Three Questions Concerning Spotify’s Direct Listing Decision

Originally published on Crunchbase News on January 3, 2018.


Screen Shot 2018-01-15 at 2.00.02 PM.png

As everyone was in holiday mode a few weeks ago in December, Spotify confidentially filed documents with the SEC to go public, likely in Q1 of 2018.

Previously, I discussed Spotify’s numbers and examined how those figures looked before an IPO filing. Now we can see how those numbers look in context.

This filing bolsters prior reports that Spotify would forego a traditional IPO in favor of a direct listing, a method of going public that has left many scratching their heads. For those unfamiliar with it, a direct listing is a way allow a firm’s shares to begin regular trading while avoiding the normal IPO roadshow process.

When asked about the direct listing strategy, IPO expert Barrett Daniels of Nextstep Advisory Services told Crunchbase News that there are a few reasons companies might choose to pursue the strategy. It typically boils down to the fact that the company may not be “strong enough” to transact a traditional IPO due to these reasons:

  1. The company’s growth (or lack thereof).
  2. The company’s size (in terms of revenue).
  3. The general climate of the industry.

So do these reasons provide Spotify grounds to go direct, especially considering how much money could be left on the table? Let’s find out.

1. Company Growth

Spotify has the kind of crazy growth that companies dream of. As its subscriber numbers have gone from 50 to over 100 million users, Spotify’s valuation has similarly been adjusted. It’s worth remembering, though, that while the total subscriber number sits somewhere north of 130 million users, approximately 60 million are paying listeners.

So Spotify is big enough to attract attention and generate a lot of excitement. In fact, because Spotify is such a well-known company to go public, an IPO roadshow seems to be precisely what it would want. More attention and more hype might mean more money on gameday.

2. The Company’s Size

This kind of fast-paced growth also contextualizes the music company’s size in terms of its revenue. According to Daniels, the size of a company’s revenue will dictate how larger institutions view it; if the revenue looks too small, larger institutions could deem the company too early or too risky, and therefore might be uninterested. But given Spotify’s outsized growth, though, perhaps this is a reaction to its continued unprofitability (as of yet).

3. General Industry Climate

Daniels also noted that in some direct listing cases, the decision to forego a traditional IPO could be something as simple as a timing issue. Industries go through hot and cold periods, and a cold period could convince a private entity to forgo the public process.

However, this doesn’t typically apply to the music industry. Because of business with mainstream acts, music companies tend to be more well-known among public investors than, say, a company which perhaps works on tooling or shipping. Therefore, Spotify has no reason to think that the climate would change at all between now and an expected 2018 IPO date.

Going through Barrett’s list of reasons, we can see that Spotify’s direct listing doesn’t pass muster on these grounds. But there are two outside arguments that augment the viability of direct listing: saving money on the IPO process and stopping the clock on Spotify’s convertible debt raise.

Saving Money

Outside of Barrett’s outline for going direct, Spotify could limit costs by foregoing a normal, pre-IPO roadshow. However, experts have pointed out that this doesn’t make much sense. The money which Spotify would save on an IPO roadshow is negligible compared to the amount it would ultimately raise in a normal IPO.

But there are other ways Spotify can save money.

Stopping the Clock

Last year, Spotify took on convertible debt from Dragoneer and TPG, totaling $1 billion. According to David Golden of Revolution Ventures, by listing directly, Spotify could essentially “stop the clock” on these debt-conversions, and presumably, save itself tens of millions of dollars.

As a refresher, under the terms of these notes signed in 2016, Spotify was required to pay 5 percent annual interest, a figure that grows by 1 percent every six months for a total of 10 percent. Investors could then convert the debt into equity at a 20 percent discount of Spotify’s IPO price. If there were no IPO within a year, the discount at which investors could eventually buy back stock would increase 2.5 percent every extra six months.

The Questions Left Lingering

All of this leaves a lingering question: if neither of the two most-cited arguments hold water, does the decision to direct list have anything to do with Spotify’s $20 billion valuation? There have been, as of late, multiple sources which have raised concerns, expressing reticence and opining what a public Spotify will look like. Spotify did not respond to a request for comment.

The streaming market also faces stiff competition. Apple can subsidize its music service until the end of time through its phone and computer sales. Facebook just signed a major deal with Universal, and YouTube is gearing up for its own music service launch. Pandora has just created a Spotify clone, and its post-IPO performance doesn’t bode overwhelming optimism. All of this is now against the backdrop of a $1.6 billion lawsuit filed by Wixen Music Publishing against the streaming music company.

Additionally, here are a few numbers we don’t know which will impact Spotify’s business model long-term:

  1. What Spotify royalty rates are. It has been reported the company pays anywhere from 58 percent to 83 percent.
  2. How often Spotify needs to renegotiate royalty deals with the major labels.
  3. What the percentage stakes each major label owns of Spotify.

We’ll see how things roll out by the end of Q1.

***

Find me on Twitter @adammarx13 and let’s talk music, tech, and business!

2018: A New Year with New Goals

a95xAVhP_400x400-3

Perhaps the last picture I’ll post with my trusty iPhone 4S

2017 is over and 2018 is now here. That’s a good thing; last year was a tough one. A few very close relationships ended, and after a few years, I closed my first company. But I also learned that there is life after failure.

