Are the major labels in danger of turning music streaming into a monopoly owned by Apple?


The following MBW blog comes from Paul Wiltshire, an entrepreneur with 25+ years of experience in the music industry. Wiltshire is an award-winning record producer and songwriter, who has produced and/or composed 12 #1 selling albums and singles for artists like The Backstreet Boys. Wiltshire, an expert in music rights, is currently the CEO & Founder of music licensing platform Songtradr, which delivers brands, apps, TV and filmmakers commercial music directly from artists, songwriters and catalogs in more than 150 countries.

Spotify represents an important piece of our music industry ecosystem, and the system is vulnerable.

Competition is a fundamental part of a free market economy, of which we all reap the benefits.

Spotify’s revenues increased 80% in 2015 to US $2.18bn (€1.95bn).

However, its annual operating losses also jumped from €165m to €184m as it paid out almost 85% of revenues to music rights owners.

In 2016, Spotify raised a $1bn convertible note, with a sizable 5% interest rate that increases 1% every six months until the company’s IPO.

And now? Spotify is considering delaying its planned IPO pending renegotiating fairer terms with the three major record companies: Sony, Universal and Warner (“the BIG 3”).

In the meantime, the company hopes to create a sustainable business while paying millions of dollars in interest to its new investors.

While streaming services are losing millions of dollars, artists and songwriters are fighting to get compensated fairly for creating the songs that make those services popular.  The rates paid per stream remain fractions of pennies.

Meanwhile, the BIG 3 record companies are enjoying increased revenues and a return to growth after enduring a frustrating decade of decline; in part, a result of missing the technology curve.

“While streaming services are losing millions of dollars, artists and songwriters are fighting to get compensated fairly for creating the songs that make those services popular.”

What’s wrong with this picture?

Spotify’s deals with the BIG 3 previously involved large advances along with a significant share of the company’s revenues. It remains unclear whether these advances were in turn shared with their respective artists.

Although early support from the BIG 3 was evident for Spotify, this was only granted in return for stock consideration each of the BIG 3 received, but it’s safe to assume that artists didn’t see much of the benefit from the stock grant.

The BIG 3 are at a crossroads. If they continue to think short-term, they may face a future in which Apple will be the only streaming platform.

If they want to ensure a robust market for music rights, they need to think beyond the short-term gains that could ultimately lead to the demise of Spotify and other independent streaming platforms.

“If the majors want to ensure a robust market for music rights, they need to think beyond the short-term gains that could ultimately lead to the demise of Spotify.”

The BIG 3, the streaming platforms and all of us (as independents) form one connected ecosystem.

As an independent, we presumably have to accept what is available to us, and unfortunately our fate is at the mercy of the three biggest landlords, who are aligned in a somewhat myopic vision. Our music industry ecosystem, just like planet Earth, is fragile.

We need to find sustainable ways to grow and thrive, that don’t just serve the few.

If Spotify and other independent streaming services fail, what will be left? Answer: the biggest company in the world, Apple Inc, along with their streaming platform, Apple Music.

Apple Music can afford to lose money while it quietly grows to be the number one – or the only one – streaming platform in the world.

Let’s put that in perspective.

Assuming Apple has its recently reported $246bn cash in a bank account returning 2% interest per annum, Spotify’s 2015 losses of €184m represent about 2 weeks of interest earnings for Apple.

“Apple Music can afford to lose money while it quietly grows to be the number one, or the only one streaming platform in the world.”

The question the BIG 3 may need to ask themselves is, “Do we only want one streaming platform?”

Perhaps they need to recall when itunes was the dominant download platform and the record industry went into freefall.

Are we looking to repeat history?

A better future for artists and songwriters cannot come from serving a monopoly.Music Business Worldwide

Related Posts

  • Jon Riffioso Hockley

    How comes no mention of Amazon music or Youtube? They have a larger market share of streaming than Apple in the UK.

    • P Teazy

      The market share of Amazon Music is actually quite insubstantial. Youtube does not generate significant revenues for the music industry due to safe harbour laws and what we call the “value gap”.

      • Jon Riffioso Hockley

        The omission of “value gap” from the article is what concerns me. Youtube’s market share is huge, it’s potential to generate revenue (or even steal revenue) should not be ignored when talking about monopolies.

