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Why Music Streaming Can’t Agree on a Payout Model

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This week’s podcast is about music streaming’s big debate: what’s the fairest way to split the pie? The major record labels want their music to be valued more than the amateurs, bots, and “whale music.” Meanwhile, streaming services want to treat everyone the same. How did we get here? Is there a more straightforward solution?

To break it all down, Lucas Shaw joins me from Bloomberg News. Here are a few highlights from our chat.

strong vested interests

These debates aren’t new. Music’s streaming payout model has been a polarizing topic for years. But when subscriber growth took off in 2017 – 2021, everybody ate. Debating the best payout model felt like more of an academic exercise back then. The arguments for switching sounded like the people who make the case for the U.S. to adopt the metric system. It makes more sense than the current model, but we’re hundreds of years in now.

But now the pandemic boom is over. Streaming’s paid user growth has slowed, especially in the most lucrative markets. Two of the three major labels, Universal Music Group and Warner Music Group, have gone public recently, but their stock prices are down 16% and 11% since their initial offerings. New investors like Bill Ackman and longtime owners like Len Blavatnik want to maximize their interests. The pressure is on to squeeze more money out of the pie.

The streaming services have their own priorities, though. Spotify, Apple Music, and Amazon Music pay nearly 70% of revenue from recorded music back to the rights holders. So any audio tracks that cost less to stream—like podcasts or functional music—it’s in their best interest to monetize that instead. So as those tracks increase and revenue growth decrease, the DSPs feel pressure to make the economics work on their side.

Some streaming services are willing to experiment with labels on a better model. This year, UMG has announced partnerships with Deezer, SoundCloud, and Tidal. Nothing has come of it publicly yet, but I’m not surprised. Those streaming services are more focused on emerging, developing, independent artists. They focus less on the majors’ big goals, like maximizing The Beatles’ back catalog or Taylor Swift’s re-recordings.

It’s a classic case of misaligned incentives across the value chain. The challenges are structural. This tension is a feature, not a bug.

Listen to our episode here or read below for more insights.

the variables

The “right payout model” has several layers to it. Let’s break each of them down.

Distribution: How best to split revenue (both ad-supported and paid user).

The current b pools all revenue together in one big pot, then splits it with all rights holders based on how many streams each song they own gets. It’s easy, predictable, and often benefits the top artists (to an extent). This is what Spotify, Apple Music, and Amazon use.

But pro rata is more challenging for artists with smaller, more passionate, and differentiated fanbases. Those artists would benefit from maximizing revenue directly from their unique fans.

That’s one of the benefits of the user-centric model. It allocates revenue on a per-user basis, then distributes that to each rights holder respectively. SoundCloud and Tidal have adopted these models because it helps their target artists earn more from streaming.

Duration: should longer songs generate more revenue?

The current model counts a stream once it has been played for 30 seconds. So a 31-second meditation track counts the same as hip-hop’s first big single, the 14-minute medley, “Rapper’s Delight.”

Again, this model is quick and efficient. But it’s too democratized for some people. In my recent pod episode with Spotify’s Will Page, he proposed an idea where songs over 4 or 5 minutes would get a multiplier for each additional minute played.

User intent: should the artist you start a listening session with count more than an algorithmic play?

WMG’s CEO Robert Kyncl has spoken about this publicly. He also pushed a similar idea at YouTube as their chief business officer. This approach rewards artists who brought you into the streaming service. It’s a similar mentality to how supermarkets stock shelves and negotiate with suppliers based on their brands’ influence on consumers.

With each of these changes, the underlying goal is to separate the cream of the crop. In 2022, 42% of audio tracks (67.1 million) had less than ten streams. Meanwhile, less than 0.2% of audio tracks (327,000) had more than 1 million streams. Those songs drive the business, and the majors own most of them. They want them to count more than the amateurs, fraudulent tracks, and often discussed “whale music.”

would growing the pie solve it all?

Since these issues were less of a concern when growth was strong, should the industry focus more on that instead?

Yes, but how to grow the pie is a whole separate debate!

The major record labels have pushed on the DSPs to raise prices. As Lucas and others have called out, the price of everything else worldwide has increased except music streaming. If music streaming charged $15 monthly in all established markets, it would fundamentally change the industry.

There are other ways to grow the pie beyond price increases, though. Streaming services have better data than anyone on listener consumption patterns. They can identify the superfans before listeners even realize they’re superfans. They flex that data to us every year with Spotify Wrapped.

But what if that data helped offer a personalized fan experience? That could be listening sessions for unreleased tracks, feedback on an album, and more.

