Spotify? Not much better than piracy.

Spotify claims that it is better than piracy and that it generates revenue for recording artists. But is it? And does it?

If you are a frequent Spotify user, you’ve probably heard the ad that says “Piracy is so last year. Every time you listen to music on Spotify, you make money for the rightsholders and artists.” If you haven’t, you will;  it is aired about once every two hours.

I am a frequent Spotify user, and I think it’s a fantastic service, offering free access to an ocean of recorded music, including recordings that are hard to find in record stores. It has revolutionized the way that people consume music and will likely be around for a long time.

But Spotify is a young product and a young company, and Spotify’s claim that it generates revenue for artists deserves thorough scrutiny. Does listening to music on Spotify really help support your favorite artists? Is Spotify really a better distribution channel than the best illegal filesharing services?

The short answer to both of these questions: Sort of, but only barely, at least right now.

Until Spotify came around, the best digital music distribution service had been Napster,  the short-lived filesharing service that let users share their entire digital music library – for free – with everyone who was logged in at the same time. This provided users with a virtually limitless music library. It was wild. At one point, I had 22 days worth of music downloaded to my college computer, including rare Beach Boys outtakes, out-of-print jazz records, and new music that was not available at the mainstream record stores. But Napster did not generate any revenue for rightsholders on its own, and was successfully sued by the Recording Industry Association of America and shut down in 2001.

Napster’s longest-lasting impact on the music business is that it showed that online distribution of digital music was the future of the industry. Several online services came about in Napster’s wake, but it wasn’t until Apple introduced the iTunes Store that consumers had a stable, safe, industry-sanctioned online music distribution service that rivalled Napster in its ease of use and breadth of content. Like Napster, iTunes Store users had hundreds of thousands of individual tracks they could search for and download. But unlike Napster, a user had to pay about a buck for each download. The success of iTunes’ pay-per download model created a swamp of copycat services including Rhapsody, eMusic, and a pay-service run by Roxio that was given the Napster brand after Roxio aquired it in bankruptcy liquidation.

Spotify operates as a bridge between the two models. Users can have free, ad-supported access to stream the entire Spotify catalogue, or they can pay about $10 a month to be able to download an unlimited number tracks from Spotify to their computer. Tracks downloaded through Spotify can’t leave the Spotify application, so there’s no risk of them being distributed any further, and rightsholders are paid a nominal rate every time someone plays one of their tracks using the Spotify service. This rate is exponentially less than what would be received for one iTunes download of the same track, but Spotify still has the full support of the Recording Industry Association of America, meaning it’s legal and it’s probably here to stay.

To give you an idea of Spotify’s payout versus iTunes and similar services, here’s the first revenue report for Don’t Punch Your Friend in the Head, a song my band Ramforinkus added to several internet music services last April.

The report above shows the different revenue that 28 sales and 104 streams generated across five different services. Not a great start, for sure, but not too bad considering we hadn’t really promoted the song yet. Since the band doesn’t have a record label or any other stakeholder taking a cut of the revenue, we receive the entire payout from each service:

iTunes (UK/EU)     ~$1.22 / sale

iTunes (US)               ~$.76 / sale

eMusic                            $.40 / sale

Rhapsody                      $.01 / stream

Spotify                            $.00378 / stream

So if you live in the US and purchased a copy of Friend in the Head on iTunes for 99 cents, we would receive about 77% of the sale. This could add up pretty quickly; if we end up selling 9,900 copies of our song on iTunes, we’ll receive about $7600. That would finance a short tour for sure. 

Spotify has a completely different business model than iTunes in that it is a streaming music service, not an online store. As such, it pays rightsholders based on individual plays, not downloads, and its current rate is a little less than four-tenths of one cent per stream. That means an individual user would have to stream our song two hundred times in order for my band to receive the same 76-cent payout that would come from a single purchase on iTunes. This won’t add up in any meaningful way until our song receives hundreds of thousands of streams, and my guess is it is unlikely that someone would listen to any individual track by any independent artist on Spotify enough times to match the revenue of a single iTunes purchase.

For the record: Four-tenths of a cent per stream is a marked improvement over the way artists were initially compensated by Spotify; Lady Gaga famously received only $167 after her song “Poker Face” was the first track to hit 1 million streams on Spotify in 2009, which amounted to 1.67 thousandths of a cent per stream.