        This picture show the market shares, and revenue shares for an indy label.

        Amazon music has a huge potential as well. More people hold an amazon account than a Spotify account. That power can’t be ignored.

        • Bill

          amazon just needs a better/more visible platform that doesn’t continually fall prey to the itunes model of “lets take our antiquated front-end and throw more shit into it”.

        • George Lyle

          Those numbers are not right, It is well known that YouTube pay out roughly $2/1,000 views to content makers and that’s after they take their ~32% share of the advertisement revenue. So if my song has say 50M views on YouTube, there is on average $100,000 being paid out to the owners of the rights. Then account for the same song generating platform-equivalent numbers on e.g. Spotify, iTunes, Amazon etc and you can see that the income generated for rights owners on a hit song is actually in the multi-millions of dollars. That means that there is rights holding party that is taking a large amount of the streaming revenues while the others like the songwriters and artists are getting pennies, and the culprit, the THIEF is no other than the record labels.

          • Jon Riffioso Hockley

            Youtube payments per view are unclear but it depends on the level of monetisation options enabled on the video. Preroll, midroll ads etc.
            I do think that the larger labels will be doing what they have always done and cover their costs before the considerations of the artists (depending on their clout). I also think that youtube will negotiate the lowest rate possible to protect their revenues. $2/1000 seems high to me. A quick google suggested around $0.5/1000 but true numbers aren’t disclosed by the service. I also found out that video ads can earn youtube around $5/1000

          • George Lyle

            In terms of how much ad-based revenue is generated per 1,000 views (YouTube’s cut being removed), it can range from $0.5 to as much as $7, with $2 being around the average.

            And again, streaming sites are not as greedy as they’re being made out to be. Spotify pays over 80% of revenues to rights holders, and YouTube barely takes over 30% so there is clearly a large piece of the pie that artists and songwriters (and therefore publishers) aren’t getting. Once Record Labels go extinct or the government grows a pair of balls and stands up to them, all of this will be sorted out.

        • Young O.G.

          These are old numbers, apples market share is half of Spotify’s currently

          • Jon Riffioso Hockley

            Yeah i saw an estimate of around 23m for Apple and 43m for Spotify. The chart above comes from an indie label so their results will be biased based upon which services their fans prefer. We would have a better picture if several labels including a major posted their streaming counts. (unlikely). I think the other problem is like Tidal, Spotify and Apple do hike their numbers including subscribers who are on discounted membership. Many of these subs don’t generate royalties until the discounted period run out. I saw somewhere that the average Spotify subscriber pays around $5/month.

    • Mel Gross

      The U.K. Is a small market.

      • Jon Riffioso Hockley

        Agreed but the US and UK music habits mirror each other closely.
        Amazon music had a 50% increase in subscribers in 2016.

        “Nearly one-half of US streaming music subscribers, the equivalent of 15% of all broadband households, indicate they have a subscription to Amazon Prime Music. ”
        Glenn Hower, Senior Analyst, Parks Associates.

  • Mr.Guy520

    I’m on board with more competition in the market, but the author seems to be making a false equivalence between iTunes and the music industry’s “freefall”. Was it not iTunes that was able to first substantially monetize digital music? Without iTunes, piracy may still run rampant and the recording industry as we know it may not longer exist.

    • Andre S Reis

      yes, industry freefall was completely major labels fault, incapable of monetize from digital music.

  • Mel Gross

    This “article” is a load. No streaming service has ever made a profit, and most are out of business. This happened well before Apple decided to have their own service. The problem is that the business concept of streaming music isn’t a valid one.

    We’ve now seen, over the years, that people won’t pay more than $9.95 a month for steaming music, and that no company can make money streaming music for $9.95 per month. That should tell us something. Spotify already pays very little per play for music. And to say that they want “fairer” terms is bunk! Who, besides Spotify, and their supporters, says that they pay too much now? Many think they pay too little, and they pay less than Apple.

    I keep telling people that streaming music is a failing concept where profits are concerned. Eventually, the only streaming services will be from entities that can use them as a come on for their other services and products, an extra. That means companies such as Apple, Alphabet, Amazon, Facebook, perhaps Microsoft, and a few others. Spotify, pandora, and the rest, will either be bought, or will disappear. Too bad, but that’s life. Remember that both Samsung and Sony, no lightweights, closed their own streaming services before Apple opened theirs.

