Daniel Ek, Spotify…Daniel Ek, Spotify…Daniel Ek, Spotify? Ek owns nearly 9% of the Spotify shares, but has 37% of voting control?!
An Editorial by Dawoud Kringle
Daniel Ek was born February 21st, 1983 in Stockholm, Sweden. He graduated high school from IT-Gymnasiet in Sundbyberg in 2002, and subsequently studied engineering at the KTH Royal Institute of Technology before dropping out to focus on his IT career. At age 13 he started a business making websites for clients from his home. This was successful; he went from charging $100 to $5,000 per website. Ek soon recruited students from his class to work on the websites from the school computer lab (he was reputed to have bribed them with video games). His earnings eventually reached $50,000 per month and by age 18 he was managing a team of 25.
Ek later served in a senior role at Nordic auction company Tradera, and served as the CTO of Stardoll. Ek later started Advertigo, an online advertising company, and sold it to TradeDoubler in 2006. After selling Advertigo, Ek briefly became the CEO of μTorrent, working with μTorrent founder Ludvig Strigeus. This ended when μTorrent was sold to BitTorrent on December 7 of 2006 (Strigeus later rejoined Ek as a Spotify developer).
Ek conceptualized the idea for Spotify in 2002 when he “realised that you can never legislate away from piracy. Laws can definitely help, but it doesn’t take away the problem. The only way to solve the problem was to create a service that was better than piracy and at the same time compensates the music industry – that gave us Spotify.” In 2006, Ek incorporated Spotify AB with Martin Lorentzon (co-founded TradeDoubler) in Stockholm, Sweden. In October 2008, the company launched its legal music streaming service Spotify. Initially, Spotify ran on a peer-to-peer distribution model, similar to uTorrent, but switched to a server-client model in 2014. Ek serves as CEO of Spotify. In October 2015, Lorentzon announced he would be stepping down as Chairman and Ek would be taking over alongside his current role as CEO.
The company has more than 180 million users, 87 million of whom are paying subscribers.
In 2017, Billboard Magazine named Daniel Ek the most powerful person in the music industry. Ek owns nearly 9% of the shares, but has 37% of voting control. In September 2020, Forbes magazine reported Ek’s real time net worth to be $3.7 billion.
Its obvious Ek is a success. But with Spotify, his company’s success comes at the expense of the musicians who produce the product he sells.
Spotify pays an average of $0.004 per song stream. The model by which this figure is calculated factors Spotify’s monthly revenue with artist’s streams verses Spotify’s total streams. 70% of this goes (theoretically) to the owners of publishing. The artist payout is then calculated from the artist’s royalty rate. The data clearly listed payments going to “rights holders,” not artists. It should be noted that an artists’ royalty rate is set out in contracts with labels, publishers, etc.; not through Spotify.
Spotify claims to have paid out $500 million to rights holders in 2013 alone, which down to between $0.006 and $0.0084 per single song stream. How much of that money gets to an artist depends on a variety of factors such as what country the streams come from, percentage of Spotify users who pay for services, and specific artists’ royalty rates.
In July 2013 they list the royalty payments for various albums they categorized in vague genre terms. A “niche indie album” earned $3,300, while a “breakthrough indie album” netted $76,000. A “Spotify Top 10” record earned $145,000, and a “global hit album” made $425,000.
Spotify believes that they view ‘per stream’ metrics as a highly flawed indication of their value to artists. They argue that as their paid user population grows, the pirating population decreases, and the amount of revenue Spotify earns for musicians increases. This, despite the vague mathematics, and the insultingly low payouts.
How low – and insulting – are these payouts? Hip hop artist L Dre reported on his YouTube channel that he received a royalty of $4,345.77 for 1.5 million streams. Cellist and composer Zoë Keating earned $6,800 from January to September 2019, at a royalty of $0.003 per stream. In 2019, Peter Frampton got paid $1,700 for 55 million streams of “Baby I Love Your Way.”
Spotify held a 35% global share in 2019 and set the standard at $0.004/ stream (this is 1/3rd of what Tidal offers – : $0.012 per play – and nearly half of the Apple Music payout of $0.007 per play. YouTube is the worst of them all at $0.00069 per stream).
Let’s look at this from another perspective. According to the Assistant Secretary for Planning and Evaluation (ASPE), the poverty line for single-person households is $11,770 (If we ignore how that figure would be hard for anyone to live on in a major city, we can round up to $12,000). At an average payout of $0.006 per song stream, a musician living in the United States needs 3,000,000 plays annually to have a gross income of $12,000. Musicians with families must be calculated differently. The ASPE puts the poverty line for a family of four (2 adults, 2 children) at $24,250. Using the same average royalty rate, a musician would need 6,062,500 Spotify streams to earn that amount of gross income. Of course, the numbers get much bigger when the musician is part of a larger group. If a band has four members and all four have families where they were the sole source of income, the group would need to generate 24,250,000 Spotify streams to gross enough so each member’s family would be at or above the poverty line. And if the artist has a label deal, the record company would get paid before the artist. This also does not factor business and other operating costs. If it did, the artist will need many millions of addition plays to see the same amount of income themselves.
It shouldn’t surprise anyone that’s even vaguely familiar with the music industry that Spotify doesn’t think it’s doing anything wrong.
In fact, they believe the artists are at fault. Ek was recently quoted as saying “There is a narrative fallacy here, combined with the fact that, obviously, some artists that used to do well in the past may not do well in this future landscape, where you can’t record music once every three to four years and think that’s going to be enough. The artists today that are making it realize that it’s about creating a continuous engagement with their fans. It is about putting the work in, about the storytelling around the album, and about keeping a continuous dialogue with your fans.”
Ek’s vision of a changing future in the music industry is contemptuously blind to the everyday economic realities that musicians are forced to face – the same musicians who actually produce the product he sells.
Given the current economics of major streaming services, this forces musicians into an impossible situation. A musician spends on average $5,000 to produce and promote a song properly (a 10-song album would cost over $20,000). Factor in an average of $5,000-$15,000 to produce a music video, PR and marketing costs, and the artist’s time to write, compose and produce the record. Now, let’s say that the song got 1 million streams at $0.004 per stream. The artist would be paid $4000. There is no mathematical model this side of psychotic delusion that could allow the artist to break even.
The professional musician is forced to figure out where he / she will get the money to finance this one-sided business deal – especially in this time of a pandemic, where no shows or tours means no income.
Ek’s statement admonishing musicians to produce more music in a business model that inexorably kills the goose that laid Ek’s golden egg shows his elitist and dehumanizing attitude toward professional musicians and their work. It is a horrible irony that Ek was once quoted as saying that he started Spotify in order to combat online music piracy, and to help musicians earn a living wage. Yet he set up a business model that requires each musician to have approximately 3000 streams every hour in order to earn streaming royalties equaling minimum wage (and of course, this doesn’t begin to cover production and other business costs, as was mentioned earlier).
As of this writing, Ek pledged $1.2 billion of his own money into new ecosystems of science and biotech. Mind you, while he has every right to invest his money into whatever he sees fit, not a penny of this is being invested in the music industry. His plans spit in the face of every musician whose work he leeched his billions from.
It is obvious that the Spotify business model has been instrumental in bringing the music industry to its knees, and has taken cruel and contemptuous advantage of the recent collapse of the events industry.
I am confident in saying that Daniel Ek is an enemy of all professional musicians. I am also confident in saying that this may be the final nail in the coffin of the music industry. If professional musicians are to survive, we need to take aggressive, innovative, and drastic action to design a business model that works in our favor.