This figure – .38 cents per stream – shocks a lot of people at first because Spotify’s entire business model rests on the fact that it’s supposed to generate revenue for rightsholders, and they vigorously refute the idea that they are anything other than the next great revenue source for artists. In a recent interview, a Spotify spokesperson said “Spotify is now generating serious revenues for rights holders; since our launch just three years ago, we have paid over $100 million to labels and publishers, who, in turn, pass this on to the artists, composers and authors they represent. Indeed, a top Swedish music executive was recently quoted as saying that Spotify is currently the biggest single revenue source for the music industry in Scandinavia.”

That claim is certainly impressive, but there’s a serious disconnect here between what Spotify says and what artists end up receiving per-play on the service. Most major labels keep a considerable cut of that less-than-four-tenths-a-cent payout, and independent artists who release their own material generally don’t attract the number of listeners it would take to make Spotify a better revenue generator than iTunes.

In fact, I might argue that fans who pirated Don’t Punch Your Friend in the Head could do more for us than had they used Spotify to listen to it. If 103 people had pirated Friend in the Head instead of streaming it through Spotify, those 103 people would possess a digital copy of the song, which means there are dozens of extra ways they could pass it along to others. They could burn it to a mix CD; They could listen to it using any audio player, in any setting, and could easily transfer it between devices; They could convert it to any format, they could add it to a video, they could sample it, they could make it their ringtone, they could play it as house music at a theater or club, and they could broadcast it on their radio show. By listening to Friend in the Head in Spotify instead of pirating it, those 103 people could have shared the tune with other Spotify users and could have added it to their Spotify playlists, but there’s not much else they could have done that would help the song reach new people since music on Spotify can’t leave the Spotify application, and you can’t take the Spotify application with you without paying $10 a month for it. So as an artist in several independent bands, I don’t see how Spotify is really better for us than an equally accessible piracy channel would be.

I don’t mean to complain about Spotify as a service. Spotify represents the future of music consumption. We are a culture of convenience, and nothing is more convenient than immediate, cost-free access to every song you’ve ever wanted to hear.  And I was always okay with small-scale music piracy, whether it meant taping songs off the radio, ripping a library CD to your computer, or making mix CDs for friends, so I am not writing this article to complain about music consumers who do not pay for all of the music they listen to. I am not only happy that Spotify is an option for my own music but I also use it several hours a day, both for fun and for work. The problem, as I see it, is that Spotify boasts that they have surpassed piracy and that you, the Spotify user, are supporting artists by using their service. I find this hard to swallow because they’ve released no data or projections to support these claims and their defense of their payout model is always presented in general terms. Spotify should not be advertising that their listeners generate revenue for artists; this could lead to someone choosing to listen to a song on Spotify instead of purchasing it on iTunes with the idea that they were supporting the artist either way. In reality, it takes nearly 300 Spotify streams for one member of an independent band to be able to buy a cup of coffee at a bodega, and probably many many more times if an artist has a record label.

If Spotify wants to change my mind, they’ll need to publicly release their payout model, and I’ll need to see concrete, verifiable data that can confirm that Spotify users listen to individual songs at a rate that will eventually surpass iTunes revenue. Until that happens, I will continue to look at Spotify as a free music service, like Napster and Grooveshark before it, and it should be known that the best way to support your favorite artists is to purchase their music at full-price – especially their self-released material – and to go to their shows when they’re in town.

Update (12/2012): In response to a few comments, I’ve expanded this article and have clarified some of the language. 

Pro Wrestling and the Individual Mandate

What do Hulk Hogan, Newt Gingrich and Mitt Romney have in common? It has something to do with Obamacare.

Remember Hulk Hogan? In the 1980s he was the world’s most popular professional wrestler. At the height of his fame, he had his own TV show, his own cereal, his own record deal, and was cheered wildly by sold-out crowds everywhere he went. To pre-teen boys in the 1980s, Hulk Hogan was Oprah Winfrey, The Beatles and Batman in one package. His character was wholesome but strong. He wrestled with integrity and made the bad guys pay. For almost two decades, he was the most consistent good-guy wrestler, fighting for the fans and the forces of good even as other wrestlers changed allegances. But after taking a few years off to pursue a failed movie career, and having mounted a less-than-meteoric comeback in the mid 1990s, his character did something completely unexpected.