So here we are now in the new year, and I’m excited to start working on a bunch of new things. Here are some of the things you’ll see from me in 2018: 

  • 😎 🎸 I’m working on a new music project (company? 😎 ). That’s right — after a badly needed six-month hiatus (maybe longer?) from actually running a music-startup, I’m gathering feedback on a new idea which is incredibly exciting. So far, feedback has been very positive. Discussions with a select number of artists as well as a few journalists, founders, and confidants have yielded an ever-clearer perspective on how this can grow. I’m excited to read more people into this as the year progresses.
  • 📝 I’m working on editing a very special document that I’m extremely excited to finish. I’m a word-nerd, and in editing this piece, I can honestly say it’s been one of the most challenging and rewarding things I’ve done in my professional writing career.
  • 📝 🤘 I have an avalanche of new music articles written and in the works which I can’t wait to see published. Some of these will shake things up (I hope), but hey, what’s the point of being a music journalist if you’re not a little punk about it? 
  • 📝 📽️ I’m working on writing a rough draft of a screenplay (no, really!). Last year, I was kicking around an idea which I thought could be fun to work on, and over the last week, I’ve started mapping out characters and basic scene dialogue. I’ve never done a screenplay, so I am more than happy to have collaborators!
  • 🙋 🙋‍♂️ 🙌 🤝 I will start driving harder towards being more central to the discussions on sexual harassment and how to fix the issues we have before us. This is less of a “me” thing, and more something I am incredibly passionate about; I am open to collaborating with anyone on projects which will help with the goals of creating a paradigm with more meritocracy, equality, and egalitarianism. 
  • 😎 🎙️ I’m incredibly excited (and flattered) to have an invitation to be on a few podcasts starting this year — because I don’t talk enough as it is ha!
  • 🤔 📝 I’m working on plans for a new guide which will (hopefully) excite word-smiths everywhere; more on this project in the coming months. 
  • 📝 📖 I’m writing a pseudo-review of a book I’ve been reading which has changed my perspective on so many things, and has similarly confirmed a lot of the mantras which I try to live my life by. This will be out by the end of January.
  • 📝 🤝 I will be releasing many new articles in my Minimum Viable Network series.
  • 🎸 😉 I’ll be doing more work with artists (some have asked me to manage ha!) — maybe there’s a producer-credit in my future.  
  • 🤔 📖  There are a few of my past articles which I have been toying with revising into a rough pitch for a book. Let’s see what the year brings. 
  • 😄 I will be exploring more speaking opportunities.
  • 😎 🤘With the 2017 list out, I’m ready to start working on the new “100 Awesome Independent Album and EP Releases You Probably Missed” list for 2018.
  • 😄 🙌 I’m excited to start having * Many * More * Conversations * — I’m all about creating new things, and I look forward to picking up new projects throughout the new year, both with current partners in crime and new draftees.

Thank you to everyone who helped me pull through 2017. Your support means more than you know. Now, on to 2018!

***

Find me on Twitter @adammarx13 and let’s talk music, tech, and business!

The Spotify-SoundCloud Supergroup Is Dead

Originally published on Mattermark on December 29, 2017. 


tl;dr: The SoundCloud and Spotify deal is dead. For Spotify, no deal avoids unnecessary headaches. For SoundCloud, the road ahead looks lonely as the platform heads into 2017.

Screen-Shot-2016-12-29-at-1.30.13-PM.png

Cream. Bad Company. Temple of the Dog. These were some of the greatest supergroups that ever existed. The Spotify-SoundCloud union could have been next, but like many supergroup concepts, it only lasted a short time.

The real question is why. Ultimately, in my view, the deal died because SoundCloud tried to become something that it wasn’t, alienating its core fan base in the process.

It was easy to argue that a Spotify-SoundCloud combination could benefit each party: SoundCloud’s independent-heavy catalog and Spotify’s major label material are natural complements.

But the prospect is no longer on the table. It recently became known that Spotify passed on acquiring the little orange cloud.

Let’s talk about why that happened.

Supergroup Not

2016 was not kind to SoundCloud.

Despite signing deals with major labels, securing its largest to-date funding round, and launching its own subscription service, key questions remain concerning its current operational results, where it fits into the M&A landscape, and what an independent SoundCloud looks like in 2017.

Fiscal Expense

Mattermark recently examined, broadly, who could afford to buy SoundCloud, now that Spotify has left the table.

To understand why Spotify might have passed—neither Spotify nor SoundCloud responded to requests for comments regarding this piece—on SoundCloud, it’s worth remembering the smaller firm’s P&L.

SoundCloud’s revenue quickly expanded from $1.8 million in 2010 to $9.6 million in 2012, to $19.6 million in 2014. Its losses tracked upwards, however, from $2.01 million in 2010 to $14.9 million in 2012, to $44.2 million in 2014.

desk-music-headphones-earphones-1.jpg

Much like Spotify and other streaming services, some SoundCloud revenue quickly passes through its books. In SoundCloud’s case, around 80 percent of its revenue from a portion of its aggregate top line goes right to labels. Spotify’s results are similar.

The context for those numbers is simple: SoundCloud has raised around $193 million to-date over a series of five rounds. Just comparing the company’s through-2014 losses, SoundCloud has spent around half its raise so far. And since we’re not including more recent operational results, that figure is very conservative.

The Sophomore Slump

If 2010 to 2013 was SoundCloud’s breakthrough album, then 2014 to 2016 was its disappointing follow-up.

Beginning in 2015, SoundCloud started to move away from its initial user base of independent artists and began courting major labels. The company inked a deal with Warner in later 2015 and Universal Music in early 2016.

Warner and Universal were joined by the last remaining holdout in March of 2016 when Sony signed on. That effectively marked the end of SoundCloud’s days as the independents’ playground.

Following the three major label deals, SoundCloud released SoundCloud Go, its entry into the music subscription wars. The company has yet to report major gains from the subscription product. I’d posit that it may be difficult for SoundCloud to entice music fans to the service. If potential subscribers are interested in mainstream music, they can already go to other music services.

Money Talks

While Spotify sports extensive independent material, its focus is major label artists. That fact did not escape those who made the argument in favor of the combination. SoundCloud’s huge base of independent EDM, acoustic, rock, and other artists could help balance the scales and provide a funnel into the Spotify nest.

If the argument for Spotify buying SoundCloud was that the latter could help the former pull in independent music, do SoundCloud’s operational results matter?

The answer is yes, as Spotify doesn’t want anything to threaten its impending IPO.

Earlier this year, I took a deep dive into Spotify’s own financials, examining the numbers and reasons that they already might have a tricky path to IPO. New cost centers could make that already difficult-looking trek nigh impossible.

Even with SoundCloud’s legal issues seemingly taken care of by major label deals, SoundCloud’s subscription service arrived to lackluster reviews, and its sizable debt may present too much of a headache for Spotify just before their looming IPO.

This is all especially stark considering SoundCloud’s desired price-tag of $1 billion. Even with Twitter’s most recent $70 million investment into the service, valuing it in the neighborhood of $700 million, Spotify would still need to pay an additional $300 million to close the difference.

2017

What does this all mean for SoundCloud’s future?

As with Spotify, the major labels now have a vested interest in SoundCloud’s existence. But that doesn’t mean that they have a long-term interest in its health. As I noted in my previous Spotify piece, the labels may not want to kill SoundCloud, but they also don’t have to go out of their way to help it. So long as it sends in revenue, who cares?

Some people will care. The danger could be that independent artists may care enough to go somewhere else more focused on them. (Since they operate independently, SoundCloud’s major label deals have no sway over their prospective decisions.)

SoundCloud’s challenge is that the faster it rushes to catch up with Spotify and Apple in the mainstream arena, the faster it may alienate its key demographic of independent artists; in working to compete with the larger, mainstream players, I wonder if SoundCloud has become what its initial user base—its core point of differentiation—was trying to avoid

We’ll see in 2017.


Find me on Twitter @adammarx13 and let’s talk music, tech, and business!

The Undeniable Hypocrisy of the Apple-Swift Saga

Image courtesy of Mirror

Image courtesy of Mirror

The Background

With Taylor Swift’s cleanup at the Grammys this year and attention over her misleading “victory” over Apple—and her subsequent partnership with the company—having waned (if not faded) over the last half year, it seems to be the appropriate time now to dissect what the fuck really happened back in July of last summer. Prior to the past few months when things seemed to have boiled down to a low simmer (focused mostly on SoundCloud and Spotify), the music news arena was blowing up over Taylor Swift’s push-back against Apple. Her open letter criticizing Apple, and subsequent statement that she would be boycotting the new music service—as she had done with Spotify—made it easy for the media to paint her as a martyr for “artists’ rights.” But that’s not the whole story. Not nearly.

When Apple announced early in June of 2015 that its new music service, aptly titled Apple Music, would not be compensating artists with royalties during the first three months of a user’s free trial period, there was significant push-back before Swift even got her letter out the door. The announcement was panned by the general music community, as well as by both artists within the mainstream paradigm, and the broad base of independents. When Apple retracted the statement and replaced it with a “fine, we’ll pay artists for the three-month trial period,” artists felt that they had won a major victory against the tech giant. Many even felt that Swift spoke up for them and that they benefited from her desire to help the general music community. Here’s why that’s wrong.

A Misleading “Victory”

Numerous sources reported on Apple’s recanting and Swift’s “victory,” from TechCrunch to Forbes to Mashable. But it wasn’t that at all. The retraction by Apple was telling of a much larger trend at play (and frankly, a much larger problem for independent artists which they should be focusing on). Swift made the same stink that she did when she “broke up” with Spotify, drawing on arguments like “artists shouldn’t give anything away for free” and her favorite “art needs to be rare to be valuable.” Soon after, Apple caved and said artists would be paid, and everything ended happily ever after.

Not.

While I wholeheartedly agree with Swift that artists shouldn’t have to give away their music for free if they don’t want to (as opposed to Swift’s catch-all “no free music ever/free music devalues your art” blah blah blah), I don’t think her motives are as angelic and altruistic as they might initially appear. People should be asking why exactly Swift made such a big fuss over this. Why? Because it really cuts into her bottom line. A bottom line that many of the independents she somewhat claims to “speak for” don’t have. Their economics are a very different reality from hers. Swift lives in a completely different universe, and no, as Matt Atkins wrote in a great Medium post , she is not an “independent artist.” Her signing to Big Machine Records makes her seem more independent than she really is; make sure you remember that she owns a huge stake in Big Machine, and that it’s distributed by Universal Music Group. So no, Swift doesn’t see it from the same perspective as that of an indie band in the garage in Ohio just trying to scrape by.

If an Independent Tried to Strong-arm Apple…

This doesn’t make Swift a bad person; it simply makes her human in looking out for her own best interests. At the time, that aligned with the best interests of the general music community. But people should not confuse happenstance with correlation.

Swift was able to strong-arm Apple into changing its position on paying royalties for the free trial period, and I commend her for that. But I can pretty much offer a dead guarantee that if it had been an independent artist who took to Twitter to complain (and many did, mind you) or write to Apple, nothing would happen. I’m not even sure they would receive a response email addressing their grievances. The fact that their position changed as a result of Swift’s vocal stance was a sheer coincidental benefit for the independent music community.

Artists who are not on Swift’s level (that is to say, most artists in the world) should be asking what could and would happen if and when their best interests don’t line up with hers. (Never mind the fact that Apple completely screwed up an independent artist’s entire catalogue upon Apple Music’s release). The moniker of Swift as “the Apple-Slayer” was nice and poetic, but all the more misleading. It painted Swift as the David to Apple’s Goliath, but that’s on a whole incorrect. Swift is just as much a Goliath as Apple is, and that’s precisely the reason that Apple caved to her in the first place. Had she been the David-level artist she parades around as (and which most independents actually are), she most likely would have been roundly ignored, as most independents usually are. When Apple caved, it was a good week for all artists. But what happens when Swift decides that what’s best for her is to choke the radio market and keep out other artists who might be stepping on her musical toes? I can’t imagine that she wants to give up any of her power.

It’s All About the Power

And that’s exactly what it’s about: the power. Swift has the power to turn heads and make things happen the way she wants. But that could be very bad for other up-and-coming artists. Swift, ironically, has become yet another gatekeeper, akin to the ones she so readily criticizes. She’s signed to an “independent” label which is distributed by one of the Big Three labels (Universal), and she has the clout to mobilize legions of fans (when she’s not suing them, I suppose).

But what about her whole “anti-free” mentality? That’s directly at odds with a lot of the thinking within the independent music community, where artists increasingly see their music as a means of marketing, rather than an end commodity for sale. What happens when push comes to shove and she’s on the other side of the fence from the much broader—but much more unknown—independent music community? She will still have the power to push her agenda, and they will simply be more obstacles in her way.

The reality is that no artist, of any caliber or genre, should have the power to dictate changes like that. At the time, it worked out for the better, but next time will be another story.

Subsequent Partnership

All of this made the announcement of Swift’s subsequent partnership with Apple more confusing, and in some ways, harder to swallow. After all the stones that were thrown, and all the press that was garnered (a calculated effort, I’m sure), the end result was somewhat anticlimactic. We were all ready for a super showdown of a major mainstream artist (yes, that’s what she is, live with reality) bucking the system and sending a message for musicians everywhere. What we got was…well…predictable.

As soon as Apple caved, so did Swift. She caved to using the service when it turned out that her open letter would get her exactly what she wanted. That sounds logical, except for the fact that she pretty much abandoned the “Apple-Slayer” independent gauntlet when she stopped focusing on how the new service would be for non-mainstream artists, and just said “ok.” In so few words, it seems that Swift was content to “take the money and run,” so to speak. Her victory really wasn’t a victory for anyone who wasn’t seeing massive streaming or airplay already anyway, so let’s not treat it as one.

A Picture’s Worth a Thousand Words

Perhaps the most glaring result of Swift’s flirtatious battle with Apple, though, was the fallout over her own contracts. In the wake of her open letter, other types of creatives called her on her own hypocrisy, though this time, they weren’t musical artists: they were photographers. In an open letter of his own, professional photographer Jason Sheldon shined a light on Swift’s own hypocrisy in her company’s contracts with photographers at her shows. According to the Washington Post:

Swift’s management company, Firefly Entertainment, demands that photographers who shoot Swift’s concerts to do so on a “one-time-use” only basis and relinquish any rights to republish or sell their photos. Additionally, the contract states that Firefly has the “perpetual, worldwide right to use” the very same photographs in just about any way it sees fit, without compensating the photographer for their usage.

Wow, let’s just take a moment to let that sink in. Swift—the great “Apple-Slayer” and champion for artists’ rights and fair compensation—didn’t (doesn’t?) even feel that those same dynamics should apply when she’s the one who has to pay royalties. That’s pretty staggering.

As she wrote in her own Wall Street Journal op-ed piece, “Music is art, and art is important and rare. Important, rare things are valuable. Valuable things should be paid for.” Considering just how much Swift seems to think that “valuable art should not be free,” it’s fairly amazing that she doesn’t go out of her way to create the best working opportunities for other creatives. In fact, the only thing it does is make her an undeniable hypocrite. If she wants to sit on top of the mainstream and act in a holier-than-thou way, that’s fine, but she should at least be honest about it. She shouldn’t be parading around as some “champion for the independent artist” when clearly her actions say otherwise. It essentially negates everything she’s done to “bring attention to artists’ rights.”

