Why Spotify Will Ultimately Fail
Summary
TLDRThe video script discusses the unsustainable economics of music streaming platforms, particularly Spotify, from the perspective of an independent musician. It details how streaming services have drastically reduced artist royalties, using the example of the musician's own experiences where an album released on Bandcamp outearned Spotify in a week. The script also delves into the exploitative business model of Blitz scaling, where platforms prioritize rapid growth over artist compensation, and suggests that a decentralized approach could offer a more equitable future for musicians and their audiences.
Takeaways
- 😲 The video discusses the challenges faced by a hypothetical bowling alley manager, mirroring the struggles of musicians in the streaming era, particularly with stagnant or decreasing income despite increased costs.
- 🎵 The creator's personal experience shows a stark contrast between earnings from a full-length album on Spotify and a self-released album on Bandcamp, highlighting the disparity in revenue.
- 📈 The video presents data suggesting that streaming platforms like Spotify have significantly reduced the royalties paid to artists over time, questioning the sustainability of such business models.
- 🤝 It reveals the existence of backroom deals between major labels and Spotify, where advances given to labels do not translate into higher earnings for the artists.
- 💸 The video criticizes the 'Blitz scaling' business model of Spotify, which prioritizes rapid growth and market share over fair compensation for content creators.
- 🚫 The creator argues that the current streaming model is not only unfair to artists but also fragile, as it relies on a small number of major labels for its content.
- 💡 The video suggests that a post-scarcity society, where music is freely shared and not controlled by major corporations, could be a more equitable model for the music industry.
- 🔄 The creator encourages artists to explore alternative platforms and methods for distributing music, such as Bandcamp, to maintain more control over their work and earnings.
- 💼 The video implies that the traditional capitalist model of music distribution, with its focus on scarcity and profit, is outdated and detrimental to artists.
- 🌐 The discussion points towards the potential of decentralized platforms and non-profit models as a way to support artists and challenge the dominance of current streaming services.
Q & A
What challenges does the bowling alley manager face in the script?
-The bowling alley manager faces challenges such as increasing rent and food costs, a decrease in salary despite being in the top one percent of bowling alley managers, and the need to keep patrons interested and returning.
Why does the script mention the staff shortage at a bowling alley?
-The staff shortage is mentioned to illustrate the real-world situation of businesses struggling to attract and retain employees, which is used as a metaphor for the broader issues faced by musicians and the music industry.
What is the main point the script is making about Spotify?
-The script argues that Spotify's business model is exploitative towards independent musicians, paying them very low royalties while securing high advances for major labels, which do not always benefit the artists.
How does the script compare the earnings from a full-length album on Spotify to a new album released on Bandcamp?
-The script compares the earnings by stating that the new album released on Bandcamp made more in one week than the full-length album on Spotify did in three years.
What does the term 'bait and switch' refer to in the context of the script?
-In the script, 'bait and switch' refers to the strategy used by streaming services where they initially offer relatively high royalties to attract artists and then decrease those payments over time.
Why did Sony Music receive non-refundable advances from Spotify according to the script?
-Sony Music received non-refundable advances from Spotify to secure their music catalog, which was crucial for Spotify to attract subscribers, but these advances did not go to the artists.
What is the 'Blitz scaling' business strategy as described in the script?
-Blitz scaling is a business strategy where the primary goal is to grow rapidly to achieve a high market valuation, and only afterward attempt to make the business profitable.
How does the script suggest independent musicians are affected by Spotify's dominance in the music streaming market?
-The script suggests that independent musicians are affected by having their royalties reduced and being charged for listing prioritization, which makes it difficult for them to earn a sustainable income.
What is the script's stance on the future of music streaming platforms?
-The script is critical of the current streaming model and suggests that it is unsustainable, predicting that it will collapse and that a new approach is needed to support artists.
What alternative does the script propose to the current music streaming model?
-The script proposes decentralization and supporting artists directly, such as through platforms like Bandcamp, and encourages fans to explore music outside of streaming services.
Outlines
🎳 The Struggles of a Bowling Alley Manager
This paragraph introduces a metaphorical scenario of managing a bowling alley, highlighting the challenges of keeping the business profitable amidst rising costs and the need to innovate to retain customers. Despite being in the top percentile of bowling alley managers, the manager struggles financially, earning less than minimum wage. The narrative pivots to the speaker's personal experience with the music industry, drawing a parallel between the manager's plight and that of musicians on streaming platforms like Spotify. The speaker shares their own earnings from music releases, emphasizing the stark contrast between income from a full-length album on Spotify and a self-released album on Bandcamp, suggesting a critique of the streaming model.
