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Why Spotify can never be profitable: The secret demands of record labels

253 points by Tomek_ 15y ago

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Getahobby 15y ago
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?
- Swizec 15y ago
  Simple, the law says so. It's difficult to change in a decade what the law has been saying since 1662 (that's when copyright law came into the existence, around the time printing was invented). What we've seen since then is simply a natural result of the slippery slope that resulted as a pretty good idea. It will take a long time to go back up such a slippery slope again.
  - calcnerd256 15y ago
    No, the law says that once they're in that position, that position has the power. The question was why we keep putting them in that position.
- zmanji 15y ago
  If labels have copyright over the song they have a legal monopoly over reproduction of the song (minus fair use). The Internet alone cannot destroy this type of monopoly for legal services.
- daleharvey 15y ago
  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 15y ago
    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.
    - tdeitch 15y ago
      The violinist you're thinking of is probably Joshua Bell. There was an article about his subway performance in the Washington Post several years ago: http://www.washingtonpost.com/wp-dyn/content/article/2007/04/04/AR2007040401721.html http://www.washingtonpost.com/wp-dyn/content/article/2007/04...
      - tptacek 15y ago
        You would be very well served by tracking down every other long-form Weingarten piece you can find as well. Amazing writer.
    - jinushaun 15y ago
      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.
- hyperbovine 15y ago
  They own rights to pretty much all music that was recorded in the 20th century. It would be difficult to overstate thr amount of money/power that affords them.
- rmc 15y ago
  the Internet has seriously damaged the music label's revenue stream Has it? It's 10 years since Napster lost the court case and the music industry is still awash with money. Have the record labels lost much revenue in the last 10 years? I don't believe that "piracy is killing the record labels", because if it was, they would have been killed by now.
gburt 15y ago
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 15y ago
  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...
- robryan 15y ago
  It's also possible that they only need to make just enough to convince other future companies to invest in going down the same path, so they can bleed investor capitol until they suffer the same fate but in doing so prop up the short term profits of the record industry.
deleted 15y ago
[deleted]
jaysonelliot 15y ago
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 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.
- gwern 15y ago
  Do they have a choice? I can sympathize with them fine if the choice is between 'screw over indies' and 'go bankrupt'.
- mikeknoop 15y ago
  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 15y ago
    That would only apply if Spotify is already paying indies the same as majors, but it sounds like they're paying much less.
    - chrisclark1729 15y ago
      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.
- Kolya 15y ago
  $0.0013 doesn't sound a lot. But it's equivalent to about $1.50 if somebody listens to an album 100 times. That's less than if they were to sell the album in a shop. However they don't have the same distribution costs and Spotify users are almost always going to listen to far more music than they would if they bought CDs. So while $0.0013 per stream sounds stupid, it's closer to a sensible level than one would intuitively think.
yuhong 15y ago
Wonder if there will be an anti-trust investigation over this cartel.
- sukuriant 15y ago
  "there's more than one label"
  - yuhong 15y ago
    But the merger mentioned in this article reduces the number of major labels to three.
  - waterlesscloud 15y ago
    Barely.
- prostoalex 15y ago
  Labels typically handle their own negotiations, and music services have been known to launch with catalogs supporting some of the labels, but not the others. The result is mainly an overwhelming 'meh' from consumers, who can find some artists but not the others.
- twelvechairs 15y ago
  I believe the correct term is 'cartel' However, you are right - there should be....
  - yuhong 15y ago
    Thanks, edited.
secretwhistle 15y ago
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.
- Codayus 15y ago
  Yes... But don't disregard the nasty collective action problem they have. Let's say one of the big labels suddenly gets religion, and rewrites their contracts with Spotify and others to be fair and generous. Great! What happens now? Well, Spotify is going to make a lot more money...or they would, right up until the other big labels step up their demands. If, say, Warner decides to cut the share of Spotify's revenue they demand in half, that just means Sony BMG and Universal can up their demands. And both of them will be convinced that if they don't, the other one will, so both will...which means Spotify would be no better off. The entire process would just be Warner giving money to Sony BMG and Universal, which is hardly helpful to anyone other than Sony BMG and Universal shareholders. And even if - through some miracle - you got the big three to agree to give Spotify an even break, there's the constant risk that one of them could come back and demand every dime Spotify is making at any time. And since everyone knows that any one of them could do that, they will feel compelled to get their share. And even trying to come to an agreement would probably be illegal collusion and price fixing. The government created this problem via the very specific details of how copyright law is implemented; only the government can solve it - probably through some mix of mandatory licensing regimes and major curtailment of copyright duration. And good luck getting anything like that through Congress, ever.
akg 15y ago
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.
CoffeeDregs 15y ago
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.
- iandanforth 15y ago
  "If Spotify were so awesome that I'd never switch, then they'd be in the money." The article implies that even this is not the case. If there were a single distributer who could increase pricing, the labels would simply increase their take accordingly, leaving the single distributor in the lurch. Until the labels are forced to deal with standard market economics directly, rather than using VC funds to back a series of failed distribution schemes, I don't see why they would allow anyone else to make money.
  - CoffeeDregs 15y ago
    Note: I said that: If Spotify were so awesome that I'd never switch, then they'd be in the money. You (or the article) are arguing that they couldn't be that awesome. I tend to agree that is the case, but it only takes one billion dollar music [self-publisher-supporting-and-that-actually-makes-money?] service to prove me wrong. Again, it comes down to bargaining power. Non-content-owners and non-disintermediatable-distributors don't have it. TFA is saying so but is doing so in such a way that suggests that the music industry is novel. It isn't.
