Together, Spotify and artists have killed the album, perhaps bringing music copyright down with it
Analysis of Spotify’s F1 filing for its impending IPO have all rested on the fundamental assumption that power in the music industry flows from copyright control, and for Spotify to achieve sustained success, it’ll need to either gain leverage such that it can negotiate better copyright licensing deals or it’ll need to acquire its own copyrights.
This is incorrect. In fact, the long-term success of truly disruptive startups has long depended on upending old business models and creating value in new ways.
Spotify lost $1.5 billion in 2017, illustrating the current music industry dynamics that have made it nearly impossible for any digital music startup to build a sustainable business. The “problem” with Spotify has always been that the record labels own the copyright to the music, forcing Spotify to pay nearly 70 percent of its revenue to them in royalties.
Thus, Spotify’s margins are completely at the mercy of the record labels and the deals Spotify must cut with them. Generally, new music is granted a copyright for the life of the artist plus 70 years. The labels’ power stems first from their control of copyright on new albums. From this, they control distribution, marketing, and sales. But, both Spotify and artists may be pushing towards a future—inadvertently or not—where the album format, and thus copyright itself, is no longer relevant. This puts the labels in a precarious position and gives the streaming companies and artists an opportunity to explore new, innovative business models.
It’s wonderful to be here, it’s certainly a thrill
As Spotify details in the “Risk Factors” of its F1:
With respect to sound recordings, the music licensed to us under our agreements with Universal Music Group, Sony Music Entertainment, Warner Music Group, and Merlin, makes up the majority of music consumed on our Service. For the year ended December 31, 2017, this content accounted for approximately 87% of streams.
Streaming companies like Spotify and Apple Music have been at thee mercy of record labels when it comes to securing music catalogs. These labels have used this oligopoly power to their advantage, crushing any number of digital music startups with high royalties. Because of their tight-fisted control of copyright, the labels actually find themselves in a better position now than they did 10 years ago.
It’s unlikely the next 10 years will be as kind to the record labels; there are signs, on the edge, that this regime is starting to fray. The album has always been the primary means of expression for the artist: ever since the Beatles decided they’d make the Greatest Album of All Time, and proceeded to do so, the album and the “album artist” has received cult-like reverence. Sgt. Pepper’s Lonely Hearts Club Band proceeded to win Album of the Year at the Grammys, the first rock album to do so. But for the Beatles, album creation was their primary means of expression: they stopped touring in 1966, before Pepper’s was even released. Sure, Paul was a socialite and John was always doing something, but they didn’t have the constant connection with fans and access to various mediums of expression that today’s artists do.
“We’d like you take to home with us / we’d love to take you home” —The Beatles, Sgt. Pepper’s Lonely Hearts Club Band. Now, any artist can connect with their fans, anytime, anywhere.
Yeezy season approachin’
No one better embodies this modern experimentation with expression than Kanye West. In 2013, West released Yeezus, an album defined by its deconstructed minimalism, highlighted by its cover “art,” which he described as a response to people using more MP3s and downloads:
“It’s like the death of the CD and that’s the open casket. It was like, “look at this CD that we’ve been looking at our whole lives, just look at it for the last time, because you ain’t going to be seeing it too much more.”
In reality, the cover didn’t just gesture back to the CD, it also winked to the future, referencing the Apple CD emoji; not surprising from a man who has theorized that we’ll communicate solely through emojis one day. When West finally landed on the final Yeezus cover, he plastered it on NYC streets with the words “Please Add Graffiti.” Fans did, and yeezygraffiti.com remains a popular website some 4 years later.
Kanye took that unfinished, interactive aspect of the creative process even further when releasing The Life of Pablo in 2016. After cycling through at least three album titles, he first released the album at a Yeezy fashion show with just ten tracks. It later reached a total of 20 tracks, with Chance the Rapper convincing Kanye to add “Waves” (Chance confirmed Wavy).
Kanye’s artistic journey has always been about exploring new avenues of creativity. “I make music…but I shouldn’t be limited to one place of creativity,” he once said. Selling albums has always been a mere byproduct of Kanye’s expression. “A million illegally downloaded my truth over the drums,” Kanye raps on the last track of The Life of Pablo, boasting about copyright violations that supposedly harm his bottom line. To him, the album doesn’t matter though: if Chance asks him to add a song to the track list, why not? After all, an album is nothing more than a playlist now, an arbitrarily created folder of songs created by an artist to satisfy a record label contract. And once an album is released, distribution is essentially free. A DMCA takedown is issued to one ripped album only for five five more pop up.