📈 Spotify's 'Blitz Scaling' and Its Impact on Artists
The speaker delves into the business strategy of Spotify, termed 'Blitz scaling,' which prioritizes rapid growth and high market valuation over immediate profitability. This approach, likened to a bait and switch, has led to a decrease in the average payments to independent musicians per stream over time. The paragraph discusses the pushback the speaker received from investors and the unsustainable nature of Spotify's model, which relies on venture capital to subsidize losses and keep subscription fees low. The speaker also touches on the fragility of Spotify's platform, suggesting that a mass exodus of artists could significantly impact its user base and value.
🚀 The Flaws in the Streaming Business Model
This paragraph critiques the streaming business model, arguing that it is fundamentally flawed because it does not value the assets it resells—music. The speaker points out that major labels have backroom deals with Spotify, receiving non-refundable advances that do not benefit the artists. The paragraph also discusses the broader implications of the model, suggesting that it is not sustainable and that its collapse would not necessarily be a negative outcome. The speaker advocates for a decentralized approach to music distribution, which would bypass traditional gatekeepers and potentially create a more artist-friendly ecosystem.
🎧 Suggestions for Musicians and Listeners in the Streaming Era
The final paragraph offers advice for both musicians and listeners. For musicians, the speaker suggests encouraging fans to support them through means other than streaming platforms, such as Bandcamp or direct sales. For listeners, the speaker recommends exploring music outside of streaming services to find new artists and music. The speaker also discusses their own experiences with Patreon and the potential for a non-profit model to support artists, emphasizing the importance of creating music for the love of it, rather than for the profit-driven motives of tech companies.
Mindmap
Keywords
💡Streaming Services
💡Royalties
💡Blitz Scaling
💡Venture Capital
💡Market Share
💡Non-Refundable Advances
💡Decentralization
💡Piracy
💡Intellectual Property
💡Scarcity
💡Bandcamp
Highlights
Managing a bowling alley metaphor for the challenges of running a business amidst rising costs and stagnant income.
The reality of a bowling alley management position with a starting salary of around $70,000 plus benefits.
Spotify's business model described as a 'grift' or 'heist' in the music industry.
Personal experience of earning more from a Bandcamp release in a week than from Spotify in three years.
Spotify's initial contract with Sony Music in 2011 included $25 million per year plus $9 million in ad spots.
Major labels were aware of and complicit in Spotify's bait and switch scheme with royalties.
Independent musicians often pay for third-party services to upload their music to platforms like Spotify.
Streaming services' dominance has led to a decrease in the value of music to unsustainable levels.
Blitz scaling strategy of Spotify and its impact on the music industry's sustainability.
The fragility of Spotify's business model due to its reliance on independent musicians' content.
The potential for a movement of independent artists to remove their music from Spotify as a form of protest.
The importance of decentralization in the music industry and the potential for non-profit platforms.
Suggestion for streaming service subscribers to cancel their subscriptions and explore music through other means.
Encouragement for musicians to direct their fans to support them outside of streaming platforms.
The author's personal experience with Patreon and the benefits of community engagement for artists.
