
Why Spotify can never be profitable: The secret demands of record labels - Tomek_
http://gigaom.com/2011/12/11/why-spotify-can-never-be-profitable-the-secret-demands-of-record-labels/
======
secretwhistle
Even though Spotify is a "piracy killer" (at least in Sweden, if not
elsewhere), I think the labels will be more than happy to bleed it dry and
leave its lifeless corpse on the side of the road as they search for the next
Big Thing to strangle, bleed dry and leave behind.

Two reasons:

1\. The major labels, like most of the big content producers, are extremely
interested in short term gains, even if it means losses down the road. As long
as something is still "down the road," it won't affect this year
s/quarter's/month's profitability.

Take a look at Hulu. It's a shadow of its former self. It used to be a solid
site with great content, but those controlling the content have decided it's
not making enough money fast enough. The fix? Remove content. Move it around.
Chop it up. Stagger releases randomly. Put X season on Hulu but have Y season
exist only as a selection of clips or have it go missing entirely.

See also: Netflix. Because the major studios are unwilling to trade DVD
dollars for digital dimes, they've gone about pricing themselves out of the
market. Netflix is also a "piracy killer," but the studios are too concerned
with getting the money up front to pay attention to how much content is being
leaked out the back.

The studios also seem to think that people will follow them to their own sites
or digital offerings, but the content they offer is generally crippled by DRM
or requires the installation of proprietary software or another set of logins
and passwords and people in general just do not have an interest in setting up
yet another account just to watch a couple of Lost episodes.

2\. Even though everything mentioned is a "piracy killer," the simple fact is
that, for many people, the service (Spotify, Netflix, etc.) becomes the end
product. The services don't lead towards more sales of other physical or
digital goods. This doesn't fit into the major labels'/studios' plans at all.
They want to sell more of their stuff, not necessarily collect royalties from
someone else's service.

So, if they manage to drain Spotify completely or at least force it to give up
its US operations, it won't hurt them much. By that point, another service
will come along and they can pile on and bleed it dry as well. The plan, I
suppose, is to keep riding these little income spikes until it's 1994 again,
or something.

They must still harbor the belief that, once the other options dry up, people
will head back to the brick-and-mortar and purchase content in physical forms
that carry much higher profit margins.

~~~
arctangent
> I think the labels will be more than happy to bleed it dry and leave its
> lifeless corpse on the side of the road as they search for the next Big
> Thing to strangle, bleed dry and leave behind.

Absolutely correct.

The intermediaries in the music distribution network (i.e. "the labels")
already know that they have lost in the long term.

They know that their best move now is to extract what revenue they can from
the current examples of the types of service that will eventually replace
them.

Maybe this is "evil" or maybe the execs think of it as their job to try to
earn as much as possible, perhaps for their shareholders' sake.

Ironically, those services which seek to replace the labels in a way
compatible with the law (i.e. startups rather than torrent sites) are the ones
who will end up paying (perhaps too much) for it, and will risk going bust as
a result.

Meanwhile, sharing via torrents etc. is gradually killing off the labels. It
may be in the interest of everyone to just let this occur without starting up
a business which tries to find a middle ground.

But there will always be companies springing up to take a gamble on being the
first to exploit a new opportunity. If Spotify (or whoever) fails, perhaps the
next music streaming service will be the one to meet a much weakened music
distribution industry in the courts.

Once the labels are gone, services which offer subscription models for music
will thrive without the threat of legal action. And the quality and variety of
music available to the masses will thrive.

This is a waiting game, and I think we all know exactly how this will
eventually play out. Meanwhile we're still in the wild west, waiting for the
shootout at the O.K. Corral.

~~~
b1daly
The lack of critical thinking about music copyright never ceases to boggle my
mind. In this discussion Spotify is the intermediary. The labels and the
artists do the heavy lifting here. Do you guys believe in the concept of
intellectual property or what? It is vital for our whole economy (including
FOSS).

The labels put up the money for the projects, and the risk is terrible. If you
are a label almost every one of your products loses a lot of money. In fact
all of the money you invest! You hope to make it back on a handful of hit
acts. In some sense acts that fail commercially come out on the long end of
the stick, in that they burn throughs hundreds of thousands in cash and are
not on the hook to pay it back. This is why the classic case of hit acts not
making any money exists, the deal is structured way in the labels favor.
Without this the labels can't make money.