I’ve heard from several sources that the largest DSPs are reluctant to add any feature that takes users away from actively streaming revenue-generating audio on the platform. But that myopic focus may miss the bigger opportunity.

the best path forward

It’s hard to escape the competing incentives between the DSPs and the major labels. To be honest, the majors should have launched their own music streaming service to control these issues. Video streaming has shown that that’s the only way for IP owners to control distribution. But that ship has sailed. Even if one of the majors acquires a music streaming service, they would still be years behind.

From a payout model perspective, I would push for the user-centric approach if we were starting from scratch.

I like focusing less on “streams” and more on “users.” If I only log into Spotify once a month and only listen to Miguel’s “Sure Thing,” then that song’s various rights holders deserve my revenue.

Moving the conversation from stream to user also focuses on the end user, which is always a win. Maximizing streams can make the user experience feel more transactional.

But we’re not starting from scratch. We’re over a decade in with the current model. I predict that the pro rata model will continue to remain the dominant option for most services. Despite the benefits, the switching costs are too high. And since the major labels don’t necessarily have the leverage to pose a viable alternative.

This is true for many things. Whether it’s the U.S. moving to the metric system, one time zone, or the more efficient Dvorak keyboard, the better approach doesn’t necessarily win. There needs to be more at stake.

Listen in the rest of the episode with Lucas Shaw. We go in more depth on:

– how streaming services can monetize fandom
– impact of Universal and Warner going public
– Bloomberg’s upcoming Screentime Conference

Listen to the episode here.

 

TRANSCRIPTION

[00:00:00] Lucas Shaw: The artist are one constituency, and the record labels or another, the artist could say, well, we might be happier if the record labels gave us a bigger share. And so, the best way, again, to keep all of those constituencies happy is to just grow the pie instead of reallocating and trying to sort of tilt it towards the big player.

[00:00:29] Dan Runcie Intro Audio: Hey, welcome to the Trapital Podcast. I’m your host and the founder of Trapital, Dan Runcie. This podcast is your place to gain insights from the executives in music, media, entertainment, and more who are taking hip hop culture to the next level.

[00:00:55] Dan Runcie Guest Intro: Today’s episode is all about streaming. It’s the platform that saved the music industry, and lately it’s been the platform that has sparked countless debates on how best to compensate rights holders, the artists, and the underlying companies that provide these services. This has been a polarizing topic ever since the beginning of streaming, but these topics have intensified recently for a few reasons.

First, growth is starting to slow down. We’re no longer in the 2017, 20 18, 20 19. Fast growth rate of streaming. Growth is starting to slow, and whenever the pockets tighten up, people get more concerned about how that current pot of money is split. Second, two of the biggest major record labels, universal and Warner, have went public in recent years, and there’s more pressure, especially from those new shareholders.

That wanna see returns for the big investments that they made. So how does this all shape the broader questions around how big the pie is, how the pie gets split, and what are the best ways to increase that pie? So join me in this discussion. I’m joined by Lucas Shaw from Bloomberg. He also is a frequent guest on the Town with Matt Bellamy, highly recommend that podcast if you haven’t yet. And on today’s episode, Lucas and I break it all down, all the facets, all the interests of the various stakeholders. It would make a few predictions in how we think this whole dynamic, this whole debate, how we think it plays out. Here’s the episode. Hope you enjoy it.

[00:02:16] Dan Runcie: All right. We have Lucas Shaw here with us from Bloomberg. First time on the pod, welcome.

[00:02:21] Lucas Shaw: Yeah. Thanks for having me. Excited to chat.

[00:02:23] Dan Runcie: Yeah. This is a topic I know you’ve written about. It’s something I’ve been thinking a lot about. I feel like for years now, the debates around music streaming, model payouts have been going on for a while. Things definitely intensified the beginning of this year, and we’re seeing more comments, more partnerships, but still not much movement.

But every time I see this, I feel like I just always gravitate back towards. The record labels and the streaming services have two different incentives on what growth looks like, what success looks like, and I feel like that’s the underlying problem towards, with so much of this. What’s your take on it?

[00:02:59] Lucas Shaw: Yeah, I mean, it’s funny for a while there Well, when YouTube first came around and Spotify and streaming, there was all this tension between music companies and streaming services because music companies felt like tech companies had sort of killed their business, and blamed them for a lot of their problems.

