Radiohead frontman Thom Yorke and his long-time producer Nigel Godrich have pulled three albums from music streaming service Spotify, arguing that the service pays new artists too little. The music pulled includes solo work and two side-projects, including the album released by Yorke’s new band, Atoms for Peace, this year.
Pulling these works may draw attention to the challenges facing musicians in the streaming era, but it won’t do much to change the economics of the music industry. Here’s why:
Spotify depends on the “long tail” effect
Spotify pays artists 70% of its revenue by a pro rata formula: If 1% of the streaming traffic in a given month is your song, you get paid 1% of the monthly allocation of royalty money, which is in turn drawn from advertising and user subscription fees. That means your payout depends on a couple of variables, including the total amount of money generated by all the site’s users and your song’s popularity. The more well-known your catalog is and the longer it is on Spotify, the better you do—and Spotify, at least, says there isn’t a big drop-off in streaming over time.
Godrich and Yorke argue this model is suited to making money off a band’s existing catalogue of work, but doesn’t support the up-front costs of recording new music.
While artists have complained about the small size of the initial payouts from streaming compared to radio play, the range of potential deals and lack of disclosure make it hard to determine exactly how much worse streaming payouts are. That’s why it would have been more helpful for Yorke and Godrich to release a full breakdown of their royalties from various sources for these albums, since there is very little accurate data available. They could have also shared more about the financing their 2007 internet-only release of “In Rainbows.”
The real problem: Who or what will replace record labels?
The digitization of music imposed real pain on the recording industry. Physical purchases now make up 57% of worldwide music sales, down from 74% in 2008. But the hardship is hardly Spotify’s fault. Music streaming services make up just 13% of the music market; the rest of the market includes digital downloads and radio services. The company grew out of founder Daniel Ek’s personal experience with music piracy in Sweden and his desire to pay something to the artists whose music he enjoyed.
The real problem is that record labels can no longer rely as much on big tentpole acts like Radiohead to subsidize newer, less popular acts. The movie industry is a prime example of an industry where the reliance on blockbusters has made supposedly “safe” bets the main focus, resulting in things like Disney’s ugly Lone Ranger flop.
The Netflix model is one possible answer
Spotify’s defenders stress that it’s early days yet for the streaming service. Its music library and user population is still growing. The company says in 2013 it will have paid out $1 billion to rights-holders, adding in a statement that “much of this money is being invested in nurturing new talent and producing great new music.” As an example, the company points to Cazzette, a Swedish duo that released its latest album directly onto Spotify. The group didn’t get upfront funding, but it won’t have to split their revenue stream with a label or producer. Spotify’s future has also been compared to Netflix, in that it could move into funding original content in the years ahead in ways that might answer musician’s concerns (and anger labels).
Spotify also rolled out a new “Discover” feature last month to help address another concern about new music on the site: How will people find it without a label’s promotions and marketing budget? Spotify’s algorithms find music that users might like, and alert them when artists are touring in their area. Touring is a big, reliable money maker for artists now that music sales have been commodified. That kind of functionality is what attracts the site’s defenders.
For his part, founder Ek thinks the range of objections against his business is narrowing: