Another Bad Artist Relations Week for Spotify–Music Tech Policy

Spotify released one of their groovy ad campaigns last week. This time celebrating their freebie subscription campaign. You really do have to wonder where they find the people who come up with these things. Blake Morgan, David Lowery and David Poe all laid into Spotify with their own tweets.

via Another Bad Artist Relations Week for Spotify — Music Technology Policy

@_davidturner_: Spotify Is in the Business of Selling You Spotify, Not Music

Make no mistake—Spotify is only interested in selling you Spotify.

On Monday, the Huffington Post’s contributor platform published a storyby #IRespectMusic founder Blake Morgan, detailing a heated exchange between him and an unidentified Spotify executive that took place in 2014. Titled “Spotify’s Fatal Flaw Exposed: How My Closed-Door Meeting with Execs Ended in a Shouting Match,” the piece was removed from the website hours after posting.

Morgan’s piece was reposted on the Trichordvist, a community blog that is, according to their website, “for those interested in contributing to the advancement of a Sustainable and Ethical Internet for the protection of Artists Rights in the Digital Age.”

Read the post on Track Record

What’s Up With HuffPo’s CEO and his Spotify History?

As ARW readers will know, the Huffington Post censored my friend and whistleblower Blake Morgan who posted his story from a few years ago about a particularly teachable moment involving his encounter with Spotify’s tone deaf executive class.  (A teachable moment that was reported at the time by Harley Brown at Billboard which makes HuffPo’s lame editorial excuse ring even hollower.)

As producer Michael Beinhorn noted:

My friend Blake Morgan wrote an article criticizing Spotify which was published yesterday on the Huffington Post website. This article began developing traction, but within 2 hours of posting, it was removed from the website and Blake received a vague email from someone at HuffPo as to why. It has since been republished by David Lowery on the Trichordist website, and now includes the email Blake received after HuffPo excised it from their site. One has to wonder why the Huffington Post- which represents itself as a hotbed of liberal thought and free speech, would publish- and then unpublish- something so important (and summarily/subsequently ban its author as a contributor to their website). Could this decision have anything to do with the fact that the current CEO of HuffPo is the former General Counsel and Global Head of Corporate Development at Spotify? Can you say “conflict of interest” or “a threat to my stock options”? Please read and judge for yourself….

Michael makes a very good point here.  According to The Lawyer, the HuffPo CEO, Jared Grusd, exited Spotify in 2015 after working there for four years–2011 to 2015.  While we don’t have knowledge of Mr. Grusd’s dealings with Spotify, we can infer a few likely interesting points from that situation.

First, Mr. Grusd’s tenure (2011-2015) apparently overlapped with Jonathan Prince, Spotify’s head of communications and ex-Clinton and Obama official who formally joined the company in 2014.  My assessment of Mr. Prince is that part of his job would not only be placing positive news about his employer Spotify, but would also be suppressing negative stories like Blake’s post.  To my knowledge, Mr. Prince is still at Spotify.

The particular years that Mr. Grusd was employed by Spotify would start around the time of the company’s U.S. launch and continue for four years, a customary stock option vesting period.  We don’t know what percentage of the company Mr. Grusd owns, but we can assume for the sake of argument that it’s around 1% of the then outstanding stock and that Spotify did not repurchase his shares when he left the company.  Of course, since Mr. Grusd is obviously a very important person and had two roles at Spotify, he could well own (or have the right to buy) a greater portion of the company, but probably less than 5%.  He would probably have been considered something of a late-stage founder for purposes of truing up his initial stock grant and could also have been granted further stock bonuses.

A stock option is the right to purchase stock at a fixed price, usually below market and maybe way below market.  Stock options “vest” over time as a way of incenting employees to stay in their jobs (and are often called “incentive stock options”).  You cannot exercise stock options until they vest.  It’s not uncommon for a company to grant a bunch of these incentive shares to an employee but require the employee to stay at the company for at least 12 months in order to vest at all (called a “cliff”), with monthy vesting thereafter of the remainder of the grant on a prorated basis.  These “incentive stock options” may have certain tax advantages.

So if you were to get 100 stock options on a 12 month cliff with monthly vesting, after one year of employment you’d be able to exercise 25 shares, and each month thereafter you’d be able to exercise 1/36th of the remaining shares, or 25% per year.  (Which can be one reason you see people leaving some startup jobs after four years.)  These shares are almost invariably common stock grants.