- seanalltogether 15y ago
  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.
mbeswetherick 15y ago
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.
- wyclif 15y ago
  Obligatory link to "The Problem With Music" by Steve Albini: http://www.negativland.com/albini.html http://www.negativland.com/albini.html
- 15y ago
tgrass 15y ago
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.
- arete 15y ago
  The majority of real hackers here on HN have almost certainly contributed to an open source project and many have released their own work as open source. The startup ecosystem exists, in large part, because a huge number of hackers created and freely gave away things like GCC, *BSD, Linux, PostgreSQL, MySQL, Redis, Apache, Nginx, Ruby, Python, etc. Without free, open source, software large amounts of funding would be necessary just to acquire the tools needed to build software systems. People admire Louis CK's position because it strikes a good balance between the need to make money and the desire to share.
  - tgrass 15y ago
    I agree in part. The distinction to me is one's work on open source is generally considered charity, pro bono, representing a fraction of one's total work. Louis C.K. on the other hand, and digitally replicable artists generally, are not producing their work for free as a charitable gift to mankind, nor is this free work being produced within a small fraction of their total working time. We here on HN, as producers and consumers, hope for the success of efforts like Spotify because it makes our lives better. Our own business plans become more likely to be realized, our own entertainment consumption becomes easier and fuller. And yet efforts like Spotify require artists to accept that they must ask for voluntary donations.
- ddw 15y ago
  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.
gabaix 15y ago
I don't understand why copyright exists. Are there studies showing that copyright brought an increase in creativity or art excellence?
- ra 15y ago
  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.
  - learc83 15y ago
    Under the legal framework most anti-copyright people propose, claiming something as your own would still be fraud, and illegal. It wouldn't stop you from publishing it, but it would stop you from claiming to be the original author.
    - adgar 15y ago
      Under that legal framework, how does Stephen King make money selling his book? I see an enormous race to the bottom in terms of prices, especially with ebooks. The official ebook comes out and within minutes it can and will be sold for less elsewhere. Given the triviality of duplication, it'll be essentially free, soon. I'm certainly not buying the official one if I can get it for 10% the price - and I think that's being generous. Paper books actually cost money to print, so people who love the paper book experience will likely be the only ones buying books. I strongly suspect the ratio of those purchasers to those who consume ebooks is steadily decreasing. And if ebooks race to the bottom as I have no doubt they would, I suspect that ratio would drop even more.
      - jellicle 15y ago
        Easy. He writes the book. He decides he wants to make one million dollars from its sale. He lets everyone pledge $5 or more toward its release. If he gets one million dollars in pledges, he releases the work and sends a copy to everyone who pledged him money. If not, he deletes it (or has it eaten by rats and zombie cats). Copyright not required.
calcnerd256 15y ago
How can non-disclosure of terms be legally binding? How can the label sue without disclosing the licensing terms?
- jmtulloss 15y ago
  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.
jgeralnik 15y ago
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.
adrianbye 15y ago
amazon may end up solving this problem for us by becoming a good distribution outlet for music
- jmtulloss 15y ago
  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 15y ago
    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.
CrabDude 15y ago
While I sympathize with those crying out about seemingly monopolistic behavior, that is not what we see here. The hot dog argument is a straw man built on the false presumption that music is a commodity and the labels enjoy a monopoly over said commodity. The reality however is quite the opposite; the music labels enjoy no such monopoly as any new artist is free to make their own hot dogs out of their own meat and attempt to sell them to the hot dog stand at a better rate. The problem is the hot dog stand doesn't want these Indie hot dogs, or at least they're not enough to make the big hot dog stand dollars the stand owner is after. When all your customers demand music label hot dogs, it's the labels that get to set the price, not the competitors; all of this is simple supply and demand. Further, incumbent market forces are not defeated by competing with their strengths (content licensing), but instead historically must be defeated through indirect pressures. The labels like any business either answer to the marketplace or they will eventually go bankrupt offering a product nobody wants: CDs in a streaming world. The answer to disrupting the market is by either beating them at their own game by being a better label attracting all the artists to yourself and then offering a service of your own, or by empowering future content creators to the point that they no longer need or want the service the labels offer. Sure, those Indie dogs might not taste as good as the sirloin label dogs, but at a tenth the price, twice the size and free delivery, I'd say, "What label dogs?"
gcb 15y ago
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.
a13xnet 15y ago
am I the only one that noticed who the author of the article is?
- nikcub 15y ago
  no you're not
dlss 15y ago
Anyone else notice all the about:blank links in the article?
guelo 15y ago
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.
worldvoyageur 15y ago
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-how-free-music-makes-more-than-sense http://derekwebb.tumblr.com/post/13503899950/giving-it-away-... 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.
- ecaradec 15y ago
  Corrolary : if piracy leads to anything above 1 sell for 3500 illegally downloaded songs, it is actually more beneficial to majors that Spotify is.
  - krambs 15y ago
    Maybe a good point - but 3500 listens isn't the same as 3500 downloads.
    - onemoreact 15y ago
      True, but it's easy to download a lot of music you don't listen to so it may be closer to 1:1 than you might expect.
- weazl 15y ago
Derbasti 15y ago
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 15y ago
  > 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.
leeoniya 15y ago
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.
jstanderfer 15y ago
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?
redrobot5050 15y ago
All of these reasons could apply to iTunes and Amazon's music store? So why are they posting profits?
brugidou 15y ago
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 15y ago
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.