And while we may live in a world of musical abundance, there is still only one Kanye West. Throughout his career, Kanye has leveraged this again and again: from jaw-dropping concerts to $90 hoodies to sold out shoes, he’s manufactured scarcity, giving his devout fans a reason to shell out money. In an internet-driven world with zero distribution costs, this is the formula:
Foster a real connection with fans through whatever means possible (social media, live shows, etc.).
Leverage your music or brand through other means to create scarce goods or experiences, giving those devout fans a reason to pay money.
Kanye isn’t the only artist who’s realized this. Vulture had this to say about Rihanna upon her release of Anti in 2016:
“Anti feels like the beginning of the end of something we’ve been watching in slow motion for a very long time now: the death of the Big Album as a pop star’s primary means of artistic expression. There are so many other ways to consume Rihanna the Pop Star in 2016.”
If Kanye says it, and Rihanna knows it, then perhaps its time to write the eulogy for the Big Album. If you needed more proof, Spotify noted in its F1 that official playlists account for nearly one-third of all listening on the platform, up from less than 20 percent in 2016.
“I met Kanye West, I’m never going to fail”
There are more extreme examples of artists eschewing the record labels completely. Frank Ocean duped his record label by releasing Endless to satisfy his record contract, only to release his “real” album, Blonde, days after. The aforementioned Chance the Rapper has made a habit of boasting about his independence, releasing music for free and signing $500,000 exclusivity deals with Apple.
Kanye has also blustered about his negotiating leverage, rapping “when I was negotiating with Apple, it was Larry [Jackson, Apple Music’s head of content] and me.” Increasingly, the internet is giving artists the power to shun the labels, dictating their own terms. And they’re not just cutting music deals: Kanye’s a designer, Rihanna does makeup, Chance sells hats.
Data is the new copyright
This brings us back to Spotify’s prospects. For decades, the record labels’ power has flowed from their control of artists’ albums copyright. But, in the internet era, copyright control is less important. Artists connect to their fans in any number of ways, leveraging their own brand and name recognition to sell tickets, merchandise, and other experiences.
Further, the album itself is dead, and the playlist is the new album. Listeners know this, artists know this. The only ones who don’t are the labels. Spotify not only owns the playlist, but it’s building a moat around these playlists, in the form of data-driven algorithms that drive discovery and personalization. They’ve also heavily invested in human curation, which adds an element of refinement. Importantly, these playlists drive listens and provide valuable insight into what works and what does not (for both Spotify and the artists).
Paid streaming, led by Spotify, has caused an uptick in record label revenues after an extended downturn.
The labels are stuck in an old, rent-seeking world in which they collect their revenue from copyright ownership. For decades, this served them well, as they were able to control distribution and exclude those who weren’t willing to pay. They even came out the other side of Napster, Grokster, and the streaming boom relatively unscathed, with revenue now growing for the first time in decades.
But this is temporary. Spotify has built a business model orthogonal to the control of copyright. It will increasingly rely on connecting artists directly with fans to provide not just exclusive content, but also merchandise, tickets, curated playlists, and more. To succeed, Spotify must provide the platform for artists to connect with their fans, such that copyright is the least valuable part of their personal brand and portfolio.
In an internet world defined by abundance, providing a perfectly curated list for the user is the actual point of differentiation. This is especially the case for music, where time is of the essence: I want my music and I want it now. Of course, having access to the actual music is critical, but Spotify can commoditize the music, to an extent. I’ll still want the latest Kanye or Rihanna album, but if I just want to listen to an “acoustic study” playlist at the office, music begins to look much more like a commodity.
Spotify’s intellectual property advantage comes not from copyright, but from data (trade secret) and artists leveraging their brand (trademark).
I look and look around and there’s so many Kanyes
At SXSW, Elon Musk was asked who inspires him.
“Well, Kanye West, obviously.” He responded, without missing a beat. Hopefully, young artists feel the same way. The future of an open music business, and Spotify, depends on it.