You see, there was this pay-per-view wrestling match in 1996 between three “Good Guys” and two “Bad Guys.” On the surface that seems uneven, but the Bad Guys said they had a third man, and refused to say who he was. Despite being out-manned, the Bad Guys cheated their way to a stalemate, and all five wrestlers ended up knocked out on the ground. (Watch the video now if you want to avoid the spoiler.) Just as the referee began counting everyone out, Hulk Hogan entered the arena to thunderous applause. At first it looked like he was there to support his friends – the good guys – but to everyone’s surprise, instead of laying the thunder upon the bad guys, he delivered two crushing leg-drops on the Macho Man, a good-guy and his one-time friend. After high-fiving the “bad guys,” Hogan threw the referee out of the ring – a classic Bad Guy move – and delivered one final leg-drop upon the Macho Man before picking up the microphone and berating the audience (an even more classic Bad Guy move.) The announcers couldn’t believe it. No one could believe it. Hulk Hogan was supposed to be the ultimate good guy. Within a minute, he became the ultimate bad guy.

In wrestling, this phenomenon is called a turn: a good-guy suddenly becomes a bad-guy, or a bad-guy inexplicably becomes a good-guy.  (Google “heel and face” if you want an in-depth analysis.) It’s a frequent occurrence, and most pro wrestling characters turn multiple times over the course of their careers. The best pro-wrestling turns are both instantaneous and absolute: once a good guy has turned heel, he immediately assumes all of the characteristics of his new persona. There is always a justification given for a heel turn – usually a wrestler is fed up with something backstage, or he feels the fans don’t respect him enough – but the reasons behind a face or heel turn are always flimsy and end up being dropped as soon as it’s convenient. If done well, by the next time he’s on TV, a turned heel should seem like he was never a good guy at all, and a turned face should be an instant fan favorite.

Of course, Pro Wrestling is not a sport. It’s a scripted spectacle, one which thrives on sensationalism and immediacy. It doesn’t matter what each character did last week; the announcers will always let you know what the current storyline is, and each character’s back-story is constantly modified to fit whatever narrative is being pushed at the given moment. Heel turns and other sudden changes in a wrestler’s storyline are just part of the Pro Wrestling experience, and most people lose interest in Pro Wrestling once they realize how fake it is. Hulk Hogan’s heel turn was epic, but completely inconsequential.

A similar phenomenon occurs in politics: the flip-flop. Like a pro-wrestling turn, a politician commits a flip-flop when he not only changes position on an issue, but does so brazenly, with little regard for his previous views. Like a “good guy” or a “bad guy” pro-wrestler who has just turned, a politician who has flip-flopped will usually assume his new position without sufficiently justifying his change of mind. When pressured for an explanation, he usually jumps through hoops to show that his new opinion doesn’t conflict with his old opinion, or he claims that he has “always” had his position, despite a mountain of evidence to the contrary.

The recent excitement over the individual health insurance mandate has created a wave of flip-flop allegations regarding the major 2012 presidential candidates. On the surface, these allegations appear correct; everyone involved, it seems, had the opposite opinion one election cycle ago. Newt Gingrich and Mitt Romney were both strong advocates of an individual healthcare mandate until they each switched their position on the issue at the start of their current presidential campaigns, while President Obama was firmly against the individual mandate during his first presidential campaign, and was skeptical of its constitutionality even while the “Obamacare” legislation was being developed. Politicians and pundits love calling each other out for their flip flops; like pro wrestling announcers, they operate with the two-dimensional mindset of a playground bully. You are either one thing or you are something else, and if you change your mind you have clearly flip-flopped.

But in the case of the individual mandate, there are stark differences between the way that Obama and his Republican challengers are handling their new positions on the issue. Obama’s position barely qualifies as a flip-flop, while Gingrich and Romney are in full-on Pro-Wrestling mode.

Don’t believe me? I have the video to prove it.

In President Obama’s case, his fundamental message has remained consistent despite having changed his mind regarding the individual mandate. His prior criticism of the individual mandate was that penalties would drive up costs to some uninsured citizens. His current support of the mandate is also within the framework of keeping costs down for the uninsured and underinsured, and he’s doing a great job of explaining why the mandate is a good idea.”There are only two ways to cover people with pre-existing conditions,” Obama said at an AP luncheon on Tuesday. “One way is a single payer plan, where everybody is under a single system, like Medicare. The other way is to set up a system in which you don’t have people who are healthy, but don’t bother to get health insurance, and then we all have to pay for them in the emergency room. We have to make sure those folks are taking their responsibilities seriously.” This is a change of policy, but is not a flip-flop, because he still embraces his previous position and clearly explains how the individual mandate is the next-best thing.

