Most of you will know that it’s Spotify‘s core mission to give a million creative artists the opportunity to live off their art. There’s a couple of narratives around this:
- It’s a lovely goal, but currently only 7500 artists actually make more than $100k per year. Moreover, this means they won’t reach their goal in this century.
- Spotify isn’t capable of creating value for the vast majority of musicians, nor can they generate profit through music. Therefore, they focus on audio-first and podcasts because they can create profit through that.
In a recent Means of Creation podcast Spotify’s Chief R&D Officer Gustav Söderström spoke about how all of their creator tools are also aimed at musicians. Let’s unpack what that means and how it can play out.
Audio isn’t one thing
Li Jin starts off with a question aimed at the second narrative I mentioned above. She points out that Spotify’s recent acquisitions and new tools point to podcasters and podcast monetization. Gustav is strong in his response that all of these acquisitions and tools are also done with musicians as part of their thinking. I’m immediately drawn to the oft-mentioned quote by Daniel Ek that musicians should release more music, more regularly. Of course, it’s easy to place these two things side by side. However, if we start to think of musicians as creators, then there might be some truth in the idea of a musician getting value out of a new podcast monetization feature.
Musicians are, in a way, the first creators and, in another way, too bound by their copyright tie-ups to be a creator. For a musicians to truly become a creator means that they need to take ownership of their IP. One way of doing this is by broadening the scope of what that is. The more regular ‘drops’ don’t always need to be finished songs, EPs, or albums. This is sSimilar to how artists who succeed at livestreaming havea regular performance schedule or musicians who have a successful direct-to-fan subscription model create regular content. The former don’t always necessarily livestream fully-fledged concerts, but sometimes just jam or sip tea. The latter do livestreams, offer merch, provide access into their creative process and much more. Similarly, audio isn’t one thing. Currently, for Spotify, it can be live audio in Greenroom, a podcast, a song. And each element can be different things again.
Future audio formats
Before I think about what those different things can be I want to point out that during the podcast Li pointed out that not all creators are the same, they exist on a gradient. In a similar vein, not all fans are the same either.
To accommodate these differences Gustav talks about feedback loops and the importance of having them. They focus on live audio versus time-shifted audio. Both of those seem to focus heavily on podcasting again. A great insight is that looking at the development of live audio has shown that there’s a demand to talk from people (like there was a demand to do video with YouTube and the TikTok or how everyone suddenly became a photographer with Instagram). This demand shows there will be more and more creators as formats change and the friction to create shifts. If we then start to blend the gradients of creators and fans together you can see how tools like Anchor and Greenroom can allow fans to turns into creators.
Yet the same is happening in music with the abundance of creator tools and the changing funnel that creates.
What you see here is changing friction ranging from production to distribution. Of those 60,000 daily uploaded tracks, I would happily bet that most are home-recorded instead of created and mastered in purpose-built studios. When musician and fan get together, and whether that’s through Spotify’s tools or something like Patreon, and start to create feedback loops the lines start to blur between creator and fan. Moreover, as they get together artist and fans, or simply fans amongst each other, new audio formats can and will create new formats along the way.
Business models and monetization
Whenever talk turns to Spotify and business models there’s a handbreak moment. Should the company not simply pay more to artists. Of course, it’s more complicated than that. On the one hand, Spotify exists to create value for its shareholders. On the other hand, there’s a line of thought that they can only continue to grow that revenue if they also succeed at creating value for their creators. Content is still king. By claiming that musicians are also creators, what Spotify seems to be doing is pulling those musicians into their ring of creating value through IP and ownership. This has two major benefits:
- If IP ownership stays with the creators who then monetize through Spotify, the company has diminishing revenue splits with the major labels
- If IP ownership stays with the creators they retain control of what they can do with their music/audio
Spotify’s open platform
Spotify is vocal against Apple‘s walled garden approach. Now, through it’s Open Access Platform they seem to put their money where their mouth is, at least for podcasters. But considering the above, the creators that Open Access is for also include musicians. What it might take, is a shift in format, a different type of audio IP that musicians can start to create, perhaps even with their fans.
Throughout the podcast Gustav keeps reiterating how Spotify kind of wants to be an audio browser. In their ideal world their icon is what you tap or click when you want audio, in the broadest sense of that term. By making the platform behind that browser open (and there’s a similar feeling here that I get with Epic’s vision and design), they allow creators to take their music – if they own the copyright to it – and spread it out while having various monetization strategies ranging from ads to subscriptions and royalties.
Abundance versus scarcity
Spotify’s business model, and that of the recorded music industry in general, is all about abundance. We expect all music ever created to be available for a small monthly subscription fee. Yet, there are opportunities abound to create scarcity. From exclusive subscription models to NFTs, there’s plenty to optimize. In the end, it’s all about price discrimination and there’s two ways to do that.
- Bundling brings together all music into a single subscription. Bundling often has a negative connotation, but it allows maximization of revenues by letting people pay small amounts for many things with a single fee.
- Unbundling then allows maximization of revenues for a single asset or service. There can be a negative connotation here too, for example the unbundling of the hook from the song through new formats such as TikTok videos.
Going back to those gradients of fans and creators, it’s important to focus your strategy when it comes to price discrimination. Spotify has achieved massive scale through its bundled offer. Now, creators can use that scale to offer unbundled access to anything ranging from a live audio chat to paid subscription. The latter assumes that platforms like Patreon will also integrate with Open Access, but I feel that will happen.
Another benefit of unbundling is that it creates scarcity, the value of which has shown in the recent music NFT boom. Perhaps more interesting than the sheer value of scarcity, what the blockchain allows is for cooperation. In other words, many of the things discussed above could easily be transposed to blockchain-based solutions and protocols. While Gustav expressed personal enthusiasm about this prospect – he talked about it in the form of cooperation on a non-trust platform – he did not indicate any movement in this space from Spotify.
In sum
While Spotify remains beholden to the major labels, their sheer scale now allows them to experiment without immediate fear of upsetting their main partners. At the same time, it still seems that if they want to turn a profit they will need to continue to work on ways to diminish their revenue share to those major rights holders. It looks like they want to do this by creating an open platform where creators can keep their own IP and monetize it. At first glance, this seems like a move designed for audio creators only, but Spotify seems adament that musicians should be part of that group. The crude reading of that is that it’s a play to help reduce their dependancy on the major labels by getting to deal with more, and smaller, IP owners. The positive reading is that this is another opportunity for musicians to move away from the old-school music industry and step into a world where they do, indeed, retain full ownership of their work and the accompanying copyrights.
Select previous writing