253 points by Tomek_ 15y ago

deleted 15y ago

[deleted]

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?

Swizec 15y ago
Simple, the law says so. It's difficult to change in a decade what the law has been saying since 1662 (that's when copyright law came into the existence, around the time printing was invented). What we've seen since then is simply a natural result of the slippery slope that resulted as a pretty good idea. It will take a long time to go back up such a slippery slope again.
- calcnerd256 15y ago
  No, the law says that once they're in that position, that position has the power. The question was why we keep putting them in that position.
zmanji 15y ago
If labels have copyright over the song they have a legal monopoly over reproduction of the song (minus fair use). The Internet alone cannot destroy this type of monopoly for legal services.
daleharvey 15y ago
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 15y ago
  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.
  - tdeitch 15y ago
    The violinist you're thinking of is probably Joshua Bell. There was an article about his subway performance in the Washington Post several years ago: http://www.washingtonpost.com/wp-dyn/content/article/2007/04/04/AR2007040401721.html http://www.washingtonpost.com/wp-dyn/content/article/2007/04...
    - tptacek 15y ago
      You would be very well served by tracking down every other long-form Weingarten piece you can find as well. Amazing writer.
  - jinushaun 15y ago
    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.
hyperbovine 15y ago
They own rights to pretty much all music that was recorded in the 20th century. It would be difficult to overstate thr amount of money/power that affords them.
rmc 15y ago
the Internet has seriously damaged the music label's revenue stream Has it? It's 10 years since Napster lost the court case and the music industry is still awash with money. Have the record labels lost much revenue in the last 10 years? I don't believe that "piracy is killing the record labels", because if it was, they would have been killed by now.

gburt 15y ago

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 15y ago
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...
robryan 15y ago
It's also possible that they only need to make just enough to convince other future companies to invest in going down the same path, so they can bleed investor capitol until they suffer the same fate but in doing so prop up the short term profits of the record industry.

deleted 15y ago

[deleted]

jaysonelliot 15y ago

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 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.

gwern 15y ago
Do they have a choice? I can sympathize with them fine if the choice is between 'screw over indies' and 'go bankrupt'.
mikeknoop 15y ago
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 15y ago
  That would only apply if Spotify is already paying indies the same as majors, but it sounds like they're paying much less.
  - chrisclark1729 15y ago
    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.
Kolya 15y ago
$0.0013 doesn't sound a lot. But it's equivalent to about $1.50 if somebody listens to an album 100 times. That's less than if they were to sell the album in a shop. However they don't have the same distribution costs and Spotify users are almost always going to listen to far more music than they would if they bought CDs. So while $0.0013 per stream sounds stupid, it's closer to a sensible level than one would intuitively think.

yuhong 15y ago

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

sukuriant 15y ago
"there's more than one label"
- yuhong 15y ago
  But the merger mentioned in this article reduces the number of major labels to three.
- waterlesscloud 15y ago
  Barely.
prostoalex 15y ago
Labels typically handle their own negotiations, and music services have been known to launch with catalogs supporting some of the labels, but not the others. The result is mainly an overwhelming 'meh' from consumers, who can find some artists but not the others.
twelvechairs 15y ago
I believe the correct term is 'cartel' However, you are right - there should be....
- yuhong 15y ago
  Thanks, edited.

secretwhistle 15y ago

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.

Codayus 15y ago
Yes... But don't disregard the nasty collective action problem they have. Let's say one of the big labels suddenly gets religion, and rewrites their contracts with Spotify and others to be fair and generous. Great! What happens now? Well, Spotify is going to make a lot more money...or they would, right up until the other big labels step up their demands. If, say, Warner decides to cut the share of Spotify's revenue they demand in half, that just means Sony BMG and Universal can up their demands. And both of them will be convinced that if they don't, the other one will, so both will...which means Spotify would be no better off. The entire process would just be Warner giving money to Sony BMG and Universal, which is hardly helpful to anyone other than Sony BMG and Universal shareholders. And even if - through some miracle - you got the big three to agree to give Spotify an even break, there's the constant risk that one of them could come back and demand every dime Spotify is making at any time. And since everyone knows that any one of them could do that, they will feel compelled to get their share. And even trying to come to an agreement would probably be illegal collusion and price fixing. The government created this problem via the very specific details of how copyright law is implemented; only the government can solve it - probably through some mix of mandatory licensing regimes and major curtailment of copyright duration. And good luck getting anything like that through Congress, ever.

akg 15y ago

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.

CoffeeDregs 15y ago

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.

iandanforth 15y ago
"If Spotify were so awesome that I'd never switch, then they'd be in the money." The article implies that even this is not the case. If there were a single distributer who could increase pricing, the labels would simply increase their take accordingly, leaving the single distributor in the lurch. Until the labels are forced to deal with standard market economics directly, rather than using VC funds to back a series of failed distribution schemes, I don't see why they would allow anyone else to make money.
- CoffeeDregs 15y ago
  Note: I said that: If Spotify were so awesome that I'd never switch, then they'd be in the money. You (or the article) are arguing that they couldn't be that awesome. I tend to agree that is the case, but it only takes one billion dollar music [self-publisher-supporting-and-that-actually-makes-money?] service to prove me wrong. Again, it comes down to bargaining power. Non-content-owners and non-disintermediatable-distributors don't have it. TFA is saying so but is doing so in such a way that suggests that the music industry is novel. It isn't.
seanalltogether 15y ago
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.

mbeswetherick 15y ago

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.

wyclif 15y ago
Obligatory link to "The Problem With Music" by Steve Albini: http://www.negativland.com/albini.html http://www.negativland.com/albini.html
15y ago

tgrass 15y ago

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.

