
Pandora and Spotify Rake in the Money and Then Send It Off in Royalties - jamesbritt
http://mediadecoder.blogs.nytimes.com/2012/08/24/pandora-and-spotify-rake-in-the-money-and-then-send-it-off-in-royalties/?ref=television&gwh=0E551F7612AEE5E7D138ABC9DBFC8F3F
======
pvnick
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
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?

~~~
rm999
Spotify already lets unsigned artists add their music through music
aggregators like cdbaby: [http://www.spotify.com/us/work-with-us/labels-and-
artists/ar...](http://www.spotify.com/us/work-with-us/labels-and-
artists/artist-page/)

I suppose the music aggregators are a modern day take on record labels.

~~~
k-mcgrady
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.

~~~
rm999
Well, that's why I said "take" on it. These companies are actually doing quite
a bit that a traditional label would do: they store the media (the digital
version of manufacturing it), distribute it, and market it. I don't think a
traditional label is always the best solution, especially for groups that will
never be big enough to justify the huge upfront costs a label puts in.

These aggregators are really for the tail end of the spectrum: the 90% of
bands who represent 1% of music listening time and don't have much hope of
getting signed.

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

~~~
jaylevitt
Some history, for those not in the know:

[http://www.techdirt.com/articles/20110707/03264014993/riaa-a...](http://www.techdirt.com/articles/20110707/03264014993/riaa-
accounting-how-to-sell-1-million-albums-still-owe-500000.shtml)

<http://www.techdirt.com/articles/20100712/23482610186.shtml>

[http://www.salon.com/technology/feature/2000/06/14/love/prin...](http://www.salon.com/technology/feature/2000/06/14/love/print.html)

Spoiler: bands get about 20% of what the label gets. Your album can sell 1
million copies and your band might still owe the label $500,000. Labels take
10-20% off the top for _breakage_ fees. Breakage. As in vinyl records that
broke during shipping.

~~~
ricardobeat
Yes, but that's for the recording/release/marketing/tours side. Royalties
continue to be paid long after the production costs are covered. I imagine
they _should_ go 100% to the artist, but wouldn't be surprised if they don't.

------
Sambdala
"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.

------
unabridged
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
So wait nobody gets paid for anything? Where does the music come from?

------
stickfigure
_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?

------
brady747
Still waiting for one of these or Mog or Apple or Rdio to sign artists
themselves...

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

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paulhauggis
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
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.

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

~~~
timmyd
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
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
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.

