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Apple strikes at Spotify with streaming royalties claim


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If you missed Friday’s breaking news: a company that pays out 52% of its music streaming revenue to labels is attacking a company that pays out 50-53% of its revenue to labels for being less artist-friendly!

Or rather: a company that tried to launch its music service with a trial paying no royalties until independent labels (and Taylor Swift) pushed back is attacking a company that is appealing against a rate-board’s decision to set higher royalty rates for songwriters!

Or rather: two companies who respectively paid $163.3m and $152.2m in ‘historical unmatched royalties’ to the US Mechanical Licensing Collective are at loggerheads over support for creators!

Or let’s be positive: two companies that have invested a LOT in technology, services (and marketing those services) and other initiatives that have played a major role in the music industry’s turnaround in the past decade – two companies that have music at their heart and big teams of smart people who love music and musicians – are squabbling again, in public.

In fairness to Spotify, Apple is very much the aggressor this time round. The company briefed the Wall Street Journal with the toplines of an email Apple Music was about to send to artists – specifically the claim that its average per-stream rate was $0.01 (a ‘penny’) – and it was the article’s analysis that this was “roughly double” what Spotify pays that led pretty much all the follow-on coverage from other sites.

All this, before the actual email landed in artists’ inboxes, revealing caveats that were absent from that initial story: “While royalties from streaming services are calculated on a stream share basis, a play still has a value. This value varies by subscription plan and country but averaged $0.01 for Apple Music individual paid plans in 2020. This includes label and publisher royalties.” Our italics added.

Apple’s email doesn’t mention Spotify or estimate its rates, so it’s still very much up for discussion whether the ‘roughly double’ comparison holds up if Apple Music’s ‘individual paid plans’ figure is compared to the same metric for Spotify – factoring out family, student and other discount plans as well as its free tier to just focus on individual subscriptions.

But of course, this is Apple’s point. The email can be seen partly as a renewed attack on Spotify’s freemium model: something that the company has been doing since the days when US labels were hesitating over whether to license Spotify’s free tier for its launch there.

Spotify ended 2020 with 199 million ad-supported [free] listeners, and generated €281m of advertising revenues in the final quarter of that year: around €0.47 a month, compared to the €4.06 a month it averaged from each of its 155 million premium subscribers. With royalties a percentage of revenues, that free base inevitably brings the effective per-stream rate down.

Spotify says that the free tier is an essential funnel towards its premium version; Apple says that free streaming is a terrible idea; this is a very old argument; and the music industry has largely settled for the (reasonable) position that having two different models in the market that are both generating growth in subscribers and revenues is actually a good thing.

A good thing for the industry, of course. The debate about how the streaming economy pays off for musicians is another matter, it continues to rage, and that’s the real context for Apple Music’s email. It has sensed weakness and gone for Spotify’s throat.

See also (from the email): “While other services pay some independent labels a substantially lower rate than they pay major labels, we pay the same headline rate to all labels” and “we do not ask anyone to accept a lower royalty rate in exchange for featuring” on curated and personalised playlists or algorithmic recommendations.

(The indies claim needs investigating, but the potshot at Spotify’s recently-announced ‘Discovery Mode’ reflects existing unease in the music community about accepting a lower royalty rate in return for an algorithmic boost in certain parts of the service. Spotify has said that participants are making more money, but that may simply fuel questions about the impact on people who don’t opt in (and the pressure for them to do so) and whether the feature will ultimately spread to other parts of the service.)

But here’s something. In that email, Apple said that “the number of recording artists whose catalogs generated recording and publishing royalties over $1 million per year increased over 120% since 2017, while the number of recording artists whose catalogs generated over $50,000 per year has more than doubled”.

Those are figures that we can compare with Spotify thanks to the latter’s Loud & Clear website, which published the same metrics: the number earning more than $1m a year from recordings and publishing on Spotify has grown by 90% since 2017, and the number earning more than $50k a year has grown by 80%. That’s strong growth for both.

Let’s boil it down to this: most of the artists doing well on Spotify are also doing well on Apple Music, and most of the artists struggling with streaming revenues are doing so on both platforms too. This is not a story of a hero platform and a villain platform: both have done many good things; both have improvements they can make; and both have the clout to encourage improvements elsewhere in music’s value chain.

The email (and particularly the Wall Street Journal piece presaging it) did its job. It sparked a rush of ‘Apple pays double Spotify’s rates’ headlines and put the latter company on the defensive yet again, after its recent attempt to take the initiative with the Loud & Clear website. It’s going for the throat, as we said, and Spotify is arguably doing the same thing with its App Store campaign.

If you look beyond the headlines, Apple’s email does at least point to the real issues. First: is a penny per stream a good target to aim for – US union UMAW certainly thinks so: that’s a key demand for its Justice at Spotify campaign – and if so, how do DSPs work towards it, including those with free, ad-supported tiers?

But second, and just as importantly, how do we make sure those pennies then flow through the system efficiently and fairly, to ensure musicians and music companies alike can thrive? Apple and Spotify’s fight is just a distraction from the fact that both companies could and should play a constructive role in answering that question, and driving the necessary changes.

 

Image by mirtmirt / Shutterstock.com

Stuart Dredge

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