium might not be the same as you are able to charge for a new medium. It might not be fun for the people who were at the top of the heap before the paradigm shift, but that just means they should have made preparations for that shift when it was easiest for them to do so.
monsur 14y ago
This is really a shame because these companies are making a shitload of money.
brady747 14y ago
Still waiting for one of these or Mog or Apple or Rdio to sign artists themselves...
unabridged 14y ago
As bandwidth increases and hosting gets cheaper, someone is going to create a nonroyality paying music (and eventually video) streaming site with the ability to select any song. And it won't even have to be hosted from countries that don't reliably enforce copyright, as the number of cloud providers and hosting resellers increase it will become easy to rent new servers to repopulate their CDN faster than they can be shut down by the government/RIAA.
- ladzoppelin 14y ago
  So wait nobody gets paid for anything? Where does the music come from?
- nnethercote 14y ago
  grooveshark.com?
stickfigure 14y ago
Pandora paid $149 million, or 54 percent of its revenue, for “content acquisition,” otherwise known as royalties. What does Pandora do with the other $127 million plus?!? It's incredible to me that they can't operate a profitable company on that kind of cash flow. I'm genuinely curious - where does it go?

63 points by jamesbritt 14y ago

miratom 14y ago

Aww, you mean a CEO can't stay rich by giving away other people's creations for free? What a tragedy.

timmyd 14y ago
I don't think that's fair. These 2 companies have done more for music and promotion of music than anyone in the modern age - from an industry renown for collusion between the four majors (one falls into line and they all do etc). They have basically rescued a dying industry that essentially built its modern day business model on litigating everyone through RIAA and so on. That's not innovative - that's stupid and idiotic. Instead, what you have now is two companies who are trying to save a dying industry through subscription and the music industry trying to milk every single penny out of them. The dichotomy that creates is that these companies aren't sustainable long term - they are hemorrhaging cash re-the article: Spotify’s accounts for the last year, recently filed in Luxembourg, show that it lost $57 million in 2011, despite a big increase in revenue, to $236 million ... On top of that it had more than $30 million in salaries, and more than $30 million for various other expenses. That is how you lose $57 million on $236 million in revenue. That's just sad. The only incentive these companies have is to be ultimately purchased by the recording industry who can then dictate pricing on their own terms - and that's bad for everyone because then they are going to push prices up insanely. In fact, if these were purchased by the recording industry - it might be the worst thing to happen to music because we are all again at the mercy of the industry. They will want to maximise pricing and I believe, given their history, they will maximize anti-competitive behavior by essentially price fixing competing services out the market. By staying out the USA for 2 years, it was evident Spotify pushed (to some degree) the music studios to capitulate on their pricing - they both gave a little because the industry was desperate for cash. It's obvious to anyone that's the only reason Spotify weren't in the USA sooner - it wasn't economically feasible because the model was already proven to be a hit in Europe. I don't, for one second, believe that the Music studio's are paying this out to the artists. They are dumping this straight into the bank - the industry in that regard is now basically running on live shows and tshirts for artists to survive. So don't be so quick to judge "giving away for free" - because thats not what they are doing. They have produced amazing services in my mind - and there should be some reward for that by the industry in recognizing and enabling them to create sustainable businesses.
- willwhitney 14y ago
  Not to mention that Spotify and Pandora are making it possible for young, poor people to be active music consumers without turning to piracy. When I was in high school, my options were to pay $15 an album, and thus only have access and exposure to a tiny music collection, or pirate music, hear a lot of great music, especially from smaller artists, and drag my friends to their concerts every time they were in town. Now I'm in college and still broke, but I pony up the $10/month for Spotify, and I continually encourage my friends to do so as well. They've created an experience that's dramatically better than piracy (even with nice private trackers), pays out at least some to the artists along with the moneypile that goes to the labels, and enfranchises people like me. I've always listened to an extremely wide selection of music, and now that I can pay to do it, I'm very happy to. And I still drag my friends to every good concert in town.
  - nilliams 14y ago
    Exactly, I'm proud to pay my Spotify membership and I feel I get my money's worth... I'd probably pay more. I have now gone over 2 years without torrenting a single album (the exception being one quite-large Canadian band who happened to not be on Spotify at the time ... I'd already bought the album on vinyl so I didn't feel to bad about it). Before Spotify my best effort at trying to be legal was to splash out every couple of months on some vinyl copies (nice to own... I still do this sometimes) of albums I'd already stolen via bittorent. Spotify, is a music-lover's dream and it's how music distribution should work.
Permit 14y ago
What? The whole point is that Spotify and Pandora are doing things legitimately via advertising or subscriptions and paying the appropriate royalties. You can get very rich by giving away others' creations for free. Sites like the PirateBay are profitable and MegaUpload seemed to be doing very well for itself until it was questionably taken down.

pvnick 14y ago

As someone who was entrenched in the music startup world for a while, I've concluded that the only way to save the music industry is for the major labels to die or become obsolete and for new, innovation-friendly content producers to emerge in their place. We need for music what Netflix is trying to do for movies/tv (see Lillyhammer, new Arrested Development season). It's that broken.

