Hello, hello! I’ll keep this introduction short. If you enjoy this newsletter, you can support it by recommending it to a friend or contributing to my Patreon. Also, if you have any questions or thoughts you might wanna send my way, my email is firstname.lastname@example.org. Thank you, readers, for your continued support!
A Unique Role
Earlier this year, Will Page, Spotify’s former Chief Economist, wrote a story for Billboard titled: “Have We Hit Peak Streaming Yet? What's Up With China? Behind the Latest Music Industry Numbers.” The piece dove into statistics provided by the International Federation of the Phonographic Industry’s 2019 Global Music Report. Page observed that while Nordic countries are the most mature markets for music streaming (Spotify was founded in Sweden), there remains room for continued growth. That should provide some relief for investors concerned about a potential slowdown in subscriptions in the not-too-distant future. But before I dive back into that hypothesis, a little more about Page.
Last summer, Will Page stepped away from Spotify to begin writing his upcoming book, Pivot. He started at the company back in 2012, not long after it launched in the United States and many months before it acquired Tungio, which would go on to shape the company’s playlist strategy. His arrival also predates Spotify’s rise, particularly in Latin America, through mobile phone adoption. Even when Page still worked for PRS for Music in the United Kingdom, however, he outlined the economic argument in favor of Spotify’s subscription business against the looming bogeyman of piracy.
In Spotify Teardown, the author characterized the early 2010s as being a moment of fluidity for the company. As Spotify wanted to break into the American market, it was being pushed away from its roots in advertising and towards the subscription business. This shift was caused by the global financial crisis as well as pressure by major labels to make subscriptions, rather than advertising, the main source of revenue for the company. Page’s PRS for Music paper was an early attempt, along with Ek's own blog at the time, to help sell the company’s new path forward to the record industry. This tactic of hiring economists as a public relations effort would become increasingly common at tech firms over the decade
The economist role within tech firms is still a relatively new phenomenon, but a 2014 Washington Post piece provided a concise headline for the trend: “Chief Economists are the New Marketers.” The story highlighted that many of these economists were hired to act as a more authoritative public spokesperson rather than to provide economic insights. This contrasts a bit with a paper from last year in the Journal of Economic Perspectives that followed the trend of companies like Amazon and Microsoft hiring dozens of economists to analyze the companies’ internal workings. While the scope of the projects might differ, the economists served similar roles: promoting a corporate viewpoint to external audiences.
Neither Napster nor Myspace employed someone purely to fight an ideological battle for the company’s existence. For a while, Page’s role was to make the argument for Spotify to an industry and media that was skeptical of such an idea. The throughline from Page’s work at PRS to Spotify could even be seen in his written testimony to the American Copyright Royalty Board, in which he wrote: “Ultimately, my testimony shows that Spotify's freemium model has helped the recent recovery in the U.S. music industry revenues...” Nearly a decade later, under a new employer, Page was rehashing an old argument in favor of the streaming giant.
Last year, Page and David Safir wrote a paper that raised a number of concerns around the topic of user-centric streaming. I won’t pick through the entire paper, but two examples stuck out to me. First, Page and Safir mention that user-centric will hurt artists whose audience listens to a lot of music. In my eyes, this is a bizarre issue to raise considering Spotify is the company that often champions diverse music listening without articulating how artists can benefit from such activity. (I could write an entire newsletter about how the fetishization of “diverse listening” ties to the company’s playlist culture, but another day.) Then, the paper cites concerns over operational costs with regards to user-centric streaming, and repeatedly raises the idea of there being “unintended consequences” to the method. This is why Page’s fascination with peak streaming caught my attention.
Are We At the Top?
The coronavirus pandemic quickly shined a light on broader pre-pandemic industry trends. Last year, according to the RIAA, streaming accounted for 80% of music industry revenue, which is why the spring shutdowns of entire countries didn’t just see music sales jump off a cliff, like what happened for live music companies. Instead, record labels took an initial hit, as did Spotify’s advertising business, but by the summer there appeared to be a rebound once restrictions were lifted and listener behavior adapted. This new reality does make me more curious about potential limits to streaming, particularly because recorded music hasn’t diversified over the last decade.
Last month, Page wrote in Billboard about the future of streaming, focusing on the concept of “peak streaming.” “Peak streaming” is a riff on the phrase “peak oil,” the idea that there is a limit on the earth’s supply of oil that can be mined. (In the context of the music streaming business, consumers are the oil.) Page writes (emphasis mine):
But the 1:1 ratio of subscriptions to households, which the United States has now passed, is the point when the traffic light goes from green to yellow. Regardless of how much growth there is, the days of easy, viral expansion are behind us. The subscribers ahead are the ones who can only be reached with marketing — just like much of the oil we’re now producing requires expensive extraction methods like fracking.