Perhaps the most upsetting thing of all is that many were lulled into thinking that Swift is something that she’s not, including other artists, and independents in particular. This was akin to telling someone that they now had a spokesperson they could trust and count on to speak up louder than they could for their general rights, only to find out that person wasn’t nearly as altruistic as they initially appeared. Most frustratingly, though, it has the power to negate arguments made by others who really are looking to campaign for artists’ rights. Swift’s hypocrisy has the power to undermine other voices (ones who might not be as loud as hers), and to take the focus off the matters that need to be addressed.

(Legal) Iceberg Ahead

Even as the fallout from the Apple-Swift roiling seems to have unfolded months ago, so too was there something else on the horizon for Apple which spelled a different kind of trouble: monopoly. As the FTC subsequently sent out subpoenas to competing music services following its initial probe of Apple Music, attention began to focus again on the tech giant in a way that is less than flattering. The “war” which Spotify started last July with Apple seemed to spread to other areas of the collective music business conscience. Apple Music may not have been “doomed” as Tidal was (or seemed to be) upon its initial release, but it does have new things to take care of that other services don’t need to account for.

Perhaps the irony of the whole situation is that Apple’s legal issues regarding Apple Music really only surfaced after the service was announced and released. Inasmuch as Apple would like to pretend that it has enough money to push its way through to any opinion and finding that would benefit it, it still must contend with U.S. legal code, not to mention its own Terms of Service. Power and money notwithstanding, the outcome of the said legal issues won’t resolve super quickly.

In the End

In the end, the whole Apple-Swift saga that encompassed the end of last summer really wasn’t what people reported it to be. It won’t (and hasn’t) really resulted in a super-massive victory for independents beyond some news attention, and it actually served to highlight some dirty little secrets in Swift’s own business affairs. I don’t know if the saga is concluding or just in a lull itself, but I don’t think this “picture-royalty” thing is going to go away anytime soon. Now that the dam has broken, I bet we’re going to see many more creatives (photographers for sure) speaking up over the next year or so about their business experiences with Swift, and I don’t think they will all be positive.

As for Apple, it continues to chug ahead after the release of Apple Music, albeit in the shadow of the new FTC probes. Though the service boasts a few interesting features, few of them can really be described as “new” or “earthshaking.” While ex-BBC host and DJ  Zane Lowe likely made U.K. listeners happy on the new Beats 1 radio program, for us in the States he was a somewhat irrelevant “exclusive” for Apple to tout (simply because most Americans didn’t know who he was). If Apple really wants to set itself apart in the long term (10+ years), it’s really going to need to do better than a few exclusive names. I suppose we’ll see, but for the time being, the Apple-Swift saga has left a sour taste in my mouth that won’t be going away any time soon.

Real Music Journalists Are Biased Little Punks

A couple months ago I wrote a post entitled Why Music Journalism Bias Works—this is the deeper philosophy behind that notion.


Music Journalism Is a Messy Business

Music journalism is a messy business—it’s dirty, glamless, mostly thankless, and at times will make you tear your hair out. It’s a struggle every day, just like writing a novel or painting a masterwork. Only this novel forces you to deal with real people in real time in dingy little clubs for (most times) no money and little attention thereafter. Many times those people remember your name just long enough to ask you to write up a review of them, or to ask you to promote their newest EP. Sometimes, if you’re extremely lucky, you’ll find yourself crossing paths with people who you truly connect with—people who remember your name because they recognize that, like them, you’re an artist too. The deeper you get into this crazy world, the better you get at discerning these people from the ones who will only break your heart.

Screen Shot 2015-10-23 at 11.39.07 AM

Email from an artist

If you want to be “the enemy journalist” like the boy you saw in Almost Famous, go work for Rolling Stone or Vanity Fair and write about intra-band politics or drug problems. That’s not real music journalism—that’s pretentious drivel the mainstream sucks down with a straw when they want to feel raw and grungy for a moment on the subway. Real music journalism takes place in the dark hours after show-sets as you sip a warm, flat beer waiting for the band to finish loading their gear into the van and hoping they remember to come chat with you before taking off for the next gig. The artists who remember are the golden ones to keep close to your vest.

Being a music journalist is not the same as being a music critic. A critic is inherently critical, and most times that’s in a negative, non-constructive way. There isn’t a desire to see an artist rise above the noise and reach their greatest heights—most times it’s just about tearing apart their latest release. Journalists, however, are freer. They retain the criticism-arrow in their quiver, but use it to augment an argument for why the artist deserves some amount of attention. It’s not about the power trip—it’s about expressing the same artistic voice as the artist, simply in journalism form. Sometimes that voice even connects with other writers, and you find yourself on the other end of the interview!

Screen Shot 2015-10-23 at 12.20.28 PM_censored

Email I got from another music blogger when I was writing back in 2011

I’ve never been seated in a cushy booth with a comped drink, and I’ve only been guest-listed once (and even that was for a minor $10 ticket). I’ve been plagiarized and at times conveniently “forgotten” once an artist feels they’ve reached an “adequate level” of popularity. You learn to shake it off and focus on the real mission: get that next piece written and out to the world.