arete 15y ago
The majority of real hackers here on HN have almost certainly contributed to an open source project and many have released their own work as open source. The startup ecosystem exists, in large part, because a huge number of hackers created and freely gave away things like GCC, *BSD, Linux, PostgreSQL, MySQL, Redis, Apache, Nginx, Ruby, Python, etc. Without free, open source, software large amounts of funding would be necessary just to acquire the tools needed to build software systems. People admire Louis CK's position because it strikes a good balance between the need to make money and the desire to share.
- tgrass 15y ago
  I agree in part. The distinction to me is one's work on open source is generally considered charity, pro bono, representing a fraction of one's total work. Louis C.K. on the other hand, and digitally replicable artists generally, are not producing their work for free as a charitable gift to mankind, nor is this free work being produced within a small fraction of their total working time. We here on HN, as producers and consumers, hope for the success of efforts like Spotify because it makes our lives better. Our own business plans become more likely to be realized, our own entertainment consumption becomes easier and fuller. And yet efforts like Spotify require artists to accept that they must ask for voluntary donations.
ddw 15y ago
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.

gabaix 15y ago

I don't understand why copyright exists. Are there studies showing that copyright brought an increase in creativity or art excellence?

ra 15y ago
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.
- learc83 15y ago
  Under the legal framework most anti-copyright people propose, claiming something as your own would still be fraud, and illegal. It wouldn't stop you from publishing it, but it would stop you from claiming to be the original author.
  - adgar 15y ago
    Under that legal framework, how does Stephen King make money selling his book? I see an enormous race to the bottom in terms of prices, especially with ebooks. The official ebook comes out and within minutes it can and will be sold for less elsewhere. Given the triviality of duplication, it'll be essentially free, soon. I'm certainly not buying the official one if I can get it for 10% the price - and I think that's being generous. Paper books actually cost money to print, so people who love the paper book experience will likely be the only ones buying books. I strongly suspect the ratio of those purchasers to those who consume ebooks is steadily decreasing. And if ebooks race to the bottom as I have no doubt they would, I suspect that ratio would drop even more.
    - jellicle 15y ago
      Easy. He writes the book. He decides he wants to make one million dollars from its sale. He lets everyone pledge $5 or more toward its release. If he gets one million dollars in pledges, he releases the work and sends a copy to everyone who pledged him money. If not, he deletes it (or has it eaten by rats and zombie cats). Copyright not required.

calcnerd256 15y ago

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

jmtulloss 15y ago
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.

jgeralnik 15y ago

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.

adrianbye 15y ago

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

jmtulloss 15y ago
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 15y ago
  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.

CrabDude 15y ago

While I sympathize with those crying out about seemingly monopolistic behavior, that is not what we see here. The hot dog argument is a straw man built on the false presumption that music is a commodity and the labels enjoy a monopoly over said commodity. The reality however is quite the opposite; the music labels enjoy no such monopoly as any new artist is free to make their own hot dogs out of their own meat and attempt to sell them to the hot dog stand at a better rate. The problem is the hot dog stand doesn't want these Indie hot dogs, or at least they're not enough to make the big hot dog stand dollars the stand owner is after. When all your customers demand music label hot dogs, it's the labels that get to set the price, not the competitors; all of this is simple supply and demand. Further, incumbent market forces are not defeated by competing with their strengths (content licensing), but instead historically must be defeated through indirect pressures. The labels like any business either answer to the marketplace or they will eventually go bankrupt offering a product nobody wants: CDs in a streaming world. The answer to disrupting the market is by either beating them at their own game by being a better label attracting all the artists to yourself and then offering a service of your own, or by empowering future content creators to the point that they no longer need or want the service the labels offer. Sure, those Indie dogs might not taste as good as the sirloin label dogs, but at a tenth the price, twice the size and free delivery, I'd say, "What label dogs?"

gcb 15y ago

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.

a13xnet 15y ago

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

nikcub 15y ago
no you're not

dlss 15y ago

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

guelo 15y ago

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.

worldvoyageur 15y ago

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

ecaradec 15y ago
Corrolary : if piracy leads to anything above 1 sell for 3500 illegally downloaded songs, it is actually more beneficial to majors that Spotify is.
- krambs 15y ago
  Maybe a good point - but 3500 listens isn't the same as 3500 downloads.
  - onemoreact 15y ago
    True, but it's easy to download a lot of music you don't listen to so it may be closer to 1:1 than you might expect.
weazl 15y ago

Derbasti 15y ago

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 15y ago
> 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.

leeoniya 15y ago

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.

jstanderfer 15y ago

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?

redrobot5050 15y ago

All of these reasons could apply to iTunes and Amazon's music store? So why are they posting profits?

brugidou 15y ago

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 15y ago

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.