SPOT - Spotify

[Spekulatius]

Surprised the market hasn't reacted positively to this: https://www.cnn.com/2020/12/15/media/meghan-harry-podcast-spotify/index.html

 

I'm sure people will mock this deal, but obviously the royals have a massive following. Should only help accelerate the flywheel.

 

How is enlisting celebrities for a lot of money like (Joe Rohan, Cardi’s, Meghan and Edward) going to help SPOT economically? I thought the idea was that podcasts become a cheap source of content in lieu of music streaming, but I don’t think this is the case here. These content providers will charge a pretty penny for their content and when the contract is over, they might move to a higher bidder. I don’t see a flywheeel here.

[Xaston]

 

How is enlisting celebrities for a lot of money like (Joe Rohan, Cardi’s, Meghan and Edward) going to help SPOT economically? I thought the idea was that podcasts become a cheap source of content in lieu of music streaming, but I don’t think this is the case here. These content providers will charge a pretty penny for their content and when the contract is over, they might move to a higher bidder. I don’t see a flywheeel here.

 

I think part of the theory is that if they can make podcasting a big enough percentage of their usage they will be able to get a better deal when they renegotiate with the big 3 music companies.

[aglittell]

Interesting article in the FT: https://www.ft.com/content/deaf2fbf-ab2f-4d1a-b870-7fab104c122f

 

The article discusses how the "past is worth more than the present" in music and how this has implications on music economics. So while the mode of distributing music has changed, many deals between record labels and artists have not. This has big implications on the compensation of artists. Before streaming, the lifetime value of music content did not exist as we currently understand it. Artists would release their album and recognize sales soon after the release, same goes with iTunes downloads. Streaming, on the other hand, is consumption based, resulting in music having a very long economic life. In the UK, music released in 2019 comprised 20% of last year's music consumption, with another 20% comprised of 2018 releases. The remainder of music consumption was from years before 2018 (stat from the FT article).

 

If you're an artist that negotiated a royalty deal decades ago under a completely different distribution model, you would be upset. Def Leopard, for example, rerecorded their hit song "Pour Some Sugar on Me" in 2018 to sign a more fair deal. Taylor Swift is rerecording all of her early albums to regain control of her rights, see the quote below on this.

 

"One result of that has been the recent rush of money into older songs. Taylor Swift has confirmed she is re-recording her entire back catalogue to protest against her life’s recordings being tossed around like some commodity on Wall Street without her consent. Swift’s “swift” rebuke to the latest acquirer of her catalogue, Shamrock Capital, for $300m, was to threaten to regain control over her rights (and future revenues), re-record her songs Leppard style and diminish the value of the original masters.

 

This burgeoning market in “future past” puts music at the crossroads where it risks selling its soul. Creator and the acquirer’s interests are at odds: copyright incentivises the creator to write more songs, whereas the acquirer seeks capital gains from their past."

 

The implications of this on Spotify are not clear to me. But my takeaway is that the way the economic pie of music is being divided up is not sustainable under the streaming distribution model. If the content creators and distributors have an incentive to disintermediate the labels, which they do, I suspect the model 10 years from now will look different than it does today.

 

If anyone has thoughts on how this could play out or knows John Malone personally to loop him in, I'd greatly appreciate the discussion.

 

[chesko182]

Wrote my thoughts about Spotify's acquisition of Locker Room here

https://sleepwell.substack.com/p/spotifys-third-act-from-the-locker

Any thoughts or comments welcomed

[Seth Lowry]

On 4/5/2021 at 5:06 PM, chesko182 said:

Wrote my thoughts about Spotify's acquisition of Locker Room here

https://sleepwell.substack.com/p/spotifys-third-act-from-the-locker

Any thoughts or comments welcomed

Great writeup. My only comment is that SPOT doesn't explicitly owe the labels for live performances but the PSM clauses in their label contracts implicitly claw back some portion.

But that is a minor point. Live is so important as it blends higher margin mix and diversifies cash flow streams away from labels which enables better negotiated margins. Not sure where the equilibrium of streamer/label mix will shake out, but pressure seems to be building on label side more IMO. SPOT increasing leverage through audio diversification + artists/management focusing on publishing rights + SPOT sucking in A&R through SPOT for Artists seem to be powerful tailwinds away from labels.

At a high level, the current royalty splits stifle creativity (proxy for user experience) and its hard to see this power dynamic persisting over the long-term as royalties create a gap to exploit in Aggregation Theory terminology IMHO

[chesko182]

I wrote about music royalties as it relates to streaming, just published today. Tried to simplify it as much as I could while covering all the topics and making it entertaining. Pretty relevant topic and very important to understand for anyone trying to form an opinion on SPOT. 

https://sleepwell.substack.com/p/music-streaming-royalties-101

Happy to hear any feedback!

[Libs]

18 hours ago, chesko182 said:

I wrote about music royalties as it relates to streaming, just published today. Tried to simplify it as much as I could while covering all the topics and making it entertaining. Pretty relevant topic and very important to understand for anyone trying to form an opinion on SPOT. 

https://sleepwell.substack.com/p/music-streaming-royalties-101

Happy to hear any feedback!

Cheso:

Great work. An insanely complex eco-system.

As an aside - labels get a lot of grief but no one remembers their losing bets. A very talented friend of mine had $500,000 invested in him. Country singer / songwriter / guitar player. He had the look, too. They went pretty hard at it for a few years in Nashville - recordings, co-writing opportunities with established hit-makers, and so forth. The result? A single got some brief airplay in Texas. That was it.*

My point is, the labels spread their bets; the losers burn money, and then the winners complain they're getting screwed, when the labels need that home run to cover their losses.

The industry seems brutal, with just a few winners and a lot of great, broke musicians. As my friend said: "It's tough when your waiter is a better guitar player than you are."

Music and poker are best as hobbies, not careers....

* I couldn't tell any difference between my friend's best songs and half the stuff that became hits! 

 

 

[DooDiligence]

19 hours ago, chesko182 said:

I wrote about music royalties as it relates to streaming, just published today. Tried to simplify it as much as I could while covering all the topics and making it entertaining. Pretty relevant topic and very important to understand for anyone trying to form an opinion on SPOT. 

https://sleepwell.substack.com/p/music-streaming-royalties-101

Happy to hear any feedback!

Fantastic breakdown, thanks!

Did you choose TuneCore & CDBaby over the multitude of other DSP's for any particular reason(s)?

Edited April 23, 2021 by DooDiligence