You Better Have a Late-Night Preference and Pair of Comfortable Shoes

If you want to be a music journalist—a real music journalist—you better have a late-night preference and a pair of comfortable shoes. Most times, the most intriguing things happen at the end of the night, when the show is over, and the other fans stream out to go home and sleep. And you’re still there with that warm beer in your hand, the bottle empty except for the little bit at the bottom, waiting to catch the merch person as they pack up the table. “I’m a music journalist/radio DJ, and I’d love to grab the band for a quick minute if that’s cool,” you say, hoping that the extra hour of waiting in the dive bar wasn’t for nothing.

Me with: Those Mockingbirds (top left), Bloody Diamonds (top right), The Steppin Stones (bottom left), Sunshine & Bullets (bottom left)

Me with: Those Mockingbirds (top left), Bloody Diamonds (top right), The Steppin Stones (bottom left), Sunshine & Bullets (bottom left)

In fact, the most rewarding, productive nights are when the band is real enough where their merch person isn’t an employee, but just a friend who agreed to do a  favor for a night. Those are usually the bands (artists) who you can catch as they move offstage and then sit behind their tables, happily selling $10 shirts and $1 stickers. Those are the singers, guitarists, drummers who you can grab. “Hey, I loved your set. I’d love to do a quick interview for my music blog if you’re down with that.” Hold your breath, but on the outside act nonchalant, like it’s whatever to you anyway. Then that awesome sentence: “Sure, let me grab the members and we’ll meet you outside in a minute.” Success!

Twenty minutes later you’re on your way home, your iPhone camera roll richer for the funny, quirky little interview that it now holds. You’re already thinking about when you can upload it to your blog and YouTube channel, and have promised to tag the band on Twitter and Facebook so they can promote it on their end.

Those are the nights you feel badass, the nights you let your creative self breathe.

As the Relationships Grow, So Does a Mutual Loyalty

The upshot of it all is that many of the artists you have brushes with move in and out of your life without much of a blip. But there are also those who seem to latch onto your attention, and as your fascination with them grows, so does your loyalty to them, and so does their loyalty to you. You’re not “the enemy” who they want to stay away from; you’re the valued source who they tap for advice about their new direction, the recipient of unmastered mixes and singles before they’re ready for anyone else, and of the album’s first copies when it finally drops. Sometimes, if you’re really lucky, you might find yourself mentioned in the liner notes (one of the biggest rushes of my life to this day).

Mastered copy of an artist's new EP I received yesterday, 2 months before official release

Mastered copy of an artist’s new EP I received a couple weeks ago, 2 months before official release

If you want to write unbiased pieces, write about politics, economics, or world affairs, not music and not art. The very bias they tell you to do away with in journalism school and college writing classes is the very thing you should never lose. It’s your unique, creative voice that separates you from the professional critic whose “unbiased” approach is so cold and metallic it lacks any sense of joy in the music. It’s critical for the sake of mere criticism; real music journalists know this is a cop-out. Real music journalists are biased little punks who live and die by the artists they swear loyalty to. Their fealty is palpable and brusque, and immune to irrelevant blurbs written for soundbite effect and nothing else.

If you want to be lauded, go write a bestseller. This is not for the faint of heart. It’s for the fans who are so fanatical that music consumption for them is an addiction to be nurtured and enabled. It’s for the artists, the creatives, the music die-hards who simply strum better with a pen than with a guitar pick.

Spotify’s Sony Contract: What It Means for Everyone

With the leak of Spotify’s contract with Sony last week, there’s a lot of attention on the streaming service right now. I’ll be taking a closer look at that contract over the next week, but for now I’ll focus on the fallout over the last week. In particular there seems to be a lot of renewed interest on the music space, more so than I’ve seen in a while. I think, though, that this has to do with a lot more than simply one contract between two companies; for the first time perhaps, the general public (including music producers, artists, and general music listeners) is aware of the kind of deals being struck behind the scenes.

sony-ve-spotify-ortak-oldu-32936-11022015153944

Even as Spotify soars in newer valuations that have the company somewhere in the $8B range, yesterday’s leak shows that such a valuation may in fact be misleading—Spotify has to cough up around $43M just for licensing from Sony alone. How much do you think they need to cough up for the other two majors, Warner and Universal? Even if we snip off the extra $3-4M, and assume an upfront licensing fee of $40M from Sony—and then simply assume similar prices for Warner and Universal—then Spotify has already spent $120M of investor money. And that’s just for the privilege of having access to the major labels’ stable of artists.

Also, don’t forget that’s before royalties and any other metrics that Spotify has to hit. Therefore it’s more like $43M upfront for the privilege to pay more later on; it’s not a one-and-done purchase. And most unfortunate for Spotify, this latter number is also predicated on how an artist performs in popularity, something they have essentially no control over.

