Making Cents: Why Are Pandora and Spotify in Business?
Like many people, I subscribe to Spotify to get a huge library to listen to and also to know that my subscription pays to compensate the artists. Well, I guess that is sort of true.
Consider Pandora and Spotify, the streaming music services that are becoming ever more integrated into our daily listening habits. My BMI royalty check arrived recently, reporting songwriting earnings from the first quarter of 2012, and I was glad to see that our music is being listened to via these services. Galaxie 500’s “Tugboat”, for example, was played 7,800 times on Pandora that quarter, for which its three songwriters were paid a collective total of 21 cents, or seven cents each. Spotify pays better: For the 5,960 times “Tugboat” was played there, Galaxie 500’s songwriters went collectively into triple digits: $1.05 (35 cents each).
To put this into perspective: Since we own our own recordings, by my calculation it would take songwriting royalties for roughly 312,000 plays on Pandora to earn us the profit of one— one— LP sale. (On Spotify, one LP is equivalent to 47,680 plays.)
But here’s the rub: Pandora and Spotify are not earning any income from their services, either. In the first quarter of 2012, Pandora— the same company that paid Galaxie 500 a total of $1.21 for their use of “Tugboat”— reported a net loss of more than $20 million dollars. As for Spotify, their latest annual report revealed a loss in 2011 of $56 million.
Leaving aside why these companies are bothering to chisel hundredths of a cent from already ridiculously low “royalties,” or paying lobbyists to work a bill through Congress that would lower those rates even further— let’s instead ask a question they themselves might consider relevant: Why are they in business at all?
The answer is capital, which is what Pandora and Spotify have and what they generate.