And were always complaining about royalties and all that. And then I would actually say for the last five years there’s been relative like calm and happiness because music industry revenues have been going up. All the record labels are doing pretty well. The streaming services continue to grow. And now we’ve hit this another inflection point where the current model, which has again, worked great for basically a decade, has started to slow, you know, the record labels revenue isn’t growing as quickly as it has been. And the streaming services though, they’re still growing. they’re growing at a lot of places like India, Southeast Asia, where the average person’s not paying that much, so the revenue doesn’t quite compare. And so, hence why we have now a lot of noise over the last six to nine months around, you know, a new model, quote unquote, for music streaming. Mind you, SoundCloud has been proposing a new model for a long time and most of the majors just like didn’t buy into it, and we can get into it. And I think to some extent that’s you talking about the different priorities. and the labels are talking about like their own version of SoundCloud’s is fan powered royalties.

The labels wanna talk about artist centric, but they’ve provided almost no detail as to what they want this new model to be. but I don’t know, maybe you can design it for them.

[00:04:36] Dan Runcie: I think you highlighted the inflection point, which is part of this issue. We saw so much growth. Growth is now starting to slow down, and I think growth is also slowing down in this post IPO era of the major record labels you have UMG goes public summer 2021. Warner goes public the summer before that.

And those stocks have been down since those IPOs or since, since they went public. I think Warner’s is down at least 16%, or Warner’s is down around 11%. UMG is down at least 16%. And you have all these other actors like Bill Ackman and others getting involved in, they praised UMG so much when this deal happened.

They wanna see a return on that. So I think a lot of the pressure is coming into. All of the things we’re hearing, whether it’s how much to charge for streaming, how much. How that actual price is being charged, how it should be distributed. And to your point, as you mentioned SoundCloud, we’ve heard a few things from Title, Deezer, others have been testing out new models. I think part of the challenge there though, is those models in a lot of ways have been pushed as ways to increase revenue opportunities for the independent artists and the artists that are using those platforms. Cuz I think that’s one of the big takeaways from these user-centric fan power royalties.

They can’t add a bit of a boost to the indie artists, especially if you have a user that really likes them, but they haven’t necessarily been as favorable to the biggest artists in the world. And those are the artists that the major record labels want any type of change to ultimately benefit.

[00:06:10] Lucas Shaw: Yes, cuz we all know that Taylor Swift and Drake and the weekend are really hurting and they need the extra two or $3 million from Spotify. yeah, I mean that’s sort of the nut of the disagreement, right? Is that the major labels want their artists, the professionals, the Crème de la crème to get more and more and more than some dude making ambient noise in his basement or like a young Dua Lipa wannabe, or, I don’t know, something amateurs

[00:06:36] Dan Runcie: Rain music is the thing that I kept hearing. Rain music and whale music.

[00:06:41] Lucas Shaw: But, you know, I don’t know, it’s like distinguishing between different levels of stream, right? And, one of the issues for me, I guess is YouTube and other services have sort of eliminated the distinction between amateur and professional, you know, like any amateur is basically a viral video away from being a professional if they want be. And so I think it gets very tricky to try to charge different prices or deliver different royalties for different people. Not to say that there’s not some innovation to be had in the model. I’m just not sure that’s it.

[00:07:12] Dan Runcie: Yeah, and I think YouTube’s a good place to start with this cuz there’s a few models that we can break into. There’s a few proposed changes that are structured in here. YouTube is actually where Warner Music group’s current CEO, Robert Kinsel, he used to be chief business Officer over there. And one of the things that he was really pushing over there was this project called Project Bean.

And it was a multiplier approach where the thought is if you start your listening session, or in YouTube’s case, if you start your viewing session with a particular artist or creator, then that person should be compensated more for the duration of what they lead to and the fact that you might be searching for them as opposed to an algorithmically-led play stream, listen, whatever it is. And he’s ultimately pushing for a similar thing war, with, the streaming services. Now, I believe it was at a Morgan Stanley call or conference where he had said, if you start your music session with Lizzo, then Lizzo should be paid more. For that, and I think that’s an element of trying to separate the weed from the shaft.

They’re trying to focus in on what they consider to be their creme de la creme. To your point, I don’t think Lizzo is necessarily heard and she just went on a huge arena tour, but that’s ultimately what they want, I think that does highlight how not all streams are weighted the same, but it’s still a zero sum game.

So if you are going to be providing more through this revenue multiplier opportunity, you’re potentially still taking away from others.

[00:08:42] Lucas Shaw: See to me that’s the issue is that they’re sort of talking about ways to divide the pie differently. Instead of talking about ways to grow the pie, now they’re talking about both, but I think it’s more important and likely more fruitful going forward to try to talk about ways to grow the pie.

It’s also, I would add an interesting way for music companies to deflect from their own accounting, you know, for years, music companies got mad at streaming services because they said that they didn’t pay artists enough and they like got all the artists, or at least a lot of them fairly riled up in saying, you know, oh, like Spotify pays me, you know, a third of ascent for every stream.

