In order to write the next chapter in the story of indie band Uniform Motion‘s analysis of digital music distribution (previous articles here) I reached out to Uniform Motion and Spotify in order to gain a little more insight into the business model that Spotify employs. While Spotify’s US PR firm failed to respond, Andy from Uniform Motion was more that happy to answer a few questions.

As an independent artist Uniform Music pays an aggregator (in their case TuneCore) to put their music on stores like iTunes and eMusic and streaming services like Spotify. Then they must work with a Performance Rights Organisation (PRO) who collect the money owed to artists when their songs are played. In this case Uniform Motion work with PRS for Music, who makes the deal with Spotify. So payments go from Spotify to the PRO and then to the artist.

From TuneCore’s FAQ:

“For songs streamed, Spotify has deals with necessary rightsholders in all of its launch countries. Together with them, Spotify has agreed upon a royalty based on how frequently your music is played. Each stream earns you a share of Spotify’s advertising revenue. The actual amount varies and depends on the ratio of advertising revenue and your percentage of the total number of streams at Spotify in a given month.”

The TuneCore blog has a great article describing all of the different factors and players when it comes to music and artist’s rights. Read it here.

Understandably Spotify’s business model is to leave contracts open for negotiations so they can maximize their profit potential, which means that the bigger, more powerful PRO’s (i.e. established labels acting on their own behalf) are going to get the better deals. Unfortunately this leaves the independent artists to continue to struggle. I openly admit that I have not investigated any of the other channels so I do not know how closely this part of their business aligns to others like iTunes or Amazon, but it is not this aspect of their business that is being called into question.

The problem with this business model is the lack of openness. Spotify leaves the responsibility to the artists on the PRO’s, but given their ultimate reliance on the artists themselves should take a bigger part in ensuring the artists are properly taken care of. Since there is no visibility of the deal in place, the PRO’s can refactor it as they see fit and the artist has no power at all. In the case of Uniform Motion, they contacted PRS for Music to ask them what sort of deal they have with Spotify and they refused to disclose the details. In the words of Uniform Motion “So there’s no way of knowing if you’re getting a fair deal from Spotify”. Furthermore, it was not apparent up front that there would not be a clear understanding of the business model, nor such delays in information being provided.

Not that you can lay this wholly at Spotify’s feet. Obviously the lack of transparency by the PRO’s perpetuates the system that keeps the artist powerless. Sure, Uniform Motion can figure out what sort of per-song revenue they are making when they get a report, but that doesn’t tell them whether or not the PRO is taking a big cut. Even worse is the fact that the artist has to sign up and then wait 3 months before they even know if the revenues seem reasonable, hampering them from any sort of up-front negotiation or informed decision making in choosing a PRO. For Uniform Motion, and many bands like them who are trying to be in control of their destiny, “If they said upfront that Major label music gets a bigger share because they’re the ones who attract the most users, then we would decide whether or not we want to be a part of that system.”

Uniform Motion is doing what a lot of bands cannot be bothered with, which is really analysing the industry and sharing their knowledge and thoughts. The analysis is not complete, by any means:

“So the two main questions that remain unanswered are 1) when Spotify pays out royalties, what percentage do they keep for themselves and is the money split up fairly (meaning, do they apply a coefficient to the major labels’ share?) and 2) what is the per play rate they pay to PRO’s for the performance rights? We’ll probably never get an answer to question 1 but I believe that question 2 should be either public knowledge or at least shared with rights-holders.”

I look forward to continuing to see inside the machine once Uniform Motion does finally receive some information from Spotify. At this point Spotify looks to be cutting edge technology built on top of an ancient business model. Artists are the commodity used to generate more power and money for the organizations that already have the money and power. The digitization of the world has been forcing the music industry to become more responsible and accountable, giving artists a better chance to control their destiny. This approach looks to be a step in the wrong direction.

Once again, I fully admit that this article is a crash course education for me.  I accept that my facts may be off or incomplete, but I think that is testament to the confusing nature of the business, which puts the artists at an unfair advantage.  If you have deeper insights please leave them in the comments.