How you all feel about a company that agregated other companies software
products and started giving them away for free? Any objections to that? Would
you look down on efforts of developers to get as much as they can for their
products?

A vital music culture cant exist without some kind of viable business model.
Many attempts have been made to build a business on indie bands (my space ,
mp3.com) it can't work because indie artists don't have near the resources to
create a true modern music product. Not to mention most indie music is not
that good, and nobody wants to hear it.

~~~
barrkel
"Vital music cultures" have existed for millennia without "viable business
models", in the way we understand that term today. People like to make music,
even if the reward is only attention. There might be less money in it, less
commerce in it, in the future without "viable business models", but I think
you're somewhat brainwashed if you think that means there won't be a "vital
music culture". If anything, the music culture may be even more vital in the
absence of extrinsic motivation.

~~~
paulhauggis
"If anything, the music culture may be even more vital in the absence of
extrinsic motivation."

It's interesting how everyone seems to want to make choices for
artists..without even asking them.

Without a way to make money, we will see less music. Why? Because artists will
be forced to get day jobs. As it is, there is a small chance you will make a
full living as an artist.

If anything, it will kill the indy scene because the only companies that will
be able to even come close to a profit are the the ones with deep pockets (IE:
the huge record labels or something like it).

Like software piracy, Adobe and Microsoft can handle it. Small companies go
out of business if piracy us unchecked. I've seen it happen.

~~~
redrobot5050
>Without a way to make money, we will see less music. Why? Because artists
will be forced to get day jobs. As it is, there is a small chance you will
make a full living as an artist.

So? This is how it has been for centuries. Call it the invisible hand meets
the art world. They can get jobs being music teachers. They can record using
vintage equipment, like Blake Schwarzenbach did (used 4-track and 8-track
recordings while he wrote for GamePro).

>If anything, it will kill the indy scene because the only companies that will
be able to even come close to a profit are the the ones with deep pockets

Something tells me you don't understand the definition of "Independent Music".

The fact is, the labels function as a market for pump and dump stocks, where
the stock is a band or album. Independent music doesn't (or in my opinion,
shouldn't) work that way. It can take 5 years for your album to blow up. (See:
Mumford and Sons). You might have a bigger following only after you're dead
and buried (See: Elliot Smith and Bright Eyes). You might have every single
one of your fans wanting you to quit your main gig for a side project they've
done (See: Death Cab For Cutie/The Postal Service).

Disclaimer: I am a founder of a failed start-up company that would work with
artists in a way that was designed to supplant the labels and exploit long-
tail effect, etc.

The sad, sad thing is that indie bands are getting picked off quicker and
quicker by labels and pumped up for the first-album success. It's actually a
huge issue (read up on MGMT) when the artists then try a new direction for a
second album and the label is hesitant to financially support an album unless
fans move the product in the first two weeks. This becomes at catch-22. How do
you enjoy the success of radio play when nobody's paying to play you on the
radio? This leads the labels to relegate these bands (by the second or third
album) to a "we don't help you" status, forcing the band to break up or just
be a small indie band forever on tour.

If anything, major labels playing in the indie scene is akin to making the
indie bands "build on a flood plain".

TL;DR: NOPE. Artists make very little money from albums. It is known.

~~~
paulhauggis
"So? This is how it has been for centuries. Call it the invisible hand meets
the art world. They can get jobs being music teachers. They can record using
vintage equipment, like Blake Schwarzenbach did (used 4-track and 8-track
recordings while he wrote for GamePro)."

Again, you are making choices for them. You don't see anything wrong with
this? Nobody is guaranteed a living. However, you should be given a chance.
You are taking away that chance completely.

"when the artists then try a new direction for a second album and the label is
hesitant to financially support an album unless fans move the product in the
first two weeks."

This is the consequence of going with a label. The label wants to make their
money back in the short-term and you, as an artists, give away your creative
control. It's almost the same as getting VC for your startup.