But what of Romney and Gingrich? That last point made by Obama – that the individual mandate is needed to make sure that everyone is playing fairly in the healthcare market – is hauntingly similar to a speech given by Newt Gingrich in 2009 on behalf of The Center For Healthcare Transformation, a lobbying group he founded in 2003. “We believe that everybody should have health insurance,” he said. “We would not allow people to be ‘free riders’ failing to insure themselves and then showing up in the emergency room with no means of payment.” It also echoes Mitt Romney’s position during the 2008 presidential debates, in which he said “I like mandates. They work.” He continued: “If somebody can afford insurance and decides not to buy it, and then they get sick, they ought to pay their own way, as opposed to expect the government to pay their way.”

Seeing that both Gingrich and Romney were fully in support of the individual mandate as recently as one election cycle ago, it is extremely noteworthy that they not only changed their position on the issue within a few months of becoming candidates; they strongly railed against it as soon as they faced political pressure from their party’s current base. “A mandate is clearly unconstitutional because it means that congress could require you to do anything with your money under any circumstance,” Gingrich said to ABC news this past December. When he pressed on why he supported it as recently as six months before the interview, Gingrich responded “there was a time, in opposition to Hillarycare, the Heritage foundation and lots of folks supported it [the individual mandate.] The more we looked at it, the clearer it became that it would lead the politicians to redesign the entire system to support the mandate.” This is completely counter to any sense of honesty. Throughout the entirety of the 2000s, and as recently as an appearance last May, 2011, on Meet the Press, Gingrich was an active advocate for the health insurance mandate. In fact, in that Meet the Press interview, he minced no words in his support of the mandate: “I am for people, individuals–exactly like automobile insurance–individuals having health insurance and being required to have health insurance.”

So what happened to Newt Gingrich between May and December 2011? This video explains everything:

In the clip, you can clearly see Newt Gingrich tried his best to resist the Tea Party, but was too overpowered by their insistence and finally gave in. Once he gave in, the Tea Party hoisted Gingrich in the air and he let out a primal scream of acceptance. It was a powerful and chilling moment. I’m glad they got it on video.

And what of Romney, the man who was not only an advocate of the individual mandate, but made it the centerpiece of his own health care plan while he was Governor of Massachusetts? “There’s a big difference between what we did and what president Obama’s doing,” Romney said on Fox News last month. “We said people had to take responsibility for getting insurance if they can afford it, or paying their own way. No more free riders. And we solved this at the state level. Not a federal plan, but a state plan. This is a federalist nation. States should be able to solve their own problems.” Romney repeats this distinction every chance he gets: his Massachusetts plan is fundamentally different than Obama’s, and his was a state plan, and States have the right to determine their own health care. This is a pretty strong defense, until you consider that Romney strongly urged the president to model the national health care system on his Massachusetts system in a 2009 op-ed, and explicitly mentioned the individual mandate as one of the aspects of his plan that worked: “Getting every citizen insured doesn’t have to break the bank,” he said. “Using tax penalties encourages ‘free riders’ to take responsibility for themselves rather than pass their medical costs on to others.”

Romney now vows to “stop [Obamacare] in its tracks on day one” and attacks the president, saying “as I look at this administration I see Obamacare as one more example of a president pursuing his attack on economic and personal liberty.” Forget that Obamacare is basically Romney’s plan, and that he clearly would be in favor of this plan if it were proposed by a Republican. For Romney, this issue is no longer about affordability and covering the uninsured. It’s about freedom! It’s about resisting a government takeover! It’s about red-blooded, patriotic Americans fighting a clandestine Communist threat! As disingenuous and short-sighted as Romney is being, you have to at least admire his tenacity and his fire on the stump:

What power and umbrage! Not to mention face-paint! If that’s how Candidate Mitt feels about Obama, think of how President Mitt would stick it to the Iranians and the Russians come Summerslam!

Dan Reitz lives in Brooklyn, NY