How many shares of Spotify stock Mr. Grusd owns and his exercise price will, of course, depend on the number of shares outstanding at the time he was hired and the value of the common stock at that time (leaving aside the “cheap stock” issue), but lets assume that Mr. Grusd got 500,000 shares and that he owns all of them.  But realize that he could easily own much, much more.

When a company goes public, those shares become very valuable because the exercise price of the option is almost always substantially less than the market price of shares.  (Plus, there is something called a “cashless exercise” which allows holders to avoid having to pay anything at all for their stock, “collars” which allow holders to sell their position to a third party, and other tricks of the trade that allow people like Mr. Grusd to “get liquid”.)

Also remember that Spotify’s proposed stock offering according to press reports is to be a “DPO” (a “direct public offering”) not an “IPO” (an underwritten “Initial Public Offering”), an unusual choice by the company which evidently means that there are no underwriters involved.  This move has been criticized by some but lauded by others (which may be evidence of Mr. Prince’s hand).  One feature of the DPO is that it might be easier for someone like Mr. Grusd to sell his shares immediately or at least sooner than with an IPO.  My sense is that Spotify will be under a lower transparency standard between the DPO structure and the fact that Spotify and its Chinese partner Tencent will probably be filing as a foreign issuer (on SEC Form F-1 and not the traditional S-1 for those reading along).  This remains to be seen.

However–Dr. Beinhorn has correctly put his finger on Mr. Grusd’s problem.  If Mr. Grusd has Spotify shares that he holds personally (and not through a blind trust) and as a former Spotify “insider” (for securities law purposes) he appears to have every incentive to keep the murky Spotify story as postitive as he can.  In his current role at HuffPo Mr. Grusd is uniquely positioned to suppress bad Spotify news for his personal enrichment even if Spotify hasn’t offered him anything to do so specifically.

Whether any of this happened, we can’t be sure.  But it sure looks funky.

Another thing that’s funky?  Mr. Grusd was evidently General Counsel of Spotify during the time (2011-2014) that many if not all of the licensing failures occurred that lead directly to all of Spotify’s current litigation problems.  It would be typical for a General Counsel to sign off on something as legal and as critical to the company as its licensing practices (or failures).  Whether that’s leverage for Mr. Prince to extract compliance from Mr. Grusd is something you’d have to ask them–or Spotify’s D&O insurance carrier.

Either way, potential Spotify stockholders buying shares in the public market should be able to hear the good and the bad about the company’s management or mismanagement which Blake was trying to tell them.  I don’t know if a former insider has a legal fiduciary duty to the public (or even to existing stockholders) in this regard, but at a minimum it would certainly be a better look not to suppress stories that could inform the investing public if your CEO really does have a conflict of interest.

So on balance, I think Michael Beinhorn has put his finger on something of extraordinary importance to public policy and the well-being of the investing public in general about which the HuffPo’s readership and potential investors in Spotify ought to educate themselves.

 

@theblakemorgan: Spotify’s Fatal Flaw Exposed: How My Closed-Door Meeting with Execs Ended in a Shouting Match

[Editor Charlie sez:  After this post started to take off on Huffington Post, Blake Morgan was told that HuffPo was killing the link on a flimsy excuse.  The Trichordist has reposted the piece along with correspondence from the HuffPo editor.]

I love streaming.

I love making playlists, I love being able to download streamed music so I can listen when I’m offline, and I love being able to bring that music with me. In short, I think it’s a great distribution method.

What I don’t love is how little musicians get paid for all that streaming. It’s not fair––not even close. What’s more, middle-class music makers are the ones who are hit hardest, whose businesses are threatened, and whose families are put at risk. So how can I be against the way streaming companies treat musicians but not be against streaming itself?

The same way I’m against the electric chair, but not against electricity.

@JAGladstone: @theblakemorgan: The Singer-Songwriter on his Campaign to Respect Musicians Rights

“Spotify says they can’t turn a profit because they have to pay artists too much. But the owner of Spotify is worth $310 million,” says singer-songwriter with a derisive laugh.

“I mean, let’s be honest,” says Morgan, who performs at The Lost Church on Saturday night. “If musicians know how to do anything, its how to count!”

Since 2013, when his heated e-mail exchange with Pandora CEO Tim Westergrin over performers’ royalties was shared in the Huffington Postand went viral (huff.to/2kRzXto), Morgan has become at least as well known for his activism on behalf of other musicians as for his own recorded music.