Over time, people with your attitude have pushed many artists to go with big
labels. They have little to no chance making any kind of living on their own
(because people just share their music and don't pay for it). So, the label
offers them money and some sort of living.

" I am a founder of a failed start-up company that would work with artists in
a way that was designed to supplant the labels and exploit long-tail effect,
etc."

I hope you weren't charging any money, because you sure don't seem any better
than a regular label.

~~~
redrobot5050
>Again, you are making choices for them. You don't see anything wrong with
this? Nobody is guaranteed a living. However, you should be given a chance.
You are taking away that chance completely.

I don't even see where this is coming from. I think you jump over a few points
in your logic here, or you just know nothing about an industry which you're
trying to debate about.

>Over time, people with your attitude have pushed many artists to go with big
labels.

NOPE. Where are you getting your talking points? The RIAA's "downloads = lost
sales" page?

If people didn't broaden the market and fanbase for independent music and
independent labels, it wouldn't exist, and you'd only have major label music.

They have little to no chance making any kind of living on their own (because
people just share their music and don't pay for it). So, the label offers them
money and some sort of living.

The labels offer an incredibly bad deal. And all the artists who, you know,
actually make a living without belonging to a major label might want to have a
word with you about your data.

>I hope you weren't charging any money, because you sure don't seem any better
than a regular label.

Actually, we were tons better. We basically set up our store to be the reverse
of the apple store: They get 70% we get 30% (agency model). So selling your
album for $5 bucks nets you 3. The same album on iTunes, would you net you
about $1.50.

Except, as an independent, you'd have to go through a service which functions
as a 'label' that takes 50%. So an album that nets you $.75 on iTunes would
make you $3 off our site.

Oh, and one of our founders actually owned an independent record label. The
problem is, all of the small indies have no internet strategy, and everyone in
the business knows that's the name of the game. Fortunately, sites like
SoundCloud and Bandcamp are actually there for independent musicians these
days.

I'd love to go on, but to me it seems like you have no clue as to what you're
talking about and I've got better things to do than re-hash the research we
used in our pitch. Good day!

------
worldvoyageur
Forget the labels, Spotify is dead. The corpse just hasn't hit the ground yet:

"I am paid $0.00029 per stream of a song on Spotify, and even this amount
depends on whether the song is being streamed by a paid user or someone using
the service for free. This means it will take upwards of 3,500 streams of a
single song on Spotify to earn $1.00 versus that same revenue for one iTunes
song purchase...I’ll go even further to say that I actually prefer illegal
downloading over Spotify because when you get music illegally it’s at least
implicit in the transaction that what you’re doing is potentially harmful to
the artist. But with Spotify, your conscience is clear because you’re either
enduring ads or paying to use the service and access the music. But from the
blue-collar artist’s perspective...there’s little discernible difference
between $0.00029 and $0.00...which is why I will withhold any new releases
from Spotify in the future."

[http://derekwebb.tumblr.com/post/13503899950/giving-it-
away-...](http://derekwebb.tumblr.com/post/13503899950/giving-it-away-how-
free-music-makes-more-than-sense)

Read the whole blog, it jam packed with more than enough insight to make it
worth multiple readings.

Even absent the labels, Spotify is a lousy deal for individual music makers.

The search for a viable, sustainable online business model for music is still
underway, but unlimited streaming for a low monthly fee is not it.

~~~
mseebach
> Forget the labels, Spotify is dead.

Let me guess, Netcraft confirms it? I'll believe it when I see it.

Spotify (and similar services) is transforming the way we can listen to music,
and, at least for me, I vastly prefer the Spotify experience over anything
else I've tried. Also, with Spotify, I'm spending more money on music than I
ever did before, and I'm not even considering bothering with piracy. I'm
living the promise that if only accessing music legally is easy enough, the
pirate will stop being pirates.

So small artists are getting screwed over. Is that in Spotifys interests to
sustain that? I would not think so, because the value proposition falls apart
if the available collection isn't comprehensive. But right now, they're
preoccupied in a land grab, for which they need to focus on the big labels, as
the land grab will be possible without small indies, but not without Rihannas
full back catalogue.

