Spotify Continues Profiting from Human Misery

In case you missed it, the creator’s loss is Spotify’s gain.  No, today is different than usual, because this time Spotify’s gain is not just tied to the misery of artists and songwriters, it’s actually tied to the whole world.  According to TechCrunch:

The coronavirus may be decimating some corners of the economy, but the impact on the digital music, as evidenced by the world’s biggest music streaming company, appears to be minimal. Today Spotify reported its earnings for Q1 with revenues of €1.848 billion ($2 billion at today’s rates) and an inching into a positive net income of $1 million. Monthly active users (not total subscribers) now stand at 286 million, with paid (premium) users at 130 million and ad-supported monthly active users at 163 million. Ad-supported users are growing at a slightly higher rate at the moment, at 32% versus 31%, Spotify said.

So far today, SPOT is up $16 a share, which means Daniel Ek made roughly $656,000,000 today alone.  And that doesn’t count the warrants.

So the bubbly is flowing at World Trade Center or wherever the Spotify elites are hiding out.

Just like at your house, right?

Do they care about your problems?

daniel-ek-spotify-ceo-2012BilloardSPOOF1

@waltmossberg Pans Spotify’s Data Scraping Using Podcasts as Privacy Invading Honeypot #irespectmusic

“This planned violation of privacy by Spotify is a huge reason to stick with @Applefor podcasts. Ads in podcasts are fine with me, and I’ve even bought products advertised on some of my favorite shows. Ads based on vacuuming up my private info aren’t OK.”

Is Streaming a New Shadow Economy?

…there was lunch in the larger, first floor cafeteria where, in the corner, on a small stage there was a man, playing a guitar, who looked like an aging singer-songwriter Mae’s parents listened to.

“Is that….?”

“It is,” Annie said, not breaking her stride.  “There’s someone every day.   Musicians, comedians, writers….We book them a year ahead.  We have to fight them off.”

The singer-songwriter was signing passionately…but the vast majority of the cafeteria was paying little to no attention.

“I can’t imagine the budget for that, ” Mae said.

“Oh god, we don’t pay them.”

The Circle, by Dave Eggers

The New York Times teased their reporting today by Andy Newman on “canning” entitled “Making ends meet, five cents at a time.”

In New York City, a shadow economy has sprouted up around recyclable bottles and cans. Dionisia Rivera, above, sells the items she collects on the Upper East Side.

Our reporter takes you inside the world of “canning,” which provides a lifeline to thousands as stable low-skill jobs disappear in the city.

“Five cents a time”?  Really?  That’s at least 10x more than a Spotify stream.  Maybe we’re in the wrong business.  In fact, maybe we should be in the business of canning at Spotify’s palatial offices in the World Trade Center.

It’s kind of amazing that Spotify doesn’t have “Cans for Musicians” as part of their extensive recycling program.  You know, help them musos get their side hustle on.

It may be the only thing green about streaming.

Photo by Andrew Seng for the New York Times

@musictechsolve: Do Spotify Stock Downgrades Go Far Enough?

On June 24th, Spotify shares (ticker: SPOT) was downgraded by Evercore analyst Kevin Rippey, who cut the stock to Underperform from In Line.  Since then, analysts are steadily looking past the loss-making Spotify’s $1 billion stock buy back plan.

Rippey says investors are overestimating Spotify’s ability to make money from podcasts and offering services to musicians and are underestimating the competition from other streaming services—particularly in countries outside the U.S. He reduced his price target to $110.

As ARW readers will recall, I have long challenged Spotify’s kvetching about high royalty rates by pointing to the its high overhead, 7 figure performance bonuses to Daniel Ek when he failed to meet the bonus criteria, and other irresponsible behavior by the board that Ek controls.

Spotify’s interest in podcasts is another comical example of Ek as the Easter Bunny of Screw Ups.  He bought a podcasting company that was unionized.  Sheer genius.  Why did he buy them?  Some people think it’s because podcasts were another form of user-generated content where people work for free in exchange for hot meals…no, in exchange for exposure bucks.

