Kill Your Darlings
Tags: Leadership, Streaming, Brand Strategy, Growth, Music

Nearly 15 years after its founding, however, Spotify is shaping up to be the very tyrant that it set out to slay; founded as a reaction to rampant music piracy, Spotify is becoming another kind of threat to the stability and success of a diverse and thriving music industry. The platform’s recent struggles attracting marquee artists and rising competition are a reminder that founders who lack conviction in their foundational beliefs create a dissonance between story and business practices that challenges sustainability. At worst, these wandering founders threaten the integrity of the very audiences they set out to support.

When Spotify was in its early days in 2006, music piracy was surging as sites like The Pirate Bay and LimeWire provided easy access to thousands of tracks and albums — completely free of charge. Recognizing how this was cannibalizing the music industry, Spotify founders Daniel Ek and Martin Lorentzon officially launched Spotify in 2008.

“I realized that you can never legislate away from piracy,” Ek said in an interview with The Telegraph in 2010. “The only way to solve the problem was to create a service that was better than piracy and at the same time compensates the music industry.”

Through the Spotify model, the brand licenses music from record labels. Listeners are then able to access these songs and albums, pressing play on any of them for free, with some caveats: ads will play between every other song or so, the audio quality is low, and users are only able to listen to tracks online, not download them to play later. The company also offers a tiered, paid membership program starting at $10 per month that allows users to listen to higher quality, downloadable audio ad-free. From this combined ad and membership revenue, Spotify pays a portion of its earnings to the artist, building what appears to be a new, sustainable music ecosystem: Listeners flock to stream their favorite artist’s tracks and, for every listen, that artist collects a check.

This business model so perfectly supports Spotify’s aforementioned mission statement that both audiences the brand seeks to service (listeners and artists) can feel good about their economic relationship — particularly important for a product so intimately connected to emotion. Spotify offers a path for artists to make a living, and for their fans to connect with and find joy in their favorite artist’s creative pursuits. Co-founder and CEO Ek expanded on this mission within the pages of Spotify’s IPO, pledging to create a “cultural platform where professional creators can break free of their medium’s constraints” and “where everyone can enjoy an immersive artistic experience that enables us to empathize with each other and to feel part of a greater whole.”

For Ek, Spotify is about creating communities around art, and reshaping the music industry to support those who find value (both emotional and financial) in music — whether making it or consuming it.

And, based on Spotify’s runaway success, it would appear that the streaming service has indeed created the harmonious musical ecosystem that Ek and Lorentzon had envisioned in the heydays of piracy. Valued at $46 billion, Spotify has nearly 300 million monthly active users — of which nearly half are paying for the company’s ad-free subscription — and 3 million artists on its platform as of 2018. In addition to expanding to host live events and performances, the brand has also inked exclusive deals with Michelle and Barack Obama, DC Comics, and podcast powerhouse personality Joe Rogan. As the streaming service has grown in popularity, listeners have praised Spotify’s extensive library, affordability, and accessibility through a variety of different devices.

If Spotify’s exclusive focus was on serving listeners, this might be enough. But the brand has designated artists to be as vital as those consuming their music within its story, which means both audiences must remain enthused by the platform for its long-term success.

And from the artists’ point of view, things haven’t been as rosy. When, in early 2019, Spotify made it possible for listeners to share an infographic of their most listened to artists and tracks of 2018 (called “Wrapped”), artists also had the chance to share their yearly insights. For Zoë Keating, a cellist out of Vermont, this gave her the opportunity to not only post how many streamed her music or what countries they were from; Keating also shared with her fans the profit she made from 2 million streams, or 190,000 hours of music: $12,231. At about half a penny per stream, it’s difficult to see how even a successful artist like Keating — and any others who aren’t Drake or Billie Eilish — could expect to “live off their art,” as Spotify puts it.