If you're an artist and you don't think Spotify is a good deal, feel free to
withdraw your music - that will push them to think about how to adjust their
business model to better accommodate indies.

Spotify is nowhere near having finalised their business model. Declaring the
whole thing dead on the back of a few blog posts is just a little bit
premature.

~~~
worldvoyageur
OK, to be less glib and more constructive. A sustainable music distribution
model needs to work for:

\- the distributor (iTunes or Spotify, for example) or it is not sustainable
\- the users, or they won't use it \- the makers of music, or they won't put
their music on it \- the owners of music, or they won't put their music on it

If it works for all four, then things are aligned for a sustainable business
model. If any one is missing, then the thing can't stay together.

iTunes, check, check, check, check. Four fingers fold in, thumbs up.

Spotify. Works for users, at its existing price point. Doesn't work for makers
of music, unless the price point changes, at which point it won't work for the
users - unless we are all missing that Spotify can charge significantly more
and users would still be happy. Can work for large music owners, but as the
original article points out the large owners can achieve this for themselves
in a way that no longer works for Spotify.

Spotify is a valiant attempt at a new business model. If anyone can make it
work, they are the ones and I salute them for trying. I just don't see how
they can succeed.

~~~
mseebach
iTunes doesn't work for me for discovery. The killer feature for me in Spotify
is that I can give anything a listen with no effort and no marginal cost. I
subscribe to various third party play lists, so I get suggestions pushed to
me. If I like something, then there's a tangent for me to go off and explore.
Also, although a much smaller concern, is multi-device asset management.
Having to copy stuff around is annoying, which means I don't do it, which
means the collections on my work and private computers and my mobile are
constantly out of sync.

But where I think you're mistaken is in that the business model conceptually
doesn't work for makers of music. If I'm anything to go by (and anecdotally I
am), Spotify facilitates a lot of new revenue to enter the system. The
concrete distribution of that revenue currently doesn't favour indies, but
there's nothing inherent about the business model that says that couldn't
change.

Perhaps tier the payment per stream: Random access gets low (radio-like)
payment, repeated access get higher and higher payment until $1 (iTunes price)
is hit, then little to nothing after that. My listening patterns would
certainly make such a model sustainable.

~~~
untog
_I subscribe to various third party play lists, so I get suggestions pushed to
me._

I strongly suspect that you are not the typical user. last.fm has been around
for years, but still barely anyone uses it. It seems the majority of people
use iTunes and Spotify in the same way- to look up and listen to their
favourite artists.

~~~
ryanhuff
As somebody who has tried last.fm, I found the experience lacking. But that
doesn't necessarily mean that the model is flawed.

------
CoffeeDregs
More generally, this is why no one who owns neither content nor un-
disintermediatable distribution will ever be seriously profitable. Netflix is
figuring this out right now: pipe owners (e.g. Comcast] make money and people-
who-fund-and-front-for-content make money [e.g. NBC]. People who sit in the
middle of the pipe and the distributor get squeezed. Even friends of the
distributors [see: Hulu] can have a hard time.

And by "un-disintermediatable distribution", I mean: distribution without
viable substitutes. If Spotify were so awesome that I'd never switch, then
they'd be in the money. But I also use GrooveShark and Pandora, so Spotify is
in for pain.

Sure, you can make nice money for a short time [again, see: Netflix], but the
folks that own the content will raise prices as the market becomes attractive.

~~~
seanalltogether
I'm really curious what netflix is gonna do when each of the big 6 studios
start demanding $5-$10 per subscriber for content access.

~~~
CoffeeDregs
Amen, sister!

I pay $14/month for cable (so that I can get cable modem access). How in the
hell can Netflix offer the full range of content for $8/month when that would
cost me an additional $80/month if I bought it directly from Comcast?