Exposure Bucks

Apple is busy paying for podcasts according to Newsmax:

Apple Inc. plans to fund original podcasts that would be exclusive to its audio service, according to people familiar with the matter, increasing its investment in the industry to keep competitors Spotify and Stitcher at bay.

Executives at the company have reached out to media companies and their representatives to discuss buying exclusive rights to podcasts, according to the people, who asked not to be identified because the conversations are preliminary. Apple has yet to outline a clear strategy, but has said it plans to pursue the kind of deals it didn’t make before.

Apple all but invented the podcasting business with the creation of a network that collects thousands of podcasts from across the internet in a feed on people’s phones, smartwatches and computers. The Apple Podcast app still accounts for anywhere from 50% to 70% of listening for most podcasts, according to industry executives.

So Spotify’s law fare against Apple in Europe should come as no surprise (for more on that subject see the “Spotify Untold” corporate bio book).  What this comes down to is that once again, Apple understands its audience and what would delight them where Spotify wants to build them a faster horse (or at least a cheaper one).

Meanwhile, Spotify is commoditizing music into a “playlist friendly” environment based on your mood rather than being artist driven.  Why?  One possible reason is the psychographic research of Michael Kosinski, whose work formed the basis for techniques honed by Cambridge Analytica and the Internet Research Agency you hear so much about (although it must be said the Kosinski did not work for either of those outfits–no he works as a professor at…you guessed it…Stanford).  See his paper The Song Is You: Preferences for Musical  Attribute Dimensions Reflect Personality, available at the Leland Stanford Google University Business School.

The more insightful analysts are represented by Mr. Rippey, who seems to have a good grasp on Spotify’s business and sees through all the bright and shiny objects they want you to focus on as reported by Barrons (emphasis mine):

Rippey says Wall Street’s expectations assume that either the company will come out way ahead in negotiations with the music labels that control the vast majority of the content that Spotify streams, or that it will make a bundle of money from services that previously accounted for almost none of its income.

Now that the sugar high of the Spotify stock has passed through the system and artists either are happy or not happy with their share of the proceeds–which will be hitting royalty statements right about September 30–labels are now faced with a  second act, and that second act likely will require a bigger royalty check–not a smaller one.

To achieve Wall Street’s targets for gross profit, Spotify would either need to take a larger cut of proceeds from each song stream [also called a lower royalty to artists and songwriters] or generate as much as $650 million from “ancillary” areas like Spotify for Artists and podcasts by 2022—areas the company doesn’t make much money on today, Rippey says. Spotify for Artists offers data for musicians to track which songs are performing well and in which areas, among other benefits. [Which is OK if Spotify for Artists is free, I guess–since we sent them the fans–but my bet is that no one is going to pay for it, certainly no one with a modicum of leverage.]  Spotify makes money from ads on podcasts it owns and has also begun to launch exclusive podcasts that listeners can only get on Spotify.  [Spotify has never had a hit that originated entirely within Spotify.  When it does, check this space.]

Given that music crosses over multiple cultures but that Spotify brings a decidedly European and Anglo/American creative viewpoint to its distribution platform, it is unlikely to be able to fight all fights in all markets and be all things to all music fans in the some 60 countries it operates in.  This is particularly true in countries that actually value their culture and creators.

Spotify is the global leader in streaming music, but Rippey thinks that Wall Street overestimates the company’s power in local markets. “In emerging markets like India, local players dominate the market,” he writes, noting that Jio and Gaana were the market leaders there in the first quarter. “This fragmentation leads to an understatement of how competitive streaming music is globally.” Similar dynamics play out in countries like Indonesia too.