Transcripts
imagine for a moment that you have a job
managing a bowling alley it's one of the
many alleys in your town it's a chain
you have to work long hours to keep the
business profitable and growing you have
to make the right decision with
unforeseen circumstances such as covid
you have to keep things interesting and
new so your patrons don't get bored and
so casual patrons have a reason to come
back and you are a bowling Enthusiast
most days you really like managing a
bowling alley you accepted this job
seven years ago and in that time rent
has gone up by 40 percent food has gone
up by 26 percent yet your paycheck has
gone down by more than half even though
you're earning in the top one percent of
bowling alley managers you're still not
making minimum wage what would you do I
would hope that you would quit the
reason I'm using this particular
metaphor is because I went bowling the
other day at a bowling alley near my
house and it was filled with signs
apologizing for the staff shortage and
offering up to 19 per hour plus benefits
to work the front desk in reality this
bowling alley management position I put
you in starts with a salary of around 70
thousand dollars plus benefits in
reality but neither musicians nor
Venture capitalists live anywhere close
to reality in today's video we're not
going to be talking about Joe Rogan
getting 100 million dollars or how
streaming services are degrading the way
we listen to and explore music for years
for an exhaustive amount of time now
I've been collecting data from hundreds
of independent musicians and small
record labels and I finally feel certain
enough to tell you exactly how Spotify
is how do I put this a grift a heist
let's start this with some recent
personal numbers that will probably
surprise you even if you thought that
streaming services were a bad thing
three years ago right before the
pandemic I released full-length album as
the flash bulb it had a promotional
budget it had a music video and it was
actually pretty well received at the
time of me recording this in January of
2023 this is how much money I made from
that album on Spotify since releasing it
now a few weeks ago in December I
released a new album exclusively on
bandcamp there was no promotion no music
video in fact I didn't even mention it
on social media until about 48 hours
before it came out I priced it at five
bucks and the first week it made this
much my point here is that in only seven
days I was able to make more from this
half-assed album released than Spotify
could pay me in three years
alright so let's get rid of this new one
and compare the exact same album our
simulacra made three times more on
bandcamp than it did on Spotify since
its release about two years ago when I
made my last video on this topic I
looked at the data and I noticed that
the amount of money streaming services
paid artists was syncing by a whole lot
and I wondered to myself if they had
pulled a massive bait and switch scheme
with royalties and it wasn't until I got
my hands on this the entire contract
agreement between Sony music and Spotify
that I realized that it absolutely was a
badon switch and major labels were
completely aware of it so much so that
Sony Music got paid huge non-refundable
advances from Spotify and in every case
I looked into none of those advances
went to the artists the initial contract
with Sony in 2011 paid 25 million
dollars to Sony per year plus nine
million dollars in ad spots which Sony
could then resell Sony's advances were
tied to market share and other variables
on an annual basis so they would keep
Rising year after year Spotify knew that
if they wanted you to become a Spotify
customer and subscriber first they
needed to have the biggest names of
Music in their library right from the
start and to do this they threw millions
of venture capital dollars at the media
conglomerates that own the licenses for
the music on an annual basis rather than
just promising a fair royalty so if
you're an independent musician and if
you ever wondered if Beyonce's label is
getting more per stream than you are the
answer is such a complicated form of of
course that you're better off just
drinking whiskey until you fall asleep
laughing maniacally at how unfair the
world is so why would musicians sign up
in the first place well I think there
are a lot of reasons to start most
musicians want to adapt to the next big
thing in music streaming effectively
made accessing music so easy that music
piracy started dropping not unlike the
effect Netflix had on movie piracy but
musicians couldn't just upload their
music to Spotify Spotify and iTunes
couldn't be bothered to actually manage
their own library that justifies their
existence in the first place they made
independent musicians pay for the
privilege for third-party services like
Toon Core or distro kit a little side
note here Spotify would actually buy a
minority stake in distrokids so they
could monetize their own lack of
functionality after a few years if you
wanted to be an independent musician and
have your name alongside the bigger
artists that Spotify was actually
secretly paying up front for you didn't
have any other option and for someone
like myself who came into Spotify having
already been making a living as a
professional musician once the payments
started coming in it started making
sense and won't bore you with the
details I already did that in this video
but once Spotify and the other streaming
services dominated every other form of
music distribution including radio take
a wild guess what happened musicians got
here's a way of putting it that
Tech investors might understand this is
how much Spotify paid independent
musicians per stream on average over
time without a doubt it is a bait and
switch especially when spotify's
subscriber growth looks like this now
when I pointed this out in a video two
years ago I got quite a bit of pushback
from investors or day traders who I
assume had some sort of stake in Spotify
and I couldn't fathom how they weren't
seeing this as a bad thing it's actively
squeezing the life out of the one thing
that you're reselling if Uber drivers
were paid so low that they couldn't
afford fuel that would not be good news
for investors I think a lot of people in