Comcast negotiates directly with HBO to carry HBO's content. Is Netflix going
to do better as they negotiate to carry HBO's content over _Comcast's lines_?
Net neutrality helps, but the logical conclusion of that is to have the
distributors representing themselves on the Net, not to have Netflix represent
the distributors on the Net.

~~~
sliverstorm
Projected usage, is my guess. I am probably missing key information, but it
seems to me that the only way for netflix to work is if nine out of ten
netflix subscribers watch one or two movies a month (or less).

Comcast is TV. I want to say the average American watches something like 3
hours of TV a day.

------
jgeralnik
A brilliant comment from the article, posted by KenG:

I’m guessing a lot of hot dogs would get stolen, and then the hot dog supplier
would lobby the government to hire guards for hot dogs. If a guard saw a
person eating anything that looked like it might be a hot dog, the guard could
confiscate all of that person’s food, without any kind of evidence.

Also, since backpacks were often used to hide stolen hot dogs, the government
would be asked to charge an annual fee to everyone who used a backpack, so
that the money could be given to the hot dog supplier to cover the cost of
stolen hot dogs. Even vegetarians, who never eat hot dogs, would have to pay
the annual fee.

------
mbeswetherick
Making money in music today's music industry is absurd. In fact, I wouldn't be
surprised if major record labels vanished in the next 100 years.

You'd imagine a band that's put out a record on a successful label and toured
the world multiple times would be covered in wealth. That's not the case at
all. In fact, most touring bands don't even make enough money to be in the
black. At the end of the day, past the flights, cost of gas, and cheap meals
lies an elastic state of negative to mediocre profit.

Why then do small acts still tour? Well, it's fun and it's probably been a
dream of theirs for some time now. I for one am extremely thankful that bands
continue to put out amazing music with only enough money to barely support
themselves.

Here's the thing: bands don't need major labels anymore. That's because it's
basically level playing field now: you can make an amazing album on your
laptop in a barn in rural Massachusetts and still have the ability to compete
with the major labels. No longer are people sucked into the radio aggregate of
the 90's when all you could discover were boy bands. Now we have these amazing
things like Bandcamp and Spotify that allow you to stream virtually anything!
That's pretty amazing, but what's the use if everyone is listening to the
demands of a major label?

So with that being the case, couldn't this problem be solved? All it will take
is a push for bands to stay away from huge labels and for listeners to find
that music. That's where Spotify should come in.

What's interesting about this entire thing is that a long tail company like
Spotify is potentially able to shift the power from the shit that most major
labels produce to better and more meaningful music. If Spotify can find a way
to direct people's tastes away from most major label garbage, they might be
able to solve this issue.

Maybe Spotify will push for more independent artists and incorporate musicians
on Bandcamp into their catalog.

Although I'm pretty sure that musicians who put their music directly on
Spotify only receive a pretty small cut, Spotify should be able to overcome
their major label woes by putting a focus on smaller more niche based music.

It is my hope that musicians stay away from large labels. And no, I am not
some indie purist, I just think that major labels are diluting the quality and
diversity of music and that we have the power to change that.

~~~
mss6
"So with that being the case, couldn't this problem be solved? All it will
take is a push for bands to stay away from huge labels and for listeners to
find that music. That's where Spotify should come in. What's interesting about
this entire thing is that a long tail company like Spotify is potentially able
to shift the power from the shit that most major labels produce to better and
more meaningful music. If Spotify can find a way to direct people's tastes
away from most major label garbage, they might be able to solve this issue."

In response to this there was an older article posted here about some of the
numbers behind Spotify: [http://pansentient.com/2011/04/spotify-technology-
some-stats...](http://pansentient.com/2011/04/spotify-technology-some-stats-
and-how-spotify-works/) One quote in particular speaks to your point,
interestingly in a section called "The Short Tail?":

"During a week-long analysis of all music played via Spotify: 88% of track
accesses were for the most popular 12% of all tracks on Spotify. 79% of server
requests were for the most popular 21% of all tracks on Spotify."