Those are some good concrete reasons why Rippey’s price target is $110, which I think is still about $50 too high because of Spotify’s C team management.  And also because the other analysts are all guiding too high in the Overton Window:

Analyst Rating Price Target
Evercore/Kevin Rippey Underperform (From In Line) $110
Nomura Instanet/M. Kelly Buy $190
Stifel/John Egbert Buy $175
Credit Suisse/B. Russo Underperform $120
BOA/Jessica Reif Ehrlich Buy $230

One major factor that all the analysts overlook, like they missed the subprime crisis, is buried in the commentary that never gets picked up in the Wall Street publications–the fact that artists can’t begin to make a living from streaming the way they could from the CDs that streaming is replacing.  This sudden contraction hurts artists at all stages of development.  To put it in terms that Wall Street might understand more readily, this is a supply chain issue.  The chain will have no supply if unsustainable economics expands which it seems like it will.

There’s about 5% of the tracks that make 90% of the revenue from Spotify-type streamers.  Fans are paying subscriptions every month for music they don’t listen to performed by artists they don’t like.  When that idea starts to permeate the Federal Trade Commission and the Department of Justice, who knows what may happen.  This will be true of podcasters, too–the unionized podcasters affiliated with the Writers Guild of America.  I’m looking forward to that collective bargaining experience.

But for now, it’s only a matter of time before artists who are not in that 5% start to jump ship.  Analysts should be asking, who can encourage them to jump and what will happen to the ship they jump from if there were some disruption below decks in the royalty rates?

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

@musically: Spotify CEO says Libra currency could help listeners ‘pay artists directly’

Earlier this week, Facebook announced a new blockchain-powered currency called Libra, and a digital wallet for it called Calibra. Spotify was among the companies backing the plans by becoming a founder member of the independent Libra Association.

Now Spotify CEO Daniel Ek has been talking about his hopes for Libra, including the suggestion that it could one day facilitate direct payments to musicians from fans.

“I think like cryptocurrencies and blockchain are obviously two of the biggest buzzwords you can have today. And for me, I don’t think technology in itself is that interesting· What I do think is interesting is what we can do with that technology,” said Ek, in an interview for Spotify’s own Culture: Now Streaming podcast.

“What everyone who’s a part of Libra is trying to accomplish is: it’s interesting that we have all these different currencies, all of these different ways of doing things. But the reality is, there’s several billion people around the world that don’t even have access to a bank account,” he continued….(Whatever you think of Libra, the fact that Spotify is, right up to CEO level, even thinking about direct payments from fans to artists is a significant talking point for anyone mulling how the streaming service will evolve in the coming years.)

Read the post on MusicAlly

Spotify Can’t Find Songwriters Performing at Spotify High Roller Party in Cancun

Ah, Cancun, where the elite meet and the US Consulate is located next to the jail.

According to Digital Music News:

Spotify is currently hosting a pricey offsite meeting in Cancun, Mexico, with dozens or more executives and employees participating.

Of course, Cancun isn’t usually associated with getting work done — unless that work involves repeatedly lifting rum cocktails.  But this offsite is reportedly focused on assembling content groups from various global offices.  Beyond that, we’re not sure of the exact business purpose.

One Spotify executive referred to this as a ‘Spotify Music Conference’.  Another source noted that the ‘entire content org’ at Spotify is attending the getaway.  Sounds like a lot of people.

There seems to be a strong Latin emphasis among the performers (more on that below), which makes sense given the location.  But at this stage, this looks like a broader global content and curator meet-up.

According to one source, the action is happening at the Ritz Carlton Cancun, which is surrounded on all sides by white-sand beaches and light blue waters.  According to the resort’s website, room prices start at $439 a night for an ‘Ocean View Guest Room,’ and quickly climb to $1,329 a night for the spacious ‘Club Master Suite’.

Two of the artists performing at the Spotify soiree…sorry, I mean working conference… are Nicky Jam and ChocQuibTown.  What’s strange about that is that Spotify can’t seem to find the songwriters for these two artists:

nicky jam noi

nick rivera caminero nois

chocquibtown

carlos valencia

Now Spotify can explain to these artists why their songwriters aren’t getting paid.  Good thing we have that Music Modernization Act safe harbor that will put everything right as rain.