willwhitney 14y ago
I would be very excited for Spotify to start signing artists directly, without the major label middleman. It could let Spotify turn a profit on those artists while simultaneously paying out more to the people making the music. As an insider, pvnick, do you think Spotify could ever pull that off without burning the bridges of its current label deals?
- pvnick 14y ago
  They could, but only for a short while with small artists until the labels start seeing them as a competitor rather than something to be exploited. Once the labels start to feel threatened you can be 100% certain they will take their ball and go home. That and probably litigate against Spotify.
- rm999 14y ago
  Spotify already lets unsigned artists add their music through music aggregators like cdbaby: http://www.spotify.com/us/work-with-us/labels-and-artists/artist-page/ http://www.spotify.com/us/work-with-us/labels-and-artists/ar... I suppose the music aggregators are a modern day take on record labels.
  - k-mcgrady 14y ago
    Not really, a label does much more than get an artists music in a store. Distributing the content is probably the easiest thing for artists to do on their own. Marketing, touring and merchandise are more complication and labels are still the best solution.

deleted 14y ago

[deleted]

ricardobeat 14y ago

I wonder how much of that combined $380m ended up in the artist's hands and wasn't consumed in industry "fees".

tijs 14y ago
That would be very interesting. Is this simply not a viable model without raising prices (in the case of Spotify) or are record execs really the fat-cats that we all think they are and would they be able to save themselves by simply being less greedy and taking out a smaller cut.
- 001sky 14y ago
  Its arguable that today's IP law => more weath for intermediaries than Artists. e.g. a book: Retail: $10 $-5 publisher $-2 printing costs $-1 marketing =$2 So, in ths example, assume a 10% amazon click through = 1 or 1 over the profit 2 of the original artist. Ratio of distribution cost to artist benefit = 4 to 1. If a charity was run like this[1], it would probably be a crime. Given the file/size quality needs for music (vs books), there is no justification for huge payouts to a long-chain of multi-lelevel marketers / middlemen. ------ Edit: relevance [1] A net payout at 20% of donations receipts for a non-profit, is generally considered dubious.
  - dasil003 14y ago
    When have businessmen not been wealthier than artists? And when have artists not been more popular than businessmen?
    - 001sky 14y ago
      Looking back, ok but what about going forward? Tech is obviating the economic "function" of legacy music biz. The only thing proping them up is gov't monopoly rights. At some stage (of remediable innefficiency), it makes more sense to have an "art tax" and pay the artists directly. why should society pay functionaly usesless intermediaries 80 cents on the dollar? to duplicate files and send them over the intenet? Cmon. If an alternative (irs) can do this via taxes and NP foundations for 20 cents overhead, without reducing the artist production incentive? There dies the public policy argument supporting "recording" industry. It goes without saying that artists make all their money performing live and through sales of T-shirts. This would continue...Society is better off...No? Whats not to love. Spotify and soundcloud and you-tube et al could still have a role (they pre-suppose the existence of product in any event).

paulhauggis 14y ago

Pandora and Spotify may rake in the money, but they never actually created the content. It would be like me starting a business that resells Microsoft software and complaining that it's too difficult to make a profit because I have to pay Microsoft for the content. I would be much more impressed if they signed their own artists and made a huge profit.

JasonFruit 14y ago
A popular and easy-to-use medium for finding and listening to music is a valid product, and they deserve to be paid for it. Spotify is useful enough to me that I'm happy to pay for it, and I listen to more music than I would without it. I hope that labels make enough from these services that they allow them wide enough margins to stay in business.

Sambdala 14y ago

"With artists and labels hit hard by declining sales over the last decade, it’s hard to argue for lower royalty rates." It isn't really. Changing times sometimes call for drastic measures. What you were able to charge in one medium might not be the same as you are able to charge for a new medium. It might not be fun for the people who were at the top of the heap before the paradigm shift, but that just means they should have made preparations for that shift when it was easiest for them to do so.

monsur 14y ago

This is really a shame because these companies are making a shitload of money.

brady747 14y ago

Still waiting for one of these or Mog or Apple or Rdio to sign artists themselves...

unabridged 14y ago

As bandwidth increases and hosting gets cheaper, someone is going to create a nonroyality paying music (and eventually video) streaming site with the ability to select any song. And it won't even have to be hosted from countries that don't reliably enforce copyright, as the number of cloud providers and hosting resellers increase it will become easy to rent new servers to repopulate their CDN faster than they can be shut down by the government/RIAA.

ladzoppelin 14y ago
So wait nobody gets paid for anything? Where does the music come from?
nnethercote 14y ago
grooveshark.com?

stickfigure 14y ago

Pandora paid $149 million, or 54 percent of its revenue, for “content acquisition,” otherwise known as royalties. What does Pandora do with the other $127 million plus?!? It's incredible to me that they can't operate a profitable company on that kind of cash flow. I'm genuinely curious - where does it go?