While it might be a nice idea that Spotify could somehow shift user taste
towards more independent artists, the numbers here seem to say that people go
to Spotify for mainly popular, culturally relevant tracks. I think a company
attempting more of what you're saying is the YC company Earbits with their
model focusing on discovery of smaller artists. Personally I'd rather listen
to popular music I know on Spotify, and I think most people feel the same way.
I just wish there was a viable business model there. Music is a very tough
vertical.

~~~
mseebach
> "During a week-long analysis of all music played via Spotify: 88% of track
> accesses were for the most popular 12% of all tracks on Spotify. 79% of
> server requests were for the most popular 21% of all tracks on Spotify."

It also says that only 60% was ever played: 79% of plays are for 35% of the
played catalogue. There are some numbers missing, but I would expect those 35%
to represent a far greater selection of music than what was available in even
the largest record shops in the 90s - and totally eclipsing the combined play
lists on the radio at any one place at any one time.

Also, Spotify is available anywhere, not just to those living in big cities
with many radio stations and big record shops. Oh, and then there's the 21% of
plays for the other 65% of the catalogue.

Sounds a lot like the long tail to me.

~~~
untog
_Also, Spotify is available anywhere, not just to those living in big cities
with many radio stations and big record shops. Oh, and then there's the 21% of
plays for the other 65% of the catalogue._

I think you overestimate the reach of broadband internet. There is certainly a
lot more rural radio access than there is high speed internet.

------
tgrass
Yesterday HN rallied a post on Louis C.K. to the front page - a post which
celebrated his deference to the inevitable reproduction of his work, a post
which celebrated Louis as a hero for his ignoring this reproduction, for nobly
enduring it like the good little artist he is and merely asking for a donation
for his work.

I now see why it is popular here on HN for artists to give away their work
when we as 'entrepreneurs' would never dream of giving away ours: the artist
is labor, and we want to minimize that cost.

~~~
ddw
Not quite. Louis CK wasn't asking for a donation, he said that it cost $5 to
watch his special.

But the point was that he made it available for everyone at a small price. You
didn't need HBO for $10/month (typically where a comedian of his calibre would
air their new special) and Comcast at $60/month on top of that. You didn't
even need to pay Netflix $12/month or whatever. You didn't even need a PayPal
account. Just pay for what you get in a DRM-free format.

I don't think this was even a sacrifice on his part. Sure he could sell DVDs
through Amazon but how much of that does he actually profit? His costs for
this experiment were the actual production of the performance (he smartly paid
for it himself so he owns it, comedians are doing this more often now) and
whatever server costs he has. His advertising costs are $0 through Twitter,
positive press and retweets he's getting for this.

It's a win for everyone and I think bands would be wise to do the same.

It's not about lowering the cost for labor, it's about getting rid of the
artificial, unnecessary middlemen.

~~~
WettowelReactor
I believe he actually stated that after the traditional sales channel gets
their cut he ends up with about $5. So he is selling it for the same profit he
would of seen and just cutting out all the middle men as he did not believe
they where actually adding any value.

------
Getahobby
I know the Internet has seriously damaged the music label's revenue stream but
why hasn't it done even more damage? It is 2011,the labels should not still
have this much power, should they?

~~~
daleharvey
I fully agree, everyone talks about how disgusted they are by record labels,
myself included, but we have been in this game a while now, artists have had
the ability to sell directly the consumers, media services have been in the
position to promote independent artists.

I remember some Steve Jobs quite about the scary truth about news
organisations producing washed down trite because that is what people are
asking for, is the same true of the music industry?

~~~
potatolicious
Record companies are still relevant because they provide what is probably
_the_ most important element of a band/musician's success: marketing.

This is not something music fans are likely to admit, but their tastes are
determined more by shrewd marketing than by some "objective" measure of talent
or quality.

It reminds me of an article I read recently - a world-renowned violinist
played in the DC Metro for a day. Not a single person recognized him, and very
few people recognized the quality of his performances. Most just passed him by
and some dropped quarters as if he's just a run of the mill subway performer.

IMO, people do not have the discerning taste they seem to attribute to
themselves. This goes for movie buffs, music fans, video game connoisseurs.
Everyone.

So, in an environment where people's perceptions of art and media is more
determined by preconceptions and biases than any pseudo-objective measure of
quality, the difference between winners and losers is who can shape their
image the best. This takes a shitload of money, spent in a shrewd way - record
labels are still very, very good at this.

~~~
jinushaun
Logically, in order for Spotify to survive, it must develop a platform for
artists to market themselves therefore bypassing the labels. During the height
of MySpace there were countless stories of new artists being discovered on
there. The iTunes music store also has that potential, but Apple doesn't seem
interested in going down that road.

Spotify has a long way to go before that happens though. Its music discovery
features are almost worthless. The What's New section lists nothing I care to
listen to. It would also be nice to see tour dates and real social features.