I’m not going to rewrite Micah Singleton‘s article, but I will draw on a number of points he highlighted and what they mean in reality. There are numerous points of importance, but these are the ones I think the general public really needs to be apprised of. Though the contract has since been removed, we got the basic gist:

  1. Written by Sony—First let’s just take a moment to note that the contract was written by Sony. Of course this is their prerogative, but when considering the fact that Sony holds the rights to much of the content that Spotify wants to license, it clearly illustrates who is subject to whom. Frankly, since Sony holds the content rights, they (and the other major labels) essentially hold Spotify’s lifeblood in their hands—that’s not an opinion, it’s a fact. Realistically Spotify is not built around an independent and free model, so they need to play ball with Sony and the other labels, or they won’t play at all. Period.Screen Shot 2015-05-21 at 8.01.23 AM
  2. Advances—Spotify paid Sony $42.5M just for the right to license the music. That’s an upfront fee just to get in the door. This means that anyone looking to compete head to head with Spotify or Rdio needs to magically have about $130M lying around or in funding before they even get their feet wet (projecting the combined upfront licensing fees of the Big Three major labels). One of the reasons that Spotify has to raise such massive funding rounds is because these advances are somewhat annual, and thus need to be renegotiated all the time. And as the major labels continue to get squeezed in their wallets, these numbers are only going to rise for services looking to use major label content.
  3. Screen Shot 2015-05-21 at 2.36.33 PMDivided How and Among Whom?—As Singleton points out, Sony can essentially do whatever they want with that money; there’s no stipulation that it has to be divided in any particular way, or that any of it has to go to artists or songwriters. According to multiple sources, that money usually stays with the label and is generally not shared with artists. This particular point has raised such criticism that its prompted both a response from the EU, which is now looking into Spotify’s contracts, and virtually obliged Sony to come out with a public statement on the matter. Screen Shot 2015-05-21 at 2.36.56 PM
  4. Most Favored Nation Clause—Essentially a clause that guarantees that Spotify’s balls remain in Sony’s vicegrip. The clause guarantees Sony the right to amend  any portion of the contract if it perceives that any other label has a better deal than it does. This means that Sony is essentially never bound to Spotify in any way; it can decide—based on its own perception—that another label has a better deal (which it may or may not) and rework the entire deal for its own benefit. And Spotify has to swallow everything.
    Screen Shot 2015-05-21 at 2.41.24 PMScreen Shot 2015-05-21 at 2.42.20 PMWhere this really kills Spotify is when used in conjunction with the clause dictating payment based on market share. Thus, if another label has a better deal in that regard—perhaps double what Sony is getting monetarily—then Spotify has to cough up and pay Sony the difference.
  5. Spotify’s 15%—Basically exactly what it sounds like. Spotify takes 15% of the revenues from third-party advertising right off the top. What they do with this money is unknown, though it’s quite plausible that they’re not redistributing it to the artists, and are probably giving third-party advertisers a raw-ish deal. Next time Spotify releases a statement saying that they don’t have the funds to pay the artists more money, let’s all remember this little financial tidbit.Screen Shot 2015-05-21 at 2.47.16 PM Screen Shot 2015-05-21 at 2.48.28 PM
  6. Sony’s Ad Spots—This one’s pretty easy to understand: essentially Spotify is obligated to give Sony a certain amount of free ad space on its service. The ad space—which is clearly worth a fair amount of money—is given to Sony at a massive discount.Screen Shot 2015-05-21 at 2.53.33 PMScreen Shot 2015-05-21 at 2.54.09 PMBut that’s not all; Sony retains the right to sell the credited ad space to whomever they want, whenever they want. Again, Spotify gets squeezed.Screen Shot 2015-05-21 at 2.54.41 PM
  7. User Metrics—Spotify essentially has goals it needs to hit in terms of its user metrics (on both payment tiers), and if it misses those, it could be penalized. Conversely, if it exceeds expectations in either of the tier metrics, it recalculates that number so that Sony gets paid more. In English, what this means is that the better Spotify does, the more money Sony is entitled to, but doesn’t necessarily mean that it all works out for the streaming service.Screen Shot 2015-05-21 at 3.07.40 PM Screen Shot 2015-05-21 at 3.07.51 PMIt’s important to remember that Sony isn’t in the business of making sure that it backs up Spotify. It—like the other major labels—is licensing its music to numerous services, so its only real loyalty is to its bottom line. How that affects Spotify is essentially irrelevant to the major label.
  8. The Royalty Distribution (Forget About the Artists)—Without going too deeply into it (Singleton’s initial analysis and infographics are worth consulting), it basically boils down to this: the royalties per stream are so miniscule that you need to be getting millions of streams in order to make any real money (and by real, I mean anything more than $10.00). We all know that independent artists are never going to get to that level trying to compete on an unfair playing field, so let’s just put that point to bed right now. One thing that is worth noting now, though, is that not even every artist has a contract entitling them to royalties. So for all the bluster about royalty payments, many of the artists signed to major labels aren’t even entitled to fair cuts from the streaming.Screen Shot 2015-05-28 at 6.33.02 PMBut even more so, the way in which streaming royalties are calculated is so incredibly convoluted you almost need a degree in economics just to understand it. That’s not how it should be. For independent artists—and even mainstream artists who simply want to understand the financial dynamics—this is yet another way of keeping them in the dark. No one in any other industry would accept some sort of voodoo economics principle when it came to calculating their earnings, so why should music artists—mainstream or independent—have to settle for that? That’s the point, they shouldn’t.

There are numerous other points worth discussing, but these are some of the major ones that discussions of the music industry revolve around. Though arguably a major embarrassment for Sony and Spotify, the leaking of the contract between the two really shines a bright light on what goes on behind the scenes. It clarifies that what happens behind the curtain affects every type of artist, and underscores why more transparency and reform is needed in the music industry. And it highlights something else: the music industry is not dead and foregone. We’re now right on the precipice of a whole new type of music industry that’s taking shape every day. Those who accept and embrace the new dynamics will be the ones who benefit most from them when they inevitably come.

