I wrote about the state of the music industry back in 2015 (Open Letter to the Music Industry) and when I thought about writing this article I went back to look at what I had written. I admit I was ready to cringe and get that hot sweaty feeling I always get when I think about stuff I’ve done that maybe common sense tells me not to. Like when I bought those tickets to Greece on credit knowing that balance was gonna sit on my card indefinitely. My inner financial advisor was saying, “credit card debt is the first sign of financial ruin” but my inner “The Secret” just said, “think positive a world of wishes fulfilled is just around the corner.” Guess which self won out? Well, I’ve already told you, haven’t I? And yes, my article is still relevant today but this time I have another solution.
I feel like the people at Spotify live in my favourite world of optimistic oblivion. I’m often living on this plane too, despite the desperate attempts of others to bring me into THEIR reality, one that relies on the mantra of “get a real job”. I think it is these people who are ruining it for Spotify too. Their negative thoughts are just too many for the billionaires behind the Ponzi scheme we call Spotify. I mean how many times have you heard, “there is no money in music?” This mantra out of the mouths of so many must present considerable barriers for the poor Spotify leaders. And yet they forge ahead under these conditions digging deep into the pockets of unsuspecting investors. Maybe they have promised rock star status for these investors with access to groupies and adulation. Or are these investors just the groupies providing adulation and free sex for the rock star, Spotify? After all, Spotify is providing the music.
Where am I going with this? Well, as a recording artist (insert shameless plug and website here), I am at the mercy of social media and the avenues in which the public consumes music. One of those avenues is streaming and streaming’s king is Spotify with 157 million active users. Its closest competitor, Apple Music, boasts only half those numbers. It was started as a file sharing company meant to replace the pirate, Napster. Its co-founders were awash in tech-boom money and wanted to help out the struggling music industry with of the goodness of their own hearts. They founded Spotify in 2006 and launched their service in 2008. Their rise to the top of the streaming pack was probably helped by the fact that one of the cofounders was also the cofounder of one of the world’s leading digital marketing companies, Tradedoubler. If you’ve heard of SEO, you’ve heard of Tradedoubler.
But were the founders really interested in saving the music industry or just bailing out the record labels, who all happen to be minor shareholders? Is Spotify just a huge marketing platform for the labels, since we know that only 13% of the boosted content is from indie artists? Hmmmm, but which Indie artists? Are these “indie” artists in the Merlin network, who also own a small share of Spotify? Good luck on Spotify if you ARE truly indie. Really, why do I bother? Insert my Spotify link here.
Ok, back to why Spotify is a Ponzi scheme or even just a form of extortion by the record labels, who actually get a payout of approximately 70% (https://techcrunch.com/2017/03/18/dictate-top-40/ ) on revenues generated from their artists on Spotify, which is effectively 70% of all Spotify revenues. What is a Ponzi scheme?
“A Ponzi scheme is a fraudulent investment operation where the operator provides fabricated reports and generates returns for older investors through revenue paid by new investors, rather than from legitimate business activities or profit of financial trading. Operators of Ponzi schemes can be either individuals or corporations, and grab the attention of new investors by offering short-term returns that are either abnormally high or unusually consistent.
Companies that engage in Ponzi schemes focus all of their energy into attracting new clients to make investments. Ponzi schemes rely on a constant flow of new investments to continue to provide returns to older investors. When this flow runs out, the scheme falls apart.” https://en.wikipedia.org/wiki/Ponzi_scheme
Hence Spotify’s IPO in April 2018. Let’s spread the Spotify investing scheme to the public. Let’s leave them holding the bag. Since Spotify opened its portal for business in 2008, it has yet to turn a profit and yet the investors flocked to the emperor with no clothes on April 3, 2018.
“Spotify is growing fast, losing money, and burning through a common measure of cash flow. According to its prospectus, between 2015 and 2017, revenues grew at a 45% annual rate to €4,090 million. In 2017, Spotify reported a net loss of €1,235 million, nearly six times more than it lost in 2015, and its Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) was negative €324 million.” https://www.forbes.com/sites/petercohan/2018/04/04/3-reasons-not-to-buy-spotify-stock/#71775b002ffc
Do you see my point? And yes, the Spotify IPO generated a little over $26 billion in new investment money. Can you spell P O N Z I?
Ok, well maybe I’ll give them the benefit of the doubt and maybe they raised that money to buy the labels out so they could run their shop more like Netflix, where they become the content providers, essentially becoming the labels, removing the middle man and lowering costs. Hmmm, I’m not so sure. The labels still own so much content it is a hard one to swallow. People don’t consume movies like they do music.
Music follows us with an emotional response that brings us back to a time and a place. We never get tired of hearing our favourite song. Movies just don’t have the same grasp over our emotional memories as music. Music allows US to fill in the picture with the memories we associate with a time, place and even person. I’m not buying the Netflix model in the short-run. It would take generations to make new music wield the same power as The Rolling Stones today.
But there might be hope for our wishes-fulfilled-bunch at Spotify. Recently, Spotify asked select customers if they would pay for a bundled Spotify service with a data only mobile plan. Coincidently, one of the founders of Spotify, Martin Lorentzon, is also on the board of Telia Sonera, a mobile network operator. Could this be going somewhere? Is there really a method to the madness? I guess only time will tell.
Or do we look for a new model, since this one has yet to catch fire after a 10-year run? If you’re interested, I have an idea for the music industry. One that will make money for its investors. Shoot me an email on my website, if you’d like to hear it.
Information taken from the following websites: