Consumer Note: The (Potential) Rise Of SPOT Records

If Post Malone can record and master White Iverson in two days, why can’t I? Well, it’s because I have no talent. But if I were a musician or artist with actual talent, I would have access to the cheapest and most incredible recording equipment, and a variety of free or nearly free channels to share my recordings with an audience. Which brings me to a question I haven’t been able to get out of my head for a month, ever since I posted this tweet: why hasn’t SPOT started a record label? Also, if it did, how would it work?

I am an avid Spotify user, and former frontman of a terrible emo band. Getting a record label is a huge hassle, though once you get one you feel like you’ve ‘made it’ (at least I assume, I never got one one). But record labels also take a ton of royalties and often have ownership of an artist’s music: they wield enormous power over artists. Is there a new, better way to make it? Should I get the band back together?

So I dove into the transcripts to see what the experts think about the idea of Spotify records. If you want to follow my lead, you can get a free trial of Stream here

The Overarching Question 

Is full control the ultimate goal of SPOT?

The real pivotal question to me is will Spotify try to cut the middle man, try to cut the labels, and directly allow artists to produce on their platform? When I say artists, because you can already do that with companies like [inaudible], for example. That’s the big question. Will Spotify try to go big, sign big artists themselves so they basically take the entire part and don’t share it with labels. This is the real question and probably only Daniel Ek could solve that.

What they are doing. First of all, they create a ton of tools for artists. Artists can really understand their performance and grow their business on Spotify. With that, they try to see if there is some option to again cut the middlemen. They are doing the same thing with podcasts, creating a lot of tooling for podcasters to try to avoid the podcast to go on other platforms. It’s a complex question because at Deezer we decided to bring it into action to be really respectful of the labels.”

-Vice President of Product,  Deezer France (Prior)

What The Record Labels Provide

Record labels still exist and many are doing quite well. So what exactly do they do for artists? 

The labels are always going to want to get in between a bit of the relationship between the artist community and their label partners. As you mentioned, as services (Spotify) figure out new ways to surface merchandise, ticketing, the ability to engage directly with artists led experiences, the artists are always going to be excited for stuff like that. It’s an opportunity to speak to their fans, as well as to increase the monetization of themselves and their assets.

The labels, they’re going to be in weird positions in this one. Obviously, if they have a stake in those rights and Spotify does a really good job, for example, selling merchandise or tickets, the label stands to win and they’re likely to participate there. If it is a distribution style agreement between the label and the artist, there’s likely to be some concern around who gets what, how are things credited. Ultimately, at the end of the day, the services, they’re not going to try to replace the label partners 100%.

I say this because when you sign up with the label, you are getting a series of services across a variety of different verticals. For example, Spotify or Amazon or Apple, they may be able to help an artist sell additional merchandise or tickets, but you’re never going to get them to handle your royalty payments. You’re never going to get them to handle your royalty payments on the reported assets, but then, by the way, help you process your publishing royalty statements to your various co-writers. They’re not going to be able to help you get on television or on the radio the way labels would.

Warner Music Group – SVP, Global Research & Analysis (Prior)

Who needs a record label? 

If you want to be rich and famous, the best path to get there is to be in partnership with a major label, 100%. It’s fair to say that, but there are so many people out there that their focus is really just spreading their artistic message, which is something I totally get in respect. If your ambition is to just be a touring musician and you just want to record stuff and put stuff out there, you don’t necessarily need a major label to do that.

Warner Music Group – SVP, Global Research & Analysis (Prior)

Okay, so maybe I do want to be signed to a record label after all…

The Power Dynamic 

What is SPOT working on?

“Spotify is starting to create ways for Podcasters to go straight to the platform. Is this a way to test a broader concept for musical artists? 

I feel like it’s the same old saw that it’s always been. The record labels have continued to be pushed against as other forms of access have become more prevalent. I don’t think it’s a direct just because of podcasting. I just think it’s more of a, ‘Hey, the game has changed and rules have changed.’ Spotify is just really invested in trying to make podcasting be as easy to monetize as music is.

They’re really focused on turning podcasting into streaming instead of it being an RSS feed delivery. They claim to have done it. Now some people say they have, some people say they haven’t. I suppose in the long term, yes, the record labels are going to lose out. This seems to me like just more of the same, the way that it’s been going.

Client Partner, Spotify (Prior)

The situation is complicated 

“Spotify has played a huge role in getting the labels more money so they can hold on to their employees and grow their roster and sign new bands and put them on the road. In that regard, Spotify, I always say, saved the industry, the Spotifys of the world. It’s absolutely saved the industry. Now, it’s like the Trojan horse though. Now that they’ve helped the labels and the labels are on their feet and everyone’s expanding, now, is Spotify still helping them? Yes, obviously, they’re still getting all the money, but there’s a price for it, beholden to Spotify. Now I’m rambling a little bit.”

Senior Director of National Promotion, The New Music Company (Prior)

Because SPOT needs the labels as much as they need SPOT

“Yes, Spotify has a lot of power due to their size and penetration in the market and consumer adoption. They deserve to be rewarded for being a pioneer. They transformed the business. They’ve been a huge positive. There are limits to their power because without one of the majors or Merlin or a significant center, they’re in trouble.

This isn’t the video streaming business where it’s okay that Netflix has X shows, but not Y shows. In the audio streaming business, everybody needs to have all the content. It kicks some of the power back to the label side. Even the smallest Warner X got 15% to 20% depending on how you measure the content. If Spotify doesn’t have that, they would hemorrhage subscribers. That makes sense?”

CEO, International & Global Commercial Services, Warner Music Group (Prior)

But the musical scene is changing with the rise of TikTok and the importance of YouTube. Artists can easily record themselves and build an audience without a label. 

“Now, since you can be anybody, you (the artist) skip all those steps. Your production is already done. Your music is out on a free platform like YouTube or something. You get paid back end by ad revenue and even sponsors that get interested after that from people who view your videos on something like YouTube or Instagram or whatever it is, and the more and more followers you get, that’s your marketing. It’s already done.

The question is if that’s a viability, if that’s something that an artist can do, how do we (the labels) beat them to the punch to still remain revenue positive? One of the big things you could do is what’s now currently being done, and it was a great move, mind you, was incorporating streaming. The big problem that they solve is pirating of music or IP in general. Since they solve that problem, instead of having the artist individually go out to Spotify to gain their profit from Spotify itself, it behooved the music industry to partner with Spotify in the first place.”

Director of Executive Production, Universal Music Group (Prior)

How likely is a break-up?

What happens to a Warner or a UMG or Sony if they just say to Spotify, “We don’t like your terms. We’re pulling.” It’s their largest customer by far. Doesn’t that crush the label?

I don’t think anybody wants to play that game. It’s detente, right? It’s mutually assured destruction. When you accept that everybody dies, you have to avoid that. Now I would propose that for people to continue to grow theirs, continue subscription penetration and work together to grow the subscription numbers and then work on pricing. Spotify hasn’t raised their prices since they launched in the U.S. They raised their price in most markets for your basic plan.”

Chief Executive Officer, International and Global Commercial Services, Warner Music Group (Prior)

On SPOT starting their own label

“It was rumored. It was talked about, I would say, two years ago, three years ago. Everyone said Spotify was going to start a label, that Apple’s going to start a label, then they never did. Nothing really came about it.”

Vice President of Digital Commerce at Def Jam Recording, Universal Music Group (Prior)

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ABOUT THE AUTHOR
Edward Carrette
Edward Carrette
Social Media Marketing Manager

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