But Morgan’s subsequent founding of the #IRespectMusic campaign, public speaking at music industry events, and extensive lobbying of congress in support of the “Fair Play Fair Pay Act” and “Songwriters Equity Act” are natural outgrowths of a personal ethos that’s been integral to Morgan’s career since early on.

Read the post on The Bay Area Reporter

@RadioCleveKKG: Paradigm Shift

[Editor Charlie sez:  Karoline Kramer-Gould is the bravest person we know.  Karoline was the long time Music Director of Cleveland’s tastemaker college AAA station WJCU who spoke out about her views on the issue and the tactics of the all-powerful National Association of Broadcasters in the NAB’s opposition to paying artist royalties for the sound recordings they built their business on.  Karoline became a vocal advocate for the bi-partisan Fair Play Fair Pay Act and to date is the only person who actually put their job on the line for artists which is what can happen when you speak truth to power.

Karoline spoke truth to power when she co-authored a letter with recording artist Blake Morgan (of the #irespectmusic campaign) to House Judiciary Chairman Bob Goodlatte expressing her support for Fair Play Fair Pay in opposition to the powerful NAB. The letter to Chairman Goodlatte is reproduced in Chris Castle’s interview with Karoline published in the Huffington Post.

Karoline left WJCU shortly after speaking out, and was invited to meet with many Members of Congress about the bi-partisan Fair Play Fair Pay act in support of artist pay for radio play.  She now reflects on her experience in a blog post we reproduce with Karoline’s permission from her blog at karolinekramer.com.  And don’t forget to sign the petition at IRespectMusic.org!]

Paradigm Shift:

noun

1. a dramatic change in the paradigm of a scientific community, or a change from one scientific paradigm to another.

(From Dictionary.com)

A friend who works as a radio promoter called me last week to catch up. During the conversation, he asked me if I’m still looking for work in radio. I told him I didn’t think so. He was sad and tried to encourage me to continue to look for work in that field. He said he misses me. That a lot of promoters miss me. That I have so much to offer to radio.

I’ve been thinking a lot about that conversation.

Two weeks ago I was offered the opportunity to create and program a new Internet radio station. I declined. There was one simple reason. I don’t want to work in radio again.

I miss discovering and sharing new music. I miss the weekly chats with label folks and indie promoters. I miss artist interviews and concerts.

I love the time I spent in radio. I learned a lot. I made wonderful lifelong friends.

I used to think I couldn’t really be happy if I wasn’t working in radio. Now I know that I can finally be happy because I’m NOT working in radio any longer.

Most folks who work in radio have always worked in radio, starting in college. I didn’t start working there until I was in my 30s. I was a business professional in love with IT.

When I first started in radio, I was amazed at a lot of things that seemed normal there – things that would never fly in any other field. Behaviors, ideas, hierarchies. Outdated methodology for charts and advertising. I thought that radio people lived in a bubble. I still do. I loved the bubble. But now that I’m no longer there I can look at it and once again see how out of touch the industry is.

When the letter supporting #FairPlayFairPay and subsequent Huffington Post article came out in October, 2015, it struck a chord with the general public and musicians all over the world. I received hundreds of tweets and messages of support and encouragement. That overwhelming support was balanced by the near silence from the radio industry.

I left the radio station I was working with and began applying for jobs in the radio field. I didn’t receive rejection letters, just silence. At first I thought I was overthinking it – that there was something else going on, it wasn’t the letter and article. I wasn’t that important. But the longer I’ve been confronted with that silence, the more it confirmed my fears that I closed the door on that career path by speaking out.

When that realization hit, I was angry. Strike that. I was livid. I was furious that those who worked for larger stations in bigger markets didn’t say anything or acknowledge what I did. Their silence, to me, spoke volumes about their being complicit in the attempt to deny artists their basic rights – to be paid fairly for their work.

I cursed those taste-maker programmers I knew. They had an opportunity to join me. To raise their voices and add to the strength of the musicians. What kept them silent? Fear of upsetting the status quo? Or was it the biggest trap of all – safety? Perhaps they are safe and comfortable where they are and can’t fathom losing it?

I don’t know the answer. I only know that their silence speaks volumes to me. The people who claim to love music and artists, yet continue to work in a field that denies artists fair compensation, are showing us whose side they are on: their own.

On. Their. Own.

I will never join them in that complicit silence again.

#IRespectMusic

 

Blake KKG Conyers
Blake Morgan, Karoline Kramer-Gould, Rep. John Conyers