Keating is hardly the first or most prominent artist to criticize Spotify’s failure to deliver on its promise to creators. Thom Yorke of Radiohead and Taylor Swift have both withheld or withdrawn their music from the streaming service over claims of unfair compensation to artists. Jay-Z went as far as to create an alternate, artist-owned streaming platform, Tidal, where most of his and his wife Beyoncé’s music can be found today. This paltry compensation for many artists is especially baffling in the context of the thriving music industry: In 2018 overall music revenue increased $2.2 billion from 2017 to a total of $18.8 billion.

There’s reason to think that these critiques from artists and their decision to flock to competitive services is weighing on Spotify in at least some way. While the platform’s user base continues to grow, that growth is increasingly coming from new markets; the number of North American subscribers in the third quarter of 2020 was almost identical to a year before. The same emotional connection to artists and their music that draws people onto Spotify means critiques from those artists carry significant weight with users.

Superficially, the Spotify ecosystem appears to be aligned with its purpose. But artist discontent is rooted in a crucial detail: a payment structure that completely divorces the financial support of fans from the artists they love. Known as a “pro rata” model, Spotify’s artists are compensated not by their fans directly, but rather based on their overall share of listeners’ ears. This means that all revenue is funneled into one big pot, and every artists’ streams are compared to one another; if one artist is getting 5 percent of those overall streams, that artist receives 5 percent of the pot. It’s a system that doesn’t even handsomely reward top-tier artists, and makes it near-impossible for artists like Keating to make a living on her streaming earnings.

In a deep dive from Rolling Stone, columnist Tim Ingham did the math on just how much Spotify’s highest performing artists stand to make. According to Spotify, 43,000 artists net 90 percent of streams; those within that top tier stand to make only about $90,000 a year on streaming. On top of this, most of this money is likely going to a smaller number of music superstars, and varying structures across different labels make the financial reality much more opaque.

For the “bottom tier” of artists, however — more than 98 percent of the total number of artists on Spotify — the returns calculate to about $12 per month, barely enough for the artist to afford a Spotify subscription of their own.

This race to increase an artist’s share of streams is having second-order effects in the music industry that work to undermine both listeners and creators. Many artists feel compelled to release music at a faster rate than before — a move encouraged by Ek, who recently gave an interview criticizing those musicians only releasing music “once every three to four years” and insisted it’s about “putting the work in.” The songs that artists do release are increasingly becoming shorter and shorter. Musicians are encouraged to forefront catchy choruses right off the bat to win streamers, undermining their creative output.

“I really do feel like the flattening and watering down of the experience of musical community and fandom is one of the biggest issues [of streaming],” Liz Pelly, a journalist who covers streaming, told NPR. “We’re in this moment where artists on every level are expected to think this way that, in the past, would have been a way of thinking about artists that are gonna be on the Top 40 radio. And now all artists are expected to be beholden to the mechanisms of pop music in a sense.”

When talking with Fast Company about why she chose not to release her 2015 album Vulnicura on Spotify, Icelandic artist Björk said: “This streaming thing just does not feel right. … To work on something for two or three years and then just, Oh, here it is for free. It’s not about the money; it’s about respect, you know? Respect for the craft and the amount of work you put into it.”

Björk is prominent enough of an artist to earn real money on Spotify. If she does not feel the platform respects her creative output, and other superstars feel similarly, it’s worth wondering how long before users reach the same conclusion.

By undermining a fan’s opportunity to support their favorite artists — making it impossible for those fans to directly contribute to those artists financially and, therefore, making it harder for them to continue making music — Spotify erodes the emotional connection inherent to its story, and challenges the brand’s ability to be the dominant player in streaming music long-term.

Many companies start off with a purpose that goes beyond simply selling a product or providing a service. As is the case with Spotify, this purpose is animated and carried forth by the company’s founder or founders, who can allow this core belief to guide their decision making and, ultimately, the company’s growth. When this belief is codified by a strategic brand narrative, it makes it easy for an organization to evolve in a way that aligns with its founding purpose. Without a strategy to put that purpose into action — as the classic song goes, you always hurt the one you love.

Hannah is an associate at Woden. Want to stay connected? Add Hannah on LinkedIn, read our extensive guide on how to craft your organization’s narrative, or send us an email at connect@wodenworks.com to discuss whatever your storytelling needs may be.