And that’s not fair. But the pie grew by a lot every year. And one of the thing, and so the music companies is partially also cuz they went public, as you noted, like stop attacking the streaming services. But there’s one thing that’s always been true, which is that the record companies and the music publishers decide, how a lot of that money is allocated, right?

It’s Lucien Grange head of Universal Music Group who helps decide that the record labels get more than the publishers, the songwriters, because they make generally have better splits. With the record labels. Now they’d push back on that and say that that’s not true. I’m just, that’s one version of how this plays out.

The other thing is that, again, then in those deals, like the record, labels keep a lot of that royalty money. So you could argue there’s sort of the artist are one constituency, and the record labels or another, the artist could say, well, we might be happier if the record labels gave us a bigger share. And so the best way, again, to keep all of those constituencies happy is to just grow the pie instead of reallocating and trying to sort of tilt it towards the big player.

[00:10:29] Dan Runcie: Which is why we didn’t hear as many complaints about this in 2017, 18, 19, when growth was just up and to the right. Everyone was making more. More so there was less pressure on this particular issue itself.

[00:10:41] Lucas Shaw: Yeah. And because I think to what you said, like a lot of these companies are starting to think about two of the three major music companies are starting to think about going public. And then you don’t wanna, you know, you don’t wanna freak people out. Stability is good when you have public markets.

[00:10:56] Dan Runcie: Right, and that’s the other challenge that we often hear. So one of the broader underlying debates that we’ve been hearing about is whether you keep the current model pro rata. Which pools all of the streams and then that then gets paid out to the rights holders depending on their share of those streams.

And then that is a percentage of the overall revenue that comes in, both for subscription and then for ad support. And then of course, on the user-centric side, it shifts to the per user perspective, and that’s where things can get so wild and hairy. Because if I don’t log into Spotify for a month and I only listen to one artist versus.

Three artists that I love come out the next month. They’re still all splitting that same $10 a month, and that happens for everyone. So it makes the revenue less predictable and all of these things, granted those are extreme cases, but if you look at that on a magnitude level, it could lead to much more variability that publicly traded companies don’t generally like.

[00:11:54] Lucas Shaw: Yeah. what do you make of the fan centric model?

[00:11:58] Dan Runcie: I do think that if we were starting from scratch, I think that’s the better way to go about it because I think we’re now looking at fan centric in this lens of how it disrupts the current model. I do think that if we started looking at things from, okay, how do you monetize that particular user? It centers everyone a bit more on the focus of, okay, how do we end up getting that sole user to stay on the service, to wanna stay committed, to make sure that we’re offering things that they want? And I do think that there’s gamification that happen on both sides, but I think from a net positive perspective, I do think that that is the one that generally leads to the more fair outcomes.

I still think there’s plenty of issues with it, but that’s if we were starting from scratch, that’s what I would say. It’s just tough now because we’re now a decade and a half in.

[00:12:50] Lucas Shaw: And is there a version or are there other, tweaks to the model that you think have a chance of being widely adopted?

Yeah, 

[00:12:57] Dan Runcie: there’s a few things. So I think one of the things we haven’t talked about a lot is duration, because that’s a whole nother aspect of this debate. So right now the streaming services, don’t clock a stream until it has at least 30 seconds of a particular song. So whether you have a 31 second sleep track that is just added to Spotify, or you have Bohemian Rhapsody, each of those songs is essentially, counts the same.

I think that there should be something in place that compensates you listening to that longer song more than that, I do think though, that the challenges, you’re still taking away from that. But in generally speaking, the songs that are 31 seconds mostly aren’t necessarily to the same degree, quality, whatever it is, of a song that would be, you know, that 3, 4, 5 plus minute range.

[00:13:53] Lucas Shaw: Yeah. Although couldn’t that, also benefit if people would, could, wouldn’t people just start uploading like 45 second, or excuse me, 45 minute sleep tracks and they could manipulate it that way. I mean, that gets into the other issue that obviously comes up a lot, and has become sort of a, big topic over the last year in particular is the idea of fraud.

Which I see, I mean, a certain amount of that is, just always gonna happen. but is if you really wanted to discriminate against a particular genre or a particular type of listening, that would be the big one. if you buy into these estimates that like 10% of music listening it’s fraud, you know that’s billions of dollars that are going to people who maybe don’t deserve it.

[00:14:31] Dan Runcie: Right, and that’s definitely one of the cons there. I think about the thing is, one of the things I started to accept was there’s always gonna be some level of fraud or issue with it. Because I was thinking about the flip side. Let’s say that we went to this user-centric model, and let’s say that Spotify, apple, Amazon, all of them were on board.