the music industry have been completely
blindsided by this because the modern
Silicone Valley business model operates
so differently most people would
describe spotify's business strategy as
something called Blitz scaling and it's
both clever and stupid at the same time
the goal is to grow at an absurdly rapid
pace and get as high of a market
valuation as quickly as possible and
then after you've succeeded at that then
you find out if the business can be
profitable and how to make that work
seriously example you think of an idea
like what if you could pay ten dollars a
month and see unlimited movies in movie
theaters and movie theaters are like
yeah that's not really going to work
because the tickets cost more than ten
dollars but you'll figure something out
this will radically transform the film
industry and you your way into
raising millions and billions of dollars
so you literally start using your
investors money to give all of your
customers debit cards and pay face value
for movie tickets but in order to get
more money from investors you need to
tell them that you have more customers
so you drop the membership price to
seven dollars now you're losing
somewhere around 40 million dollars a
month but you'll figure something out
things are getting really stressful so
now would be a good time to sell your
company to a super Shady foreign
investor that nobody has heard of and
then it goes bankrupt and reallocates
finances and then you buy it back and
try and raise some more money or maybe
you live in a city where you have
experienced the phenomenon of infinite
amounts of money dumping electric
scooters everywhere does that
seem like a profitable business venture
to you most investors know that it's not
but they don't care it's just a matter
of buying low and selling High when a
business is founded on Blitz scaling or
fast scaling if growth slows down before
a profitable business model is
discovered everything goes kaput it's
all or nothing so the top priority above
all other things is to keep growing and
in cases such as movie pass or Uber the
customer gets a slight lifestyle upgrade
paid for by a pool of venture capital
Investments now in spotify's case the
Venture Capital allowed the initial
membership fees to be low and the
royalties to be relatively high that way
more artists would get on board and keep
their music there but since Spotify
wouldn't dare risk slower growth of
subscribers their immense losses are
bandaged and subsidized from independent
musicians both by cutting their
royalties and charging them for listing
prioritization on things like the
Marquee program unfortunately due to
spotify's market share and absolute
dominance and presence on everybody's
phones as a result value of Music in
general has dropped to unsustainable
levels and an extremely optimistic take
would be saying that the music economy
is at critical mass and not utterly
irreparable one might ask is spotify's
business model functional without a
profit and the answer to that depends on
who you ask and what you mean by
functional do you remember earlier in
this video when I told you about the
major labels having backdoor agreements
with Spotify while a lot of that was
huge amounts of stocks in Spotify being
transferred to the record labels in
almost all the labels dumped that stock
right after it went public the CEO is
worth five billion dollars employees
like Don ostroff get about 7.5 million
dollars in salary third-party companies
like distro kid that exist solely to
charge you to put your music on Spotify
have a billion dollar valuation and
spotify's investors have made well about
that now I'm no big city Economist but
it seems to me that a blitz scaling
strategy would work best with Rock
Bottom entry interest rates and if you
haven't noticed that parade came to a
screeching halt when those rates were
low Spotify for a long time has had a
lot of trouble finding a profit but it's
about to get a whole lot worse and this
isn't news to most investors but the
much bigger issue with the streaming
platform business model that investors
seem to be wildly ignoring is that none
of these platforms own any of the assets
that they're reselling they don't even
have a license for them for the next
fiscal year let's say that there was
some sort of I don't know a viral Reddit
post that created some sort of pseudo
online musician Union or let's just say
that Joe Rogan said something else
completely insane that was the straw
that broke the camel's back if there was
just some sort of small movement or
occurrence where a few thousand
Independent Artists with fan bases
similar to mine decided to remove their
music from Spotify today it very well
could create a snowball effect with
subscribers and of course as a customer
if you put your airpods in and picked up
your phone expecting to hear some
artists that you're accustomed to listen
to and all of a sudden weren't able to
find them you're not going to recite
your loyalty to Spotify you'll just use
a platform that has the artists you
listen to the point is this platform is
extremely fragile and it is increasingly
neglecting the only asset that it has if
you're an investor who has a stake in
Spotify or music streaming platform and
you think that there's a chance that
they will stabilize and eventually make
a profit or a steady long-term profit I
can tell you after spending years
excruciatingly analyzing both the artist
and business side of this micro economy
I am as certain as I could possibly be
that you are wrong at least a few people
watching this are thinking well Ben why
don't you just take your music off of
Spotify then because I get those
comments every single time I mention any
of these problems but I also get plenty
of messages asking me to put more of my
albums especially my older albums on
Spotify in in this last week I've had
plenty of people complaining that my
newest album isn't there it's a
double-edged sword I want to stop being
part of the system but I also don't want
to take it out on my listeners most of
whom believe that they're adequately
supporting artists by listening to them
on a streaming service for me at least I
don't think that folding my arms and
saying anyone that subscribes to Spotify
is part of the problem is helpful I
