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Un-Freaking-Believable! Spotify: We ‘Overpaid’ Songwriters And Their Publishers In 2018, And We Would Like Our Money Back 

Un-Freaking-Believable! Spotify: We ‘Overpaid’ Songwriters And Their Publishers In 2018, And We Would Like Our Money Back

Courtesy of Music Business Worldwide

If you hadn’t noticed, tensions between the music publishing community and Spotify have taken a turn for the sour in recent months. 

This all began in March when Spotify, alongside other music streaming operators like SiriusXM/Pandora, Google and Amazon, lodged an appeal against mandated pay rises for songwriters and publishers in the US.

The headline news about that pay rise, decided by the US Copyright Royalty Board, was that mechanical streaming payouts from the likes of Spotify would rise by 44% or more between 2018 and 2022. 

It turns out, however, that there was some additional and under-reported complexity to the CRB decision concerning Spotify’s student discount offers and its family plan bundles – which allow up to six family members to stream Premium Spotify for a single price of just $14.99 a month. 

“ACCORDING TO THE NEW CRB REGULATIONS, WE OVERPAID MOST PUBLISHERS IN 2018… RATHER THAN COLLECT THE 2018 OVERPAYMENT IMMEDIATELY, WE HAVE OFFERED TO EXTEND THE RECOUPMENT PERIOD THROUGH THE END OF 2019.” 

SPOTIFY SPOKESPERSON

Because of this additional complexity, Spotify has now calculated that, retrospectively, according to the CRB decision, many music publishers actually owe it money for 2018, due to an overpayment based on the prior rates. And guess what? It wants that money back. 

Spotify told the publishers the news this week and, as you can imagine, these companies – already up in arms over Spotify’s CRB appeal – are fuming about it. 

One senior figure in the music publishing industry told MBW: “Spotify is clawing back millions of dollars from publishers in the US based on the new CRB rates that favor the DSPs, while appealing the [wider CRB decision]. This puts some music publishers in a negative position. It’s unbelievable.” 

Spotify isn’t expecting the publishers to hand over the money that it’s owed right away; instead, this negative balance will be treated as an advance by the company, which will be recouped from its 2019 royalty payouts to publishers (and, by association, their songwriters).

“I FIND IT SO HYPOCRITICAL FOR A DIGITAL SERVICE THAT IS APPEALING THE CRB DECISION TO THEN TAKE ADVANTAGE OF THE PARTS OF THAT DECISION THAT BENEFIT IT. I GUESS WE SHOULDN’T BE SURPRISED.” 

DAVID ISRAELITE, NMPA

A spokesperson for Spotify told MBW today (June 21): “According to the new CRB regulations, we overpaid most publishers in 2018. While the appeal of the CRB decision is pending, the rates set by the CRB are current law, and we will abide by them –  not only for 2018, but also for future years in which the amount paid to publishers is set to increase significantly. 

“Rather than collect the 2018 overpayment immediately, we have offered to extend the recoupment period through the end of 2019 in order to minimize the impact of the adjustment on publishing companies.” 

David Israelite, the CEO of the National Music Publishers Association who has consistently and publicly decried Spotify’s CRB appeal, told MBW in response to Spotify’s request for reimbursement from the publishers: “I find it so hypocritical for a digital service that is appealing the CRB decision to then take advantage of the parts of that decision that benefit it. I guess we shouldn’t be surprised.” 

The CRB rules that the annual streaming royalty rate in the States between 2018 and 2022 will be determined by the highest outcome across one of three different models: (i) a percentage of a streaming company’s total revenue; (ii) a percentage of what that streaming service pays to record labels each year; and (iii)  a flat fee per subscriber in the US. 

Within the new CRB-approved regulations for streaming payouts, it says: “A Family Plan shall be treated as 1.5 subscribers per month, prorated in the case of a Family Plan Subscription in effect for only part of a calendar month. A Student Plan shall be treated as 0.50 subscribers per month, prorated in the case of a Student Plan End User who subscribed for only part of a calendar month.” 

The NMPA announced last week that the US music publishing industry generated a record $3.33bn in 2018, up 11.8% year-on-year, and up 55% when compared to 2014.

Spotify Invests $10M In Facebook's Libra Cryptocurrency  

Spotify Invests $10M In Facebook's Libra Cryptocurrency

Spotify has officially joined Facebook's new Libra global cryptocurrency initiative. Spotify stands out as the only music or media company among 28 A-list players ranging from Visa to Uber to Andreessen Horowitz that each invested $10 million. 

Here's of Techcrunch describes Libra: "Facebook wants to make Libra the evolution of PayPal. It’s hoping Libra will become simpler to set up, more ubiquitous as a payment method, more efficient with fewer fees, more accessible to the unbanked, more flexible thanks to developers, and more long-lasting through decentralization." 

All that delivered locally on a global scale and with bitcoin tracking built in, and you get some idea of what a massive project this is. 

Why Spotify? 

For Spotify, Libra offers a chance to more easily receive payments globally, including from the many outside the banking system.  Someday soon, Libra could facilitate payments to artists and rights holders, as well. 

Alex Norström, our Chief Premium Business Officer, explains: 

“One challenge for Spotify and its users around the world has been the lack of easily accessible payment systems – especially for those in financially underserved markets. This creates an enormous barrier to the bonds we work to foster between creators and their fans. In joining the Libra Association, there is an opportunity to better reach Spotify’s total addressable market, eliminate friction and enable payments in mass scale.”

Amazon’s Ad Supported Strategy Goes Way Beyond Music 

Amazon is reportedly close to launching an ad supported streaming music offering. Spotify’s stock price took an instant tumble. But the real story here is much bigger than the knee-jerk reactions of Spotify investors. What we are seeing here is Amazon upping the ante on a bold and ambitious ad revenue strategy that is helping to reformat the tech major landscape. The long-term implications of this may be that it is Facebook that should be worrying, not Spotify. 

Guest Post By MIDiA analyst Mark Mulligan from his Music Industry blog 

In 2018 Amazon generated $10.1 billion in advertising revenue, which represented 4.3% of Amazon’s total revenue base. While this is still a minor revenue stream for Amazon, it is growing at a fast rate, more than doubling in 2018 while all other Amazon revenue collectively grew by just 29%. Amazon’s ad business is growing faster than the core revenue base, to the extent that advertising accounted for 10% of all of Amazon’s growth in 2018. 

"Spotify builds audiences to deliver them music (and then monetize), Amazon is now building audiences in order to sell advertising" 

Amazon is creating new places to sell advertising 

The majority of Amazon’s 2018 ad revenue came from selling inventory on its main platform. This entails having retailers advertise directly to consumers on Amazon, so that Amazon gets to charge its merchants for the privilege of finding consumers to sell to, the final transaction of which it then also takes a cut of. In short, Amazon gets a share of the upside (i.e. the transaction) and of the downside (i.e. ad money spent on consumers who do not buy). This compressed, redefined purchase funnel is part of a wider digital marketing trend and underlines one of MIDiA’s Four Marketing Principles. 

But as smart a business segment as that might be to Amazon, it inherently skews towards the transactional end of marketing, and is less focused on big brand marketing, which is where the big ad dollar deals lie. TV and radio are two of the traditional homes of brand marketing and that is where Amazon has its sights set, or rather on digital successors for both: 

Video: Amazon’s key video property Prime Video is ad free. However, it has been using sports as a vehicle for building out its ad sales capabilities and has so far sold ads against the NFL’s Thursday Night Football. It also appears to be poised to roll this out much further. However, Amazon’s key move was the January launch of an entire ad-supported video platform, IMDb Freedive. Amazon has full intentions to become a major player in the video ad business. 
Music: Thus far, Amazon’s music business has been built around bundles (Prime Music) and subscriptions (Music Unlimited). Should it go the ad-supported route, Amazon will be replicating its video strategy to create a means for building new audiences and new revenue. 

It’s all about the ad revenue 

Right now, Amazon is a small player in the global digital ad business, with just 6% of all tech major ad revenue. However, it is growing fast and has Facebook in its sights. Facebook’s $50 billion of ad revenue in 2018 will feel like an eminently achievable target for a company that grew from $2.9 billion to $10.1 billion in just two years. 

To get there, Amazon is committing to a bold, multi-platform audience building strategy. Whereas Spotify builds audiences to deliver them music (and then monetize), Amazon is now building audiences in order to sell advertising. That may feel like a subtle nuance, but it is a critical strategic difference. In Spotify’s and Netflix’s content-first models, content strategy rules and business models can flex to support the content and the ecosystems needed to support that content. In an ad-first model, the focus is firmly on the revenue model, with content a means to an end rather than the end. (Of course, Amazon is also pursuing the content-first approach with its premium products.) 

Amazon is becoming the company to watch 

So, while Spotify investors were right to get twitchy at the Amazon rumours, it is Facebook investors who should be paying the closest attention. Amazon’s intent is much bigger than competing with Spotify. It is to overtake Facebook as the second biggest global ad business. None of this means that Spotify won’t find some of its ad supported business becoming collateral damage in Amazon’s meta strategy – a meta strategy that is fast singling Amazon out as the boldest of the tech majors, while its peers either ape its approach (Apple) or consolidate around core competences (Google and Facebook). Amazon is fast becoming THE company to watch on global digital stage.