What would fraud look like from that perspectivea and the place I led to is the streaming farms would look less like these places that just have endless songs just playing on repeat. But it would be more like having, whether it’s fraudulent users or bots or other people just signing into a service, playing one stream from one saw or one artist, or setting up an account and then going from there.

And it made me think back to the CD or even the tape era where artists and their own record labels would go buy their own albums and things like that. And granted, maybe not necessarily fraud because it’s just, you know, one distributor going further down and buying directly from the retailer. But there’s always some type of issue there.

And to your point as well, it could also just lead to 45 second tracks or endless tracks to game the duration day long playlist. So there’s potential issues either way. Cause I think even with the current model, granted, we haven’t necessarily talked about streaming itself in some of the gamification that happens there, but all of these longer albums, shorter releases, music has always adapted to its business model regardless, and I think this is another aspect of this, and that could likely happen again if things ever shifted to a more user-centric approach.

[00:16:03] Lucas Shaw: Yeah, we just need more people to pull a tiara whack and release a 15 minute album.

[00:16:08] Dan Runcie: I know.

[00:16:08] Lucas Shaw: Works for our short.

[00:16:11] Dan Runcie: I feel like Spice is kind of an interesting example of this. I feel like all of the songs on her most recent mixtape are, I don’t think any of them are longer than three minutes. They’re all within two or maybe even a minute and change. So she’s another one that probably lines up here. What do you think, how do you think this actually plays out though?

Because that’s the piece that I’ve been thinking a lot about because. Since the beginning of the year, Lucian had his letter that he put out that called for a change. We’ve seen Kinsel and others speak about this, and Universal has also partnered with SoundCloud. They partnered with Deezer, they partnered with title for a new model.

We’ve seen these announcements come, we’ve seen these partnerships happen, but we haven’t exactly seen new developments since then. And I still have to imagine that it’s gonna take a lot for Spotify or Apple or Amazon, especially the bigger ones to wanna play. So part of me is skeptical on whether these changes will happen in the same way, because I think that the labels just feel a bit of pressure where.

Then their shareholders and others wanna be able to continue to grow, especially post IPO. They don’t have the same leverage, let’s say in video where you could easily pull your content. They rely on Spotify and Apple and Amazon way too much. So they’re kind of squeezed here and they’re trying to do it through public advocacy.

They’re trying to partner with smaller DSPs that have their own different incentives to support independent artists. So, and they don’t necessarily have the technology themselves to go launch their own service to go do a Disney plus type of thing. And I know audio and video are just so different in that way, so I’m a bit skeptical.

But what’s your take? How do you see this playing out?

[00:17:51] Lucas Shaw: Yeah, I mean, I share your skepticism. Until a major music company can point to an arrangement with one of those smaller independents, the Deezers, the titles of SoundClouds, and say, we’ve figured this out and this is why it’s better for us. I don’t think they’re gonna have any success convincing the bigger players.

And if you look at, excuse me, if you look at the priorities of Apple, Amazon, YouTube, and Spotify, sort of the, the big four, apple, Amazon, and YouTube, on the one hand could be persuaded because, you know, they don’t have a lot to lose there. But, they don’t have a lot of reason, like they’re not relying on their music services to make a ton of money, to make them profitable.

I mean, there are all these companies are under pressure to improve their financials, but it’s not clear how, like reforming the model to benefit major labels and or artists in any way benefits them. If anything, most of these companies have wanted to reduce the power of major labels because them have them having a lot of leverage makes their negotiations more complicated.

You look at a Spotify, they would like the major labels to have less of a say because it gives them a better chance in the long run of trying to improve their margins and reduce their payouts to rights holders. I think it’s more likely that they look for ways to grow the overall pie, because that’s what would most benefit them.

which is why I think, you know, we’ve already seen Apple and Amazon raise prices. It’s inevitable to me that Spotify is gonna raise prices. they’re already, they’re now trotting out or about to release A higher priced, high quality, service. I don’t think those really matter, but raising prices on the base service to me is just such a no-brainer.

I mean, the idea that that Spotify still costs $10 a month is insane to me. and then maybe there are other ways that they can make money from artists, right? You know, I’ve certainly heard folks in the industry. Say, well, why can’t they do more sort of monetize fandom and find way they know who all of the fans are for Pink Panthers or Ice Spice, or Beyonce, whoever it is, can they find like the most ardent a hundred thousand and find a way to sell them more stuff?