think that making videos like this and
being a broken record every time
somebody asks me about these things is
helpful but the truth is is that if
everybody stopped using streaming
services right now they'd have what band
camp iTunes piracy none of these are
adequate Replacements so what do we do
if you're an apple music customer or if
you thought that switching to Apple
music was a solution nope they've been
doing the exact same thing Independent
Artists are making an average of 32
percent less per stream than when most
of them put their music on the platform
in fact Apple music launched with a
pseudo internal Blitz scaling method
they tried to bring in a bunch of
subscribers with a three month free
trial with no intention of paying
artists during that period they were
subsidizing growth through royalties
because they otherwise would have to
spend their own money title though right
it was built by artists to be fair to
artists wrong for me personally title
when they've actually paid out is now
paying 51 percent less per stream than
when I signed on all right let's get to
the center here this is important the
streaming business model simply does not
work any future platform of this type
will need a similar strategy in order to
gain a sizable market share that could
promise to reach profit in the long term
and beyond that even with iTunes or
Amazon music or bandcamp these are
for-profit companies it is their legal
duty to their investors to eventually
pay as little as they can possibly get
away with while charging as much as they
can it's still completely botched
capitalism only works when there's
scarcity we have concocted insane
unconstitutional laws that make you a
criminal for humming a song in public or
transferring a file to try and force it
to work without scarcity capitalism
Above All Things requires growth and the
function of actual property is the
opposite to growth it's about monetizing
intangible things and then trying to
profit by limiting who has access to
them the only way that this makes money
is when you sidestep it by selling
convenience novelty or if you're simply
making people too scared of punishment
from their government to share
information with one another the sooner
that artists intellectual property
holders and investors can accept and
digest this then the sooner we can build
a music industry that doesn't collapse
every single decade if you're a musician
or any type of artist that tries to make
a living off of their work this all
Probably sounds like really bad news but
it's not a post-scarcity society is
considered utopian in 1999 something
really important happened a group of
college students made an incredibly easy
way to share music files that didn't
require a web host I think everybody in
the tech and business World saw the
potential that an MP3 file has and then
companies like apple regurgitated it
into crap like iTunes but in this
colossal change of the music industry
they conveniently glossed over the most
important part decentralization it turns
out that we don't need Apple or Sony
music or Spotify to listen to music and
it exposed the reality of intellectual
property that I had just mentioned it
turns out that we also don't need
Twitter incorporated or meta or Facebook
or Elon Musk or Mark Zuckerberg or even
YouTube all of these things can be done
without a private data center CEOs or
even copyright and as long as we have a
free market it eventually will be and
surprisingly recently non-profits are
actually accelerating this things like
signal and Mastodon are great examples
of non-profit projects that function far
more efficiently than what they're
trying to replace because there isn't a
profitable business to manage and no the
mention of decentralization here has
nothing to do with cryptocurrencies or
nfts nor should it the whole idea here
is to build an economy that supports
individuals that create things that you
enjoy not concoct more more ways to
profit off of artificial scarcity
so what should we do in the meantime I
think that if you are a subscriber to a
streaming service now might be a good
time to cancel that subscription and
enjoy the novelty of finding a music
file player that you enjoy and doing
some exploring to find some new music
that you like without an algorithm
supplying it for you by the way I don't
think band camp will solve these
problems I don't think epic games bought
them because they love music so much I
think they'll eventually find a way to
squeeze as much profit as possible out
of it but in the meantime it does pay
rather fairly and it's a great place to
find new music on your own I've always
used it in my browser but the app
allegedly supports direct streaming now
as for musicians encourage your fans to
support you elsewhere let them know that
that helps you create more material that
they enjoy you could drive the point in
a bit more by not releasing music on
streaming services at all or you could
make a gentler Point by releasing music
on streaming services a few months or
after you release them on bandcamp or
your own platform just this last week I
tried uploading a slightly limited
version of my newest album to Spotify
and surprisingly it got someone's
attention and wasn't very well received
I can't really speak publicly about that
Conflict at the moment but to me it's
good news to not be completely ignored
even if the only attention daddy is
giving me is when I misbehave more if
not most importantly we're musicians
because we love making music it's as
simple as that there's nothing further
from the Purity and beauty of making
music than the dumpster fire of a tech
company Blitz scaling when the music
streaming model collapses and it will
we'll still have this gift and hey
speaking of supporting artists I have a
patreon and it's connected to a Discord
Community we do monthly songwriting
challenges we play games we talk about
things like decentralized music
streaming for the last year they've been
hearing me complain about the struggles
of starting a 501c3 to do this very
thing but also there's loads of audio
sets and over 34 hours of unreleased
music it's awesome and you can join us
for as little as one dollar I'm out keep
creating bye
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