The recorded music market is regaining its former hourglass shape—this time with platforms like Spotify at the center.
Paul Johnson’s life was like any other struggling musician’s—working multiple jobs, picking up gigs, hustling. Then his warm acoustic folk-pop tune “Firework” made it on to one of Spotify’s Fresh Finds playlists, designed to surface brand-new artists. Spotify and other streaming platforms invest heavily in playlists, ranging from the algorithmically generated Discover Weekly (which predicts new music subscribers might like) to the editorial RapCaviar (the most desired real estate in hip-hop). Playlist placements are highly coveted, both for how they rack up the streams—more than 7 billion in five years, in the case of RapCaviar—and the way they expose music to new listeners. The latter paid off for Johnson.
His first playlisting shot him from a few thousand streams a day to 20,000, and later, as his music landed more and more spots, to hundreds of thousands. Thanks to this exposure he’s now making around $200,000 a year, mostly in royalties from streaming. That’s brilliant for Paul. But, like almost all successes in music, it’s a Horatio Alger story. Spotify wants you to believe the rags to riches transformation is due to hard work and talent when it actually requires a huge amount of luck. Ignoring that luck element illustrates how difficult it is for musicians to support themselves via streaming revenues—and how many hard working, talented people will be unable ever to do so.
Immediately before the streaming era began, we experienced one of the rare moments in the history of recorded music when power flowed in the direction of artists. Although it was an economically disastrous time for many of them, the democratization brought by digital technologies and the internet also finally forced record labels to reform abuses they’d carried off for decades.
Now, however, the recorded music market is again taking on its former hourglass shape, this time with the streaming platforms at the center. Just as the music industry is organized to let labels and publishers scoop up much of the value of music, the streaming platforms, as they become more powerful, are positioning themselves to do the same.
The most dominant, Spotify, tells investors it plans to leverage its listeners into a massive digital ad play that would make it a market leader behind only Google and Facebook. It pushes playlists with names like Mood Booster, Happy Hits, Life Sucks, and Coping with Loss to extract what the company claims is subscribers’ real-time mood and activity data, then flogs it to sell ads. But this is almost certainly a counterfeit claim: Like the rest of Big Tech, Spotify is better at selling advertisers the idea that it has a mind-control ray to make people buy stuff than it is at actually persuading people to buy stuff. The real money will come from Spotify inserting itself as a gatekeeper between musicians and listeners. And those very same playlists that gave Paul Johnson and other artists their breakout success will be central to its ability to do so.
Streaming is sold as a way for listeners to access almost any music on command. Increasingly, however, obeying nudges from streaming platforms, subscribers listen to playlists prepared by algorithms or human curators instead of making their own selections. As the International Federation of Musicians points out, playlists are increasingly pervasive: “There is one playlist for each moment of the day: wake-up, breakfast, work-out, relaxation, meditation, running, partying etc. one single click of a button and music is on for the next 30 minutes or the entire evening or night.”
Indeed, playlists have become so important that being left off can flop even megastar releases (as Katy Perry discovered after Spotify blackballed her for giving rival Apple Music a temporary exclusive, reminiscent of Amazon cutting off publishers who wouldn’t give it big enough discounts). Music journalist and commentator David Turner sees them as repeating the same old tune: “The tone of playlisting shifted very quickly in the last couple of years, from excitement to disillusionment, once we recognized that the same issues of gatekeeping that existed in forms like radio are just simply being repeated.”
Playlist culture imports old power imbalances. When writer and music commentator Liz Pelly analyzed the gender of artists featured on Spotify’s most popular playlists, she found just one woman-led song featured on RapCaviar’s evolving 50-track playlist over four weeks, with other leading lists doing little better. The biggest editorial playlists on every platform also prioritize American voices: A recent study found that almost half of all acts featured by Spotify were from the US. It was even higher for Amazon Music, at 67 percent. And, as in the past, the system often helps acts repped by the biggest labels get the most exposure. Their staff have direct access to pitch songs to editorial teams and are helped by the fact that platforms need to stay on the majors’ good sides to secure favorable terms next time their license comes up for negotiation. Having said that, however, the majors don’t have it all their own way. There are more artists sharing the top 10 percent of streams between them than there have been before, meaning top 40 pop hits are getting fewer streams, while everything else gets more.
Streaming is also changing the very sound of music. Spotify wants subscribers to listen as much as possible, and one way of ensuring that is to feed them “streambait”—the kind of background music that can be left on all day without fatigue. To that end, Spotify pushes undemanding options—Chill Hits, Chill Vibes, Chill Rap, De-stress Chill, Chilled Soul, Peaceful Piano. Musicians looking for the monster volume it takes to make a living from streaming are steered toward creating unchallenging, forgettable tunes. Per-stream payments even seem to be influencing song length, which has dropped substantially over the streaming era. Drake’s 2018 album Scorpion features twenty-five songs, averaging just over three and a half minutes apiece.
By nudging listeners toward playlists, Spotify is also training us to outsource our decisions about what to listen to. The more listeners automatically head to Spotify's ¡Viva Latino! or Baila Reggaeton or Rock Classics, the more streaming comes to mimic radio. The difference is that with radio there were thousands of DJs deciding what to play, including many that were passionate about breaking new local talent. With streaming, just one faceless global giant programs each channel.