[00:19:50] Dan Runcie: That last piece I think is key because they have better data than that on anyone. They flex it to us every year with Spotify rap. They tell me I’m in the 0.4% of an artist that I’m like, oh, I didn’t even realize I was in that early of an artist, or I got one recently. I was in the first 10% of people to listen to Post Malone and, the 21 Savage song.

And I’m like, okay, well you’re giving me this data. How do we then use that And I feel like I’ve seen them float around a few ideas over the year. You remember back when Tencent was really starting to become more discussed in the west, and people were trying to see if Spotify was gonna get into karaoke or tipping or things like that to try to replicate that model.

You have this little different ending outta the business. You have this data that tells you better than any other company who the top Uber fans are. Sure you’re not in the business of ticketing to those largest fans. I know they’ve tried to do some ticketing on a smaller scale, but beyond raising the prices and raising the prices is still huge.

I mean, Obviously you go from not $10 to $11, you just increase your top line revenue, 10% for your largest market. So that’s huge. But yeah, what are those other ways to increase the pie? Because like 17, 18, 19, those years showed us if you increase the pie and everyone is just continuing to make money up to the right, we hear less of these complaints about people of China trade pennies, essentially.

[00:21:09] Lucas Shaw: Well, I’ll get that in a second. I actually think that pricing, like these places could raise prices by like $5 over the next few years, and they wouldn’t suffer much. I think we’ve seen it in video. you’ll churn a little bit, but you can raise prices with some degree of impunity as far, which would fundamentally change the business.

I mean, as far as the fan interactions. I mean, look, there are people who have way more experience and expertise, than I do. Who could come up with the examples, but, you know, all the noise around NFTs, a year or two ago that was really, or the idea of web three, right? That was the idea of finding ways to monetize fandoms.

We’ve seen it happen in Asia. We’ve seen it happen in certain parts of the creator economy in the US, there’s no reason it can’t work in the music business. YouTube has like eight or nine other forms of what it calls alter alternative monetization, whether it’s selling subscriptions, which obviously Spotify already is, or like Super Chats or what, like all of these different things that you can do. And

 there has to be some versions of that for music. Now, maybe that’s not something that the top artists are gonna do because the incremental revenue just doesn’t matter as much to them. But if you’re, a lower or middle class artist who’s like struggling to, to make money, or make enough like, those feel like no-brainers to me, people who’d be more likely to opt into that.

and that can be, you know, opportunities to chat or like, take the idea of sort of fan meet and greets, but make it virtual. Take some of those things that happened during the pandemic and try to bring them into your, your daily life or if you wanna give people, like, let’s say you’re an artist on tour and you wanna give people like a sneak peek at your rehearsal. Like there’re just so many ways to try to, honor and interact with your most art fans.

[00:22:52] Dan Runcie: I agree. It also makes me think of vinyl as well, because half of the vinyls that are purchased, more than half people aren’t even listening to, they’re put up in the wall as decor, as merch, as ways to show their own self-expression and Spotify has the data that can infer who those people are that could be most likely to purchase that.

So I think all of the things that you could have on the platform that could enable that I think are key. So, the pushback I’ve often heard, whether it’s from people at Spotify or people that know the business well, is that they’ve been hesitant to do anything or add anything to the platform that isn’t directly involved with You or I streaming a song.

So whether that’s interacting with fans or that’s having other type of opportunities or experiences, if that doesn’t involve you doing this direct revenue generating activity. They’re hesitant to do it, I think that it could be a bit of forest missing the trees there, but that’s the pushback I’ve often heard.

[00:23:50] Lucas Shaw: But they have been more than happy to experiment with video like eight different times and have it fail every time.

[00:23:56] Dan Runcie: True. True. I think back to the days where, they don’t push it as much anymore, but like when Rap Caviar used to have the weekly videos and things like that, you used to see them push more into this, especially with some of the video exclusives for the podcasting. You just, you saw a lot of it, but you just haven’t seen as much.

[00:24:13] Lucas Shaw: Yeah. I don’t know. I hear you. The pushback I’ve gotten when this has come up is like, most artists just won’t do it. That it’s hard enough to get them to like to show up on time or do all sorts of things in their daily life that they’re not gonna wanna add a bunch of other things to their day to make a little extra money from fans. And while I think that’s true, like I said, while I think that’s true for the really big artists, I think it’s less true for up and covers. And look, maybe there’s not as much of a market, but I and social media content creators have, a fair amount in common.

And there are certainly ways that Spotify can sort of learn from what YouTube’s already doing.

[00:24:48] Dan Runcie: Right, cuz if you’re an artist that is native coming up, these are the folks that you wanna continue to attract and build. This is how they’re natively growing, they’re reaching into their fan bases and they’re tapping into them. If they’re not gonna do it on your platform, they’re gonna do it on someone else’s end.