    And to blame Apple for the music industry’s problems is hilarious. Apple has been credited with saving the industry, not harming it. What a joke!

    • Jon Riffioso Hockley

      Totally agree.

    • Young O.G.

      When they say “fairer terms” they don’t mean the payout to artists being more fair. Rather, they mean fairer licensing prices that they get from the major record labels. Right now they pay a shit ton to the labels upfront, and THEN have to pay those labels artists….Somethings gotta give

  • David Markson

    Before The iTunes Store, people stole music via Napster and other illegal services. iTunes essentially created a legal marketplace for digitally distributed music. Musicians could now make money selling their music in 180 countries with relative ease. Record labels (and even independent artists) get 70-80% of the proceeds, far more than they do selling wholesale to distributors, and without the added costs of physically manufacturing and distributing CDs to brick and mortar stores. A much better deal. Apple takes care of the financial transactions, the incredibly complex licensing requirements, and the cost of distribution across the entire globe while delivering the music directly to the user’s device with a push of a button. Thank you Apple.

    Along comes streaming. Streaming companies like Spotify and Pandora encouraged the mindset that music is free because they decided to go with the advertising model where you don’t have to pay for music. However, artists complained that they were seeing very little revenue, even with millions of streams of a song. They make more from iTunes direct downloads and sales.

    For years, everyone was saying that the iTunes Music Store is dying, getting beat up by the streaming services. People want music for free, and these services continued to foster that mindset. Sales at the iTunes Store began to slow *because* services like Spotify and Pandora were offering music for free. These are services which are allowed to put their music apps on billions of mobile devices and desktops to generate business. They have negatively impacted the direct sales of music from iTunes and other online stores, if not brick and mortar as well.

    Pundits warned that Apple was was doing it all wrong, and if they didn’t want to be left behind, they had better come up with a streaming service in order to compete with the likes of Spotify and Pandora. Apple buys Beats for $3 billion. Apple joins streaming, but instead of giving the music away for free, they choose to charge for it, putting Apple at a serious disadvantage.

    Apple charges for their music streaming service, so one cannot say that Apple is using a lost leader in this case. Yes they can probably afford to provide music streaming for free, even ad-free, and just eat the cost, but they are not doing that. They are not doing what MS did with the web browser.

    Apple has to compete with free streaming services. To date, Apple is reported to having just 7-9% of the streaming market. It is an uphill battle. Apple is nowhere near a monopoly, and besides, owning a large percentage of marketshare is not the legal definition of monopoly. Apple is not exhibiting monopolistic practices, for instance.

    Microsoft had a monopoly on the computer with over 93% marketshare in their hay day. They were a monopoly not simply because of marketshare, but because of monopolistic business practices that took advantage of their marketshare. There were many factors contributing to the legal determination that MS was acting as a monopoly.

    In mobile, Android (Google) has the largest market share. Google copied much of Apple’s intellectual property and gave it away for free. This allowed hundreds of manufacturers to build phones and tablets that looked almost identical to Apple’s products. That’s another story!

    Android (Google) has 86% marketshare of the mobile space. iOS has 12%.

    Apple is not in position to be a monopoly anytime soon. And again, Apple has just 7-9% the streaming market. IF someday Apple takes 90% of the mobile market (like Android has now), and IF they provide services for free in order to push out potential competitors, then you *may* have a set of conditions that can legally be defined as a monopoly. But that is pure conjecture, and IMHO, not likely to happen. Does anyone see Amazon or Google music services disappearing, leaving us with Apple as the only streaming service?

    Contrary to pundit opinion, Apple actually wants Spotify, Pandora, Netflix et al on the iOS platform. Amazon? Eddie Cue said he would like see Amazon on iOS and AppleTV. The only reason Amazon is not on iOS is because Amazon has chosen not to put their app on iOS. Apple isn’t stopping them. Should Amazon be required to be on iOS?