This trend threatens to disintermediate artists and labels, just as Amazon sought to disintermediate publishers by encouraging writers to publish directly. Liz Pelly has been warning of this danger for years: “A music culture dependent on playlists is dependent on Spotify, whereas a music culture dependent on albums is dependent on record labels.” Passive listeners are less likely to form connections with the musicians who make it or seek out their gigs. Instead, they just keep loading up the playlists that promise more of the same and accept whichever interchangeable artists are loaded next.
When streaming platforms exert so much control over what gets listened to, they gain more and more ability to shift value from the artist and labels, songwriters and publishers. Spotify is already flexing that muscle. Its ambient playlists have for years been dominated by pseudonymous songwriters and performers with no online presence but millions upon millions of streamed song-plays, and leading ambient acts like Brian Eno and Bibio have been dropped in their favor. One investigation found more than 90 percent of tracks featured on Spotify’s ambient chill list came from these mystery viral artists, all originating from Swedish production house Epidemic Sound. The top 50 of these artists have racked up almost 3 billion streams between them. To put that number in context, Spotify’s RapCaviar, the most influential playlist in streaming, only recently passed 7 billion.
The suspicion is that Spotify has negotiated lower than normal royalties with Epidemic Sound, then prioritized its music to fatten margins. A former Spotify insider confirmed as much to Variety, describing the practice as “one of a number of internal initiatives to lower the royalties they’re paying to the major labels.” This can save substantial cash: Rolling Stone estimates Spotify would have had to pay out about $5 million in royalties just to the top 10 of these manufactured artists had it been paying industry-standard rates.
Spotify has also begun extracting co-op, a polite euphemism for payola, from creative producers—part of the “two-sided marketplace” that lets it not only sell artists to listeners but also listeners to artists. This has become a textbook tech play: Amazon similarly shakes down publishers for advertising costs. Facebook famously encouraged companies to use it to connect to customers before suddenly demanding that they pay for access.
Investors are betting that, with strategies like these, Spotify can cement its hold on the recorded music market. Although it has lost money every year since launch, its stock price still doubled within two years of its 2018 initial public offering. As with Amazon, investors believe it will capture sufficient market power to be able to dictate terms and divert more of streaming’s rivers of gold from artists and labels. And those rivers are only getting deeper: Goldman Sachs has predicted the streaming market will exceed $37 billion by 2030. Venture capital firm Andreessen Horowitz agrees Spotify could pull this off: “Historically, music labels have commanded certain economics from streaming services, but if Spotify’s existing large user base continues to gain share, the negotiation could flip, allowing Spotify to achieve meaningfully differentiated economics relative to the competition.”
Spotify controls just over a third of the market. The rest is dominated by Big Tech: Apple (with 19 percent), Amazon (15 percent), Tencent (in joint venture with Spotify, 11 percent), and Google (6 percent). These other players are pushing the same playlist culture, and for the same reasons. Between them, they believe they can return the music market to its old hourglass shape, this time with them at the center.
If things stay as they are, it will be hard to prevent them. Plenty of driven, artist-focused people are keen to set up alternative platforms that work better for artists but are kept out by sky-high barriers to entry. If you want to start a streaming service, you’d better have deep pockets. Music licensing is fiendishly complex. Sound recordings and the underlying compositions are owned by different people and have to be licensed separately using different rules. As well as individually negotiating sound recording licenses with all major distributors, you’ll need to jump through all the hoops associated with clearing the mechanical rights for the underlying songs, in every country you wish to operate. Leading music industry lawyer Amanda Harcourt, outlining what’s involved in clearing just the composition rights to set up a streaming service in Europe, describes it as “dreary” and “unduly complex,” with high transaction costs making it especially difficult for small and medium-size companies.
In the early 2000s, unlicensed peer-to-peer software providers and streaming platforms abounded. Record sales plummeted and a panicked recording industry adopted a policy of scorched earth litigation, driving them out of the market. The link between these technologies and the fall in revenues led them to characterize music fans as unprincipled thieves obsessed with getting everything for free. But as we see from the rapid growth of licensed streaming, once that finally became an option, what was really winning fans over was the offer of instant access to all the world’s popular music. Had the recording industry taken the opportunity to work with lawmakers to streamline licensing for these new distribution methods at the time, its transition could have been far less painful, and we would now have licensing rules more fit for purpose than today’s archaic mazes.
Spotify CEO Daniel Ek describes these licensing complexities as one of the biggest limits on the platform’s growth. That’s undoubtedly true, but these mazes still work to its advantage. Sure, they force Spotify to grow more slowly, but they also stop rivals from ever starting up. That makes them crucial to Spotify’s own anticompetitive flywheel: Paying these high transaction costs saves it from having to actually compete. On top of that, as we saw in a previous chapter, the major record labels routinely shake down new players as a condition of granting them the licenses they need to get started, adding further to the cost of entering the market. That explains why Spotify’s only rivals of any significance are deep-pocketed tech giants—they’re the only ones with the resources to do so.