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Indie labels say there is ‘no upside’ to Spotify; [UPDATE] Comment from Spotify

spotify-logo-largeWe anxiously waited for two years for Spotify to launch in the U.S. It’s had a storied beginning, raking in millions of paying users and preparing for its nearly-confirmed Facebook integrated streaming service. And despite a healthy dose of competition in the market, it seems that by all appearance Spotify has had quite the successful stateside debut.

But rumors that unhappy labels are dropping their partnership with the music service have surfaced. While no major record companies have jumped ship, smaller indie labels are complaining that Spotify is nothing but a money-suck. “There [does] not appear to be an upside,” Prosthetic Records co-owner E.J. Johantgen tells L.A. Weekly. “[Payouts] are fractions of pennies.” Prosethetic is one of three independent heavy metal labels that Spotify has lost.

Apparently it isn’t only that profits from Spotify are less than satisfactory, it’s that partnering with the site may be taking a toll on physical sales. A rep from Century Media, which also dropped its deal with Spotify, says “Spotify in its present form isn’t the way forward. [Physical sales] are dropping drastically in all counties where Spotify is active.”

It seems like the dichotomy between how music is sold to consumers and how the business is presented to artists is lending to this turmoil. Spotify wants its users to think they are paying a flat sum to access large collection of music. Artists, on the other hand, are understandably interested in how they are profiting, and it makes sense to want to be paid based on how often your songs are being streamed. Of course, listeners don’t pay per song stream, so breaking it down like that just doesn’t work.

Getting labels on board with subscription streaming services has been and continues to be a hard-fought battle. Convincing labels–especially independent labels–that consumers aren’t going to pay for music like we used to isn’t easy, and even though this is beginning to seem like standard practice to us, it’s still a hard pill to swallow for up-and-coming artists. As Century Media dramatically put it, the Spotify model will “kill…smaller bands that are already struggling to make ends meet.”

A blog post from indie band Uniform Motion put into perspective how they make their money from various selling models, including Spotify. If you listened to their entire album once a day for three years, the band makes approximately $40 (US).

So what’s the answer? As a consumer, we should be happy that we can pick and choose what we want instead of dropping $20 on a CD we like three songs from. And the ability to stream them conveniently makes it more worthwhile. It’s not as if the old model was exactly fair either. But you feel for indie labels that don’t have the luxuries of big name record companies. The music industry and the Internet will continue to have a contentious relationship until some balance is struck, but given how quickly this industry is innovating and creating new business models, there are more than a few avenues to try.

[UPDATE] A Spotify rep had this to say about the backlash from indie labels:

“Spotify does not sell streams, but access to music. Users pay for this access either via a subscription fee or with their ear time via the ad-supported service [just like commercial radio] – they do not pay per stream. In other words, Spotify is not a unit based business and it does not make sense to look at revenues from Spotify from a per stream or other music unit-based point of view. Instead, one must look at the overall revenues that Spotify is generating, and how these revenues grow over time.

Spotify is generating serious revenues for rights holders, labels, publishers and the artists that they represent.  We have paid over $100m to rights holders since our launch, and the overwhelming majority of our label partners are thrilled with the revenues we’re returning to them. Spotify is now the second single largest source of digital music revenue for labels in Europe, according to IFPI.

It is also important to note that Spotify was created as a better, more convenient alternative to piracy. Estimates suggest that around 95% of all music downloads are illegal. Spotify is now monetising an audience the large majority of whom were downloading illegally (and therefore not making a penny for the industry) before Spotify was available.”

[Infographic via]

selling music