Why Spotify Will Ultimately Fail

Summary

The 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video implies that the traditional capitalist model of music distribution, with its focus on scarcity and profit, is outdated and detrimental to artists.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

00:00

🎳 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.

05:03

📈 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.

10:04

🚀 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.

15:05

🎧 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.

Keywords

💡Streaming Services

Streaming services refer to online platforms that offer content such as music, movies, and TV shows to users on demand. In the context of the video, the focus is on music streaming platforms like Spotify and Apple Music, which have been criticized for their payment models to artists. The video discusses how these services have significantly reduced the income of musicians, despite their widespread use and popularity.

💡Royalties

Royalties in the music industry are the payments made to artists and copyright holders for the use of their music. The video script highlights the issue of low royalty rates on streaming platforms, which has led to a situation where artists earn very little from their music being streamed, even when their work is well-received.

💡Blitz Scaling

Blitz scaling is a business strategy where a company prioritizes rapid growth and market dominance over immediate profitability. The video uses this term to critique Spotify's approach, suggesting that the platform's focus on rapid expansion has come at the cost of fair compensation for artists, creating an unsustainable model for the music industry.

💡Venture Capital

Venture capital (VC) is funding provided by investors to startups with high growth potential. The script mentions venture capital as a key factor in Spotify's business model, where VC investments have been used to offer low subscription fees and high initial royalty rates to attract users and artists, respectively, but have not been sustainable in the long term.

💡Market Share

Market share represents the percentage of the market a company holds relative to its competitors. The video discusses how Spotify's contracts with major labels, like Sony Music, included clauses tied to market share, ensuring that the platform would continue to grow by having popular artists on its platform, even if it meant paying them less over time.

💡Non-Refundable Advances

Non-refundable advances are payments made upfront by one party to another, typically in the music industry from a record label or streaming service to an artist, which do not need to be paid back. The video points out that major labels like Sony Music received large non-refundable advances from Spotify, but these payments did not benefit the artists, highlighting a disparity in the distribution of funds.

💡Decentralization

Decentralization in the context of the video refers to the idea of moving away from centralized control by large corporations or platforms, towards a more distributed model where artists and consumers have more direct interactions. The video suggests that decentralization could offer a more sustainable and fair approach to music distribution, bypassing the issues with current streaming platforms.

💡Piracy

Piracy in the music industry refers to the unauthorized copying, distribution, and use of copyrighted material. The video script contrasts the decline in music piracy due to the convenience of streaming services with the negative impact these services have on artist earnings, suggesting that while piracy was a problem, the current model may not be much better.

💡Intellectual Property

Intellectual property (IP) refers to creations of the mind, such as music, literature, and inventions, that are protected by law. The video discusses the concept of IP in the context of music streaming, questioning the current legal and business structures that enforce artificial scarcity and limit access to music, which may not be beneficial for artists or consumers.

💡Scarcity

Scarcity in economics refers to a situation where the demand for a resource exceeds its availability. The video argues that capitalism and the current music industry rely on creating artificial scarcity to generate profit, which is at odds with the nature of digital music, where abundance should naturally lead to lower costs and greater access for consumers.

💡Bandcamp

Bandcamp is an online platform that allows musicians to sell their music directly to fans. The video contrasts Bandcamp's model with that of streaming services, suggesting that it offers a more artist-friendly alternative where musicians can earn more from their work. The script uses Bandcamp as an example of a platform that pays artists more fairly for their music.

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