Unfortunately for streaming platforms, we’re now at the fracking stage (!) of finding new customers. At first glance, this makes sense. Spotify’s well over a decade old in many of its most mature markets, and though the shift from desktop to mobile usage was huge for the company, there have been few new developments that could create similar opportunities for growth. This is all a fairly intuitive read on music’s current digital political economy, in which the entire record business is centered around streaming, whereas other modes of revenue struggle with fairly anemic investment and follow-through. What’s odd to me is the conclusion Page reaches through this analysis (emphasis mine):
At the same time, services may need to raise prices — which haven’t really changed from $10 a month in the United States since Rhapsody launched in 2002 — in order to maintain revenue growth. Other options include more exclusive content, which can be expensive (Spotify has exclusive podcasts, but they’re all available on the service’s free tier), and tightening the restrictions on family plans to encourage kids (or anyone) to subscribe on their own. Since every service is facing the same challenge at once, competition could get brutal.
If you’re Apple, Amazon, or YouTube, there’s little real concern about there being a limited number of paying consumers. Music press might tip-toe around this fact, but it’s clear that music streaming’s profitability isn’t a priority for these firms. That doesn’t mean there aren’t individual teams tasked with making sure numbers on graphs are going up, but if Apple Music were competing with Spotify, we would not go months (or years) between official releases of subscriber numbers. (The same goes for YouTube.) But Spotify does care! The company still needs to prove to investors it can become a sustainable business, so Page’s concerns around user acquisition are valid. The concept of “peak streaming” is less about an actual threat to the music industry as it is a way to head off potential investor concern. There may be a day companies max out on people's willingness to pay for music streaming, but they will have moved on to a new monetization strategy well before such a concern enters their front mirror.
Hot Pod, the podcast industry newsletter, yesterday put out a statement from Gimlet, Paracast, and The Ringer to continue to ask for good faith contract negotiation. I am a former member of the Writers Guild of America East, which represents these works, so full solidarity with them in this fight. Also yesterday, Spotify announced its $235 million acquisition of Megaphone , a podcast advertising company. I hope that these unions aren’t afraid to turn up the heat in negotiations, because Spotify’s certainly got the cash to burn.
A Note of Financialization
Bloomberg reported that Bytedance, TikTok’s owner, might be looking for $2 billion in funding that could value the company at $180 billion. This is an absurdly comical number, but Bytedance is the owner of multiple platforms (Douyin, Toutiao) with hundreds of millions of users, which it might plan to spin-off and IPO. One of the groups mentioned as a potential investor is the nearly fifty year-old venture capital firm Sequoia. People can rest a bit easier knowing the money made from shoving advertisements between videos of teens dancing across the globe will return home to North California.
6 Links 2 Read
Podcast Overlords - The Baffler
Liz Pelly is back, this time looking at Spotify’s podcast business. Always a fan of Liz’s work and certainly appreciate her connecting musician and audio worker's struggles against Spotify.
Spotify's Conundrum: More Subscribers, More Problems - Billboard (Subscription)
Internal strife, external pressure from musicians, and the constant critique from underpaid songwriters; Spotify continues its maturation into a firm with an ever-growing dissatisfied constituency, congrats!
Could Podcast Growth Mean Higher Per-Stream Spotify Rates? - Music Ally / Discovery Mode: Understanding How Spotify Thinks - Music Industry Blog
There is an increasingly loud sound of tail spinning with newer coverage of Spotify. Part of it comes from music press/researchers understanding that the company is pivoting to center on podcasts, not music, but also that some of the most obvious moves (e.g., increasing prices) are at this point a matter of when, not if. Thus, the commentary will keep repeating these rather obvious paths until Spotify makes them true. The idea that increased podcast listening could increase the payouts for rights holders is intriguing, but I guess we’ll have to wait and see if such an assumption holds.
Gen Z’s Take on the Future of New Music Discovery - Water and Music
Cute little profile on aspiring Instagram-first music discovery publications. I haven’t been on Instagram in years, but these efforts do seem fascinating. Also, I find it interesting these are all by kids who were/are studying music in college, so I’m curious to see how much they invest in these projects before a full-time industry job pulls them away.
Does TikTok Have More 'Dreams' Up Its Sleeves? - Billboard (Subscription)
Viral Trends: Classic Rock Edition. Always good to see the desperate scramble to make sure those profiting off a song don’t miss a window of free marketing.
Singing When Times Darken - New Socialist.
A nice history lesson on British music labor over the last one hundred years. Really appreciate the contrast between the level of support musicians were offered in the early twentieth century and how Britain's newer, generally black-led styles (Reggae, Jungle, Grime, Grill, etc.) were instead often vilified by the government. This is a key part of western music history and that should remain central to the vision of a fairer music future.
The Penny Fractions newsletter arrives every Wednesday morning (EST). You can support via Patreon or follow on Twitter. If curious, here is the newsletter’s budget sheet. Artwork is produced by graphic designer Kurt Woerpel, and the newsletter is copy edited by Mariana Carvalho, with additional support from Taylor Curry. My current job is Program Manager at SoundCloud, so all thoughts here represent me, not my employer. Any comments or concerns can be sent to email@example.com.