    Apple provides a platform that allows companies like Spotify and Pandora to exist. Apple ships with a small set of their own apps on their mobile devices, but they created an App Store with more than 2 million apps that can be loaded on an iOS device. It is an incredible opportunity for developers who want to create a business.

    Spotify and Pandora and the others didn’t have to go through decades of design, implementation, and 10’s of billions of dollars to create the Mac and iOS platforms. What they need to do is create a compelling streaming service that people are willing to pay for such that they can make a profit and provide the content creators a fair and reasonable payout.

  • KFC Owens

    Crappy rips on Napster 🐓🏁

  • iLexx

    So basically this article and its author would rather us bow down to Spotify and give them their “fairer” terms? I don’t get why bowing down to Spotify is the answer, when they already pay artists shit. I absolutely believe the second Spotify gets reduced rates, the streaming industry will go to shits because you best believe those other streaming services will be looking for those rates aswell.

    Anything that involves paying rights holders less, is not the answer right now in my opinion.

  • Music has become completely devalued, and the labels are to blame!

    • George Lyle

      They’ll disappear soon and once they do more money will become available to the artists and songwriters. Until then, I’ve got my potential hit songs copyrighted and stashed away, no way am I going to put my hard work out there for those greedy assholes to reap the benefits from while I get pennies.

      • Mel Gross

        That’s just not true. If more people understood the way the music and publishing industries worked, they would see why these simplistic solutions won’t work.

        Music companies, as publishing companies do, lose money on almost all the acts they sign. That means that those acts don’t get paid much. The very top of the pyramid makes almost all the money for the company, and the company takes a fair percentage of that to sign, and pay for, new acts, running the company, paying for recordings, tours, marketing, etc.

        Getting rid of the music companies means that well finances acts won’t ever occur. It can cost hundreds of thousands to record an album these days. Artists need to get that money from somewhere. They also need exposure. While there have been a handful of acts that began on You Tube over the years, that’s not a real way for the industry to work, and those acts were then signed by music companies amywhay.

        The same thing with publishers. For every successful writer, or act, there are a dozen failures, or more.

        Everyone wants a bigger slice. But these businesses are less profitable now than they once were.

        Sometimes, a business may be popular with customers, but not be viable as a business. We saw hundreds of internet businesses go out of business over the years because there was no real way to make money out of the ideas. Streaming is one of those.

        The original concept came up to take people away from iTunes. But it didn’t prove popular. Only when they realized they needed to give some songs away along with the streaming did the services begin to take off. But still, they all lose money. The fact is that $9.95 a month is too low. There doesn’t seem to be any way around that if everyone wants to get paid anything near what they think they should get. A number of streaming companies tried $14.95 a month, but no one wants to pay that.

        Either people are going to have to fork up more money a month, or subscription services will only come from large, well financed companies who can somehow leverage other parts of their businesses to offset the lack of profits.

    • Mel Gross

      No they aren’t. People who think they’re entitled are to blame.

  • George Lyle

    The solution is so utterly obvious. They need to introduce a system which pays out the rights holders based on % of revenue the music generated by e.g. adverts, which also includes a fixed base rate (subject to inflation) which pays a minimum mechanical/performance royalty per stream if the revenue generated by the video is not satisfactory (this is to hit subscription and free-based models).

    • George Lyle

      1. Streaming services are not allowed to claim more than 30% of revenues generated by music they stream, and the remaining 70% is to be split among the Songwriter/Publisher (65%) as Mechanical Royalties and Record Label/Artist (35%) as Performance Royalties, who agree among themselves how to further split the revenues (e.g. 70:30 Songwriter:Publisher).
      2. A minimum of $0.014 per stream/view must be paid out in Royalties, with 65% ($0.0091 per stream/view) paid out in Mechanical Royalties and 35% ($0.0049 per stream/view) paid out in Performance Royalties.

      Problem solved.

      • Mel Gross

        Oh year. It’s that simple. Please, if it were, it would have been solved already. The biggest problem is that all rights holders think they re owed more, and all streaming services think they’re already paying too much. It’s not a mechanical problem at all. It’s, as usual, very much a people problem.

  • Ojciec Fernando

    Physical copies are the best. Digital music is so worthless.

  • Dub Gabriel

    Either way, creative content is devalued to sell more phones and the artist who make it get screwed every time.