We’ve seen how YouTube’s revenue has continued to grow and how it’s become a much more meaningful player in music. So I do think that there’s a broader opportunity there. The other thing that you mentioned, we talked a bit about pricing. One of the rubs I’ve heard about pricing itself is how the record labels and the streaming services would split that additional pie, or how they would split that additional incremental dollar that’s there.

Because as we know from a high level, Spotify’s $1 coming in 30 cents of that dollar they keep internally for their own business, 70 cents of that dollar goes to all the various rights holders. But with that additional dollar, how do they then wanna split that? Spotify feels like they would be giving, doing the labels a favor by increasing that dollar that they add if they don’t necessarily wanna just do that moving forward.

They have these agreements in place. Spotify itself has advances that it’s trying to recoup from a. Revenue perspective as well. So how that revenue perspec or how that recoupment looks like, especially if the model changes, but could be all of whack in a lot of ways. But from a pricing perspective, that’s the rub there.

So I think that we will see Spotify eventually raise that price. I think it’ll probably be likely a dollar in the most developed markets, but that’s the one rub I’ve heard Spotify. Wants something in return, and they probably feel more pressure to want something in return as opposed to Apple, Amazon, YouTube, since they, as you mentioned, sit under larger corporate entities.

So music is more of a customer acquisition and brand play in a lot of ways, as opposed to Spotify trying to build a real business around audio.

[00:26:40] Lucas Shaw: Yeah, I mean, and I guess the reason that the streaming services would want to change the splits is just to improve their margin because I don’t know, it feels like you could keep it the same and even though they would still have to pay out a lot of extra money, and it doesn’t help them that much.

Like there also is an issue of just sort of fixed costs that they have. So bringing in incremental revenue should still improve margins for music companies. It should, it won’t improve them dramatically, excuse me, for streaming services, not music companies, but it will improve them. And so if Spotify can take its monthly price from $10 a month to 12 or $13 a month, it’s gonna improve the business.

Now, I hear you, maybe they wanna renegotiate it, but if I’m a music company, you set a precedent that on those extra dollars that all of a sudden the split goes down 5% and Spotify’s gonna push that, push on that for the rest of it, for the next deal.

[00:27:33] Dan Runcie: Yeah, I think there’s wiggle room there. And I think to that point, you mentioned earlier on pricing, we’re right now talking about a dollar or $2 increases. I do think in the most developed markets, They have so much more pricing power. They have so much more runway, and I know that anything that is seen as a limit on growth, especially because all these services wanna continue to grow.

They are hesitant to do anything like that. As you mentioned before, the markets that Spotify is growing in the most are markets where they cannot charge $10 or even $5 a month for regular service. But in the developed markets, I think it could be 15, I even think you could go up to 20. And for some of these areas, like we talked about video, and I do know that audio and video are different in a lot of ways, but because of the nature of the listening experiences and because I think people are probably more likely to pay for fewer audio experiences because it is passive as opposed to video being active. I do think that you could get away with commanding a higher price, and that’s how, even if they charge a price, that’s more in line with what Netflix now charges.

A lot of these challenges as we keep going back to, wouldn’t come up nearly as much because of how much more money the business is making. Yeah, if raise the prices to 15 bucks, fundamentally different business in so many ways.

[00:28:54] Lucas Shaw: Yeah, I don’t know. I mean, I went to a store yesterday to, or two days ago, and I just bought a bottle of sparkling water at a 7-Eleven, and it was like $3 and 30 cents. That used to be like a dollar 50 a do. I mean, Spotify’s, and music streaming more broadly is one of the only industries that doesn’t seem to have taken part in, inflation over the last many years.

[00:29:14] Dan Runcie: It’s wild. It really is wild. What do you currently pay? Do you use Spotify or do you use a different service?

[00:29:20] Lucas Shaw: I use the Spotify family plan

[00:29:23] Dan Runcie: Okay. All right. Same here. Yeah, my wife and I are on a plan, and I think we split that. It’s like $13 a month, so yeah, I’m well below that. And it sounds like you’re pretty well below that too. And you know, for us as power users compared to how much we probably spend on video, I mean probably at least five, 10 times that.

[00:29:41] Lucas Shaw: Yeah, I probably spend it at least 80 to $90 on video every month across everything

[00:29:47] Dan Runcie: I also imagine the nature of your job. You have to stay tapped in. It can’t be like, oh, I don’t know what’s happening with this series or platform. I don’t have a subscription, you kind of have to be tapped into all of ’em.