~~~
Fluxx
The dirty little secret about "music discovery" is that most people don't
spend time discovering music. Sure I do because I really like music a lot. I
regularly read Pitchfork and Stereogum and listen to a lot of music. But I'm
in the minority on this. 90% of society (America, for me) listen to the radio
to learn about new music or occasionally get exposed to new stuff through
their friend - but they're certainly not spending hours of their day playing
song samples on Stereogum.

I think this is why Pandora is so popular. People can pick something they
know, turn the station on and just treat it like the radio. The sad thing is
that if they hear something they like on Pandora, all you can do is thumbs up
it, which then can be retrieved later by finding a link buried deep in your
profile...a place most Pandora users never go.

------
guelo
I believe it is immoral to in anyway pay money for anything that even
indirectly benefits the members of the RIAA or MPAA. These companies have been
subverting our democracy and undermining our civil liberties for decades. They
are evil, do not give them money.

------
gabaix
I don't understand why copyright exists.

Are there studies showing that copyright brought an increase in creativity or
art excellence?

~~~
ra
Imagine you are Stephen King, and you write a book.

Without copyright I can just copy your book, claim it as my own, sell
thousands of copies and you don't see a cent.

~~~
marvin
Or imagine that you're not Stephen King, but an owner or founder of a large
software company. A disgruntled employee on your team downloads the source
code for your entire software product (which you spent millions of dollars
along with years of development work and market research creating) and sells
it himself, undercutting your prices and taking all your profits. Copyright is
essential for any field that involves intellectual property.

~~~
tomjen3
If I did that, I would be out of job and liable for loss related to loss of
company secrets.

You don't need copyright law for that.

------
jaysonelliot
While the major labels are setting restrictive terms on Spotify, Spotify
itself is turning around and treating independent labels like chumps:
<http://www.projekt.com/newsarticles/projekt-spotify.asp>

From the article: "For a stream on Spotfy, on average $0.0013 is paid to
Projekt's Digital Distributor." That means an artist would have to get one
million airplays to make $1300.

I'm finding it hard to sympathize with Spotify if that's the terms they set
when they have the position of power.

~~~
mikeknoop
As the article points out (and assuming it applies to Spotify):

7\. Most favored nation. This is a deal term demanded by every major label
that ensures the best terms provided to another label are available to it as
well

... means that Spotify cannot offer small labels better deals else it would
put them out of business because they would have to match the deal for every
label.

~~~
wmf
That would only apply if Spotify is already paying indies the same as majors,
but it sounds like they're paying much less.

~~~
chrisclark1729
For what it's worth, the majors are also making fractional pennies. The gap is
not as large as the fractional penny amount would make you think.

------
akg
I think as the distribution channels of music become more prominent through
services like Spotify, it will give them a significantly more bargaining
power. I think consumer behavior and notable popular services will change the
music industries archaic practices. If they want to stay competitive, they'll
have to change.

I also see this as a boon for indie musicians. They have access to a much more
accessible means of distribution through services like Spotify, Pandora, Rdio,
etc. and the ability to compete with the big labels.

------
Derbasti
I don't believe this one second.

Item: If record labels state that they invest a ton of money in musicians and
nearly all of them do not make money, this means that the foremost goal of any
musician must be to become one of the few acts who actually do make money.
Hence, they don't really need to sell a lot of records at first, they need
people discovering them. Spotify is like radio: it does not make much money,
but it advertises musicians. I have discovered more new music on Spotify in a
month than on iTunes in half a year.

Item: I really really like Spotify. All the friends who have seen it like it.
I have given Spotify the same money I have given iTunes before. And Amazon
before that. If streaming services will attract a big number of people, they
will get better deals.

Item: Any time an 'industry veteran' says that 'something can not be
profitable' I sense fear. What he is really saying is that he does not _want_
it to be profitable the same way record labels did not want iTunes or Amazon
to be profitable.