 

Thanks to Shelley Marx for reading early drafts of this.

SoundCloud’s Failed Highwire Balancing Act: The Sony-SoundCloud Breakup

Trying (and Failing) to Balance Two Completely Different Paradigms

The SoundCloud-Sony Breakup

The Sony-SoundCloud Breakup

It’s been a tough week for Sony between its leaked contract with Spotify and criticism over its moves with SoundCloud. And yet, inasmuch as the former is embarrassing and will certainly come back to bite the two companies, the latter is arguably more problematic because it’s not simply between Sony and SoundCloud; it’s between Sony, SoundCloud and the independent artists and fans. That last little caveat is something that Sony can afford to ignore—but it’s going to become an increasingly difficult reality for SoundCloud.

SoundCloud, now a platform for major labels and advertisers

SoundCloud, now a platform for major labels and advertisers

News broke over the last couple of weeks that Sony has started pulling their artists’ music from SoundCloud—regardless of what the artists want. To Sony, SoundCloud isn’t a viable option since it doesn’t presently have a strong monetization plan (as if services like Spotify and Rdio do), and until the label and streaming service can come to terms, it seems that any and all Sony-controlled material will be stripped from SoundCloud.

This has put SoundCloud in quite a precarious position. On the one hand, it doesn’t want to alienate its initial die-hard independent fanbase, but on the other it’s been actively seeking out a deal with Sony, as well as with the other two major labels, Warner and Universal (already having one in place with Warner). SoundCloud is trying to balance two completely different bases and paradigms that are moving in opposite directions: 1) the major label paradigm which is still predicated on an obsolete business model, and 2) the independent paradigm which is increasingly embracing “free” as a big part of the future.

What the major label industry really looks like; The Big Three

What the major label industry really looks like; The Big Three

What I Said a Month Ago

On April 9th, SoundCloud signed a deal with Zefr—that same day, I wrote a post on why independents should very soon kiss SoundCloud goodbye; why the Zefr deal was essentially irrelevant for them. It seems I wasn’t the only one who’d identified SoundCloud’s prospective problems, as a day later on April 10th, PandoDaily writer David Holmes came to the same conclusion and published a piece with a similar premise. Holmes’ post validated many of my points, and cleverly brought up a few others, all to conclude, as I had, that the Zefr deal was a band-aid for a bullet wound. And now the bullet wounds are really beginning to gush blood.

This week, electronic artist Madeon released a heavily critical statement regarding he Sony-SoundCloud breakup, noting: “Thank you SoundCloud for being such a great discovery platform over the past five years. Well done Sony for holding your own artists hostage.”

Ouch. Snap. Burn.

Clearly Madeon (along with droves of other EDM artists who’ve gained significant followings on SoundCloud) isn’t pleased with Sony’s “money first” thought process and strategy. And while Sony has the legal right to pull music which it holds the rights to, in the grand scheme, it’s not exactly a play which will endear it either to the fans it seeks, or the artists it works with. Actually, it has the complete opposite effect.

Who’s the First Priority?

But what lies beneath the surface of this very public breakup is not simply an issue for Sony, but a major issue for SoundCloud. People expect Sony to act like a major label—because that’s what it is. But increasingly, SoundCloud has been chasing the major label content which it thinks could help it become more competitive with Spotify, Rdio and Apple. In the process, it’s spitting in the faces of the people who loved SoundCloud for what it was before: free discovery.

Screen Shot 2015-05-23 at 3.55.46 PM

Excerpt from my original April 9th article

And as SoundCloud moves closer to the major label paradigm, it becomes increasingly irrelevant for independent artists, regardless of genre. Independents are where SoundCloud cut its teeth, so now, moving away from the free-model will leave them somewhat toothless. Case in point: SoundCloud’s new NMPA deal, which, again, is irrelevant for independent artists.

The thing about the independents is that, unlike major label artists who are tied to the major label business model, they’re not tied to anybody. Their loyalty can and will be to whoever gives them the best service as a first priority, not an afterthought. This means the best service for the independents, not the best they can do after the major labels have had their fill. SoundCloud is trying to perform a balancing act on a razor-thin highwire and it’s 600lbs overweight. It’s trying to straddle two completely different business paradigms, and managing to piss everyone off in the process.

Free Is Here to Stay—Live With It

The free paradigm which the labels are beginning to get fed up with isn’t going away—something which Peter Kafka seized on in his article on Spotify. Free is a way of life now, and as independent artists continue to explore the benefits that free affords them, they will increasingly detach themselves from the obligations of the major label paradigm. Services like SoundCloud will eventually have to choose a side—something that’s going to be exceedingly difficult for SoundCloud now that they already have a deal with Warner and are chasing deals with the other two major labels.

Screen Shot 2015-05-23 at 3.56.48 PM

Excerpt from my original April 9th article

It seems that they’ve already made their choice, and it won’t be too long before droves of independents notice. They don’t have to and won’t settle for being second-tier priorities, and will look for alternative options. In the meantime, Sony and SoundCloud will duke it out until the former signs the latter to a major label-style contract.

I said it before and I’ll say it again: if you’re an independent, kiss SoundCloud goodbye.