[00:29:57] Lucas Shaw: there are one or two services that I don’t per manently pay for but I do pay for most of the big ones.

[00:30:02] Dan Runcie: Yeah. No, that makes sense. That makes sense. I mean, like we said, I think that I’d be surprised if we see any big movements here. But before we go down the road too far, let’s just fast forward to where are we summer 2024. So a year from now. Are we still having the same debates has Universal been able to make any progress?

Is Spotify priced any differently? And we could take each of those one by one, but where do you think we are with things a year from now?

[00:30:32] Lucas Shaw: Yeah, I think prices for all the streaming services will have gone up.

Like 

[00:30:35] Dan Runcie: a dollar, $2 or,

[00:30:37] Lucas Shaw: I’d say one or $2, probably not more dramatic than that. but I’d say one or $2. And I think that, music companies will have gotten some of the other independents to like agree to test and experiment with different models, but there won’t be some new. Model that has replaced the current one.

[00:30:59] Dan Runcie: Agreed. And then do you think that we make any movement on multipliers or duration or any of those proposed changes?

[00:31:07] Lucas Shaw: I think that similarly, like people test it out, but nothing becomes the new common standard in that time period.

[00:31:12] Dan Runcie: Right. And then big picture as well. I still do think that the underlying crux of this is that platforms are two different incentives, and I think if the record labels do see themselves as having the major record labels, to see themselves as having this HBO level content. If you are taking a step back, the best way to solve that is having your own service, having your own platform.

I think that could solve a lot of things, but I could never, I just don’t see that happening. Do you think that could ever happen?

[00:31:41] Lucas Shaw: An artist with their 

[00:31:42] Dan Runcie: service.

Oh no, not an artist with their own service, but let’s say whether it was either

[00:31:45] Lucas Shaw: A music company. 

[00:31:46] Dan Runcie: One of the music companies or if the majors came together and was just like, okay, this is our conglomerate major label plus service.

[00:31:55] Lucas Shaw: No, they missed their moment. If they wanted to do that, they should have done it 10 or 15 years ago.

[00:31:59] Dan Runcie: Yeah, it reminds me when was it in the early two thousands? Do you remember Press play, that was one of the UMG 

[00:32:06] Lucas Shaw: Vaguely. 

[00:32:07] Dan Runcie: Yeah, I mean, I feel like a lot has changed since then. So there were a few failed attempts, but yeah, I think they missed the moment. They missed the moment on that but Lucas, good stuff.

This was fun. Well, maybe we’ll have to check back in, in case there’s any more movement here. But, for the people that are listening and wanna stay tapped in with you, what do you got coming up?

[00:32:25] Lucas Shaw: What do I have coming up? I send out a newsletter every Sunday called Screen Time, about business of pop culture, film, tv, music, podcasting, and a bunch of stories that I can’t really talk about. And then we have the screen time conference in the fall.

[00:32:39] Dan Runcie: So yeah, tell us what’s the deal with the Stream Time conference?

[00:32:42] Lucas Shaw: it’ll be, you know, an event in Los Angeles, day and a half devoted to the business of pop culture, which is sort of what I cover and what my team covers. We’ll have some of the bus biggest executives across, film, tv, music, gaming, podcasting, social media, onstage, I’ll interview them, or one of my colleagues that’s gonna be, you know, we have the CEO of Netflix, the CEO of Endeavor, the one of the people who runs CAA, the person who runs gaming at Microsoft. Issa Ray, Bill Simmons, the person who runs the Universal Film Studio, likely with a filmmaker, two or three other people we booked that I can’t talk about just yet. And I think, you know, if you’re interested in, if you’re interested in the business of culture, you should buy a ticket.

It is expensive. Get your company to pay for it. But it’s gonna be an awesome event. I feel like, you know, there obviously are a lot of conferences, but I think ours will be unique in its marriage of business and culture. The way my team, covers things is we sort of bring together a lot of different industries that are typically seen as separate and also it’ll be global.

Like we have already won. And probably one more, international speakers coming, that, one of which is in music that I think people will be pretty excited

[00:33:50] Dan Runcie: Awesome. Good stuff. Thanks, Lucas. Been a pleasure.

[00:33:54] Lucas Shaw: Yeah. Thanks Dan.

[00:33:55] Dan Runcie Outro Audio: If you enjoyed this podcast, go ahead and share it with a friend. Copy the link, text it to a friend, post it in your group chat. Post it in your Slack groups. Wherever you and your people talk, spread the word. That’s how Trap continues to grow and continues to reach the right people. And while you’re at it, if you use Apple Podcast, Go ahead.

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Dan Runcie

Dan Runcie

Founder of Trapital

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