At the end of the day, its people who drive the market. If people want to
listen to streamed music, they will. Maybe some companies can dry up some
sources, but they never succeed in the long run against their customers.

~~~
Tangurena
> _If record labels state that they invest a ton of money in musicians and
> nearly all of them do not make money..._

It means that record companies fraudulently inflate their "expenses" in order
to bleed off all profit from the industry.

For a record band to make money, they have to avoid record companies at all
costs. Unfortunately, even with the internet disintemediating the record
companies, it is still very difficult to get around the blood suckers.

------
calcnerd256
How can non-disclosure of terms be legally binding? How can the label sue
without disclosing the licensing terms?

~~~
jmtulloss
That's besides the point. They can break the contract, and then you don't have
the content. They've already won at that point, if they want to pile one,
there's no reason not to.

------
gburt
The hot dog stand will be motivated to keep the store open (i.e., allowing it
to make its bills, and generate zero economic profit) to keep the profitable
rent behavior viable though. So we can expect Spotify to make just enough to
be satisfied continuing along as a viable business, no?

~~~
CoffeeDregs
This is called the "normal profit" and, yes, there will be a set of businesses
that earn the normal profit. What people are discovering is that the "normal
profit" for a music business is not "oh-mi-god-Facebook-is-a-natural-
monopoly!"-sized, but rather "oh-mi-god-the-content-owners-have-all-of-the-
negotiating-power"-sized.

Ironically, this gets re-discovered about every 5 years...

------
brugidou
When do they start a service where instead of doing unlimited, they let the
user pay "by the stream"?

One of the reasons why Spotify cannot make money is because they don't tell
the user how much they pay for each song. And I bet prices vary wildly among
different labels/albums. Letting the user pay the correct price is the only
way.

At least if people think it's too expensive, they can only blame that this
specific song/artist is too expensive, others aren't.

I think it's a fun idea to pay by the stream, you could make it very easy to
use, with some capped monthly budget or something. And then after so many
listens of one song, it makes you "own" the song (when you reach the iTunes
price for example). That would be transparent, less risky and understandable
for customers.

------
neworbit
The only way Spotify can avoid this problem is by becoming too big to ignore,
a la iTunes for digital distribution or Walmart for physical goods. At that
point the labels have a hard time saying "we're going to pull our inventory
unless we get a better pay rate" because though it may dent Spotify's customer
experience, it will also mean a substantial hit to the bottom line of any
given label who walks.

If you can't get to the point where you're the 800 pound gorilla, however, you
are very much still at the mercy of the content owner.

------
yuhong
Wonder if there will be an anti-trust investigation over this cartel.

~~~
sukuriant
"there's more than one label"

~~~
yuhong
But the merger mentioned in this article reduces the number of major labels to
three.

------
jstanderfer
To simplify - Spotify can never be profitable because they do not create or
own the product they are selling. Also, the product they are selling is not a
commodity so they cannot source alternate suppliers.

Why is this a surprise?

------
leeoniya
are digital music companies compelled to keep secret the amount of
plays/downloads that a specific song gets? why not report these play counts
directly to the artists and let them calculate the difference between the
average asking price and what they are making in revenue?

once they see how much is being skimmed off the top, they can easily not renew
contracts with major labels and go to straight online distribution directly,
bypassing the labels.

------
redrobot5050
All of these reasons could apply to iTunes and Amazon's music store?

So why are they posting profits?

------
dlss
Anyone else notice all the about:blank links in the article?

------
a13xnet
am I the only one that noticed who the author of the article is?

~~~
nikcub
no you're not

------
gcb
What do you mean? This I'd the reason they can be profitable.

There's tons of good bands doing original stuff. Screw the big names, I'm
tired of listening to the same dozen on Pandora anyways.

The problem is not the keepers of the status quo. It's the people that can't
see past it.

------
adrianbye
amazon may end up solving this problem for us by becoming a good distribution
outlet for music

~~~
jmtulloss
the problem I see with Amazon is nobody uses their consumer facing media
services. They need to get people to use them to have an impact.

~~~
hendzen
They are making an impact (with authors) by starting their own book publishing
service. I could see Apple as the party with the market position to do
something similar with music.

