In the internet era, and now with the rise of artificial intelligence (AI), the music industry has been forced to constantly adapt. Compact discs gave way to digital downloads and streaming, and new business models were born. More recently, audio-streaming services have needed to adjust to the demands of artists and record labels. For streamer Spotify, these demands have brought about both disappointing impasse and win-win negotiation over the years.
When Taylor Swift Took On Spotify
Spotify launched in 2006 with a two-tier system: Some of its users pay a subscription fee to listen to streamed music (and other audio content) free of advertising; the rest listen to the content (and ads) for free. Spotify’s subscription tier pays higher royalty rates to artists than its free tier.
As music streaming caught on, Taylor Swift and other artists complained that the royalty rates that streamers such as Spotify paid were too low. In the lead-up to the October 2014 release of her first pop album, 1989, Swift and her then-record label, Big Machine, told Spotify they wanted only the company’s paid subscribers, and not those listening for free, to have access to her new songs. As Swift expressed in a July 2014 Wall Street Journal op-ed, “It’s my opinion that music should not be free, and my prediction is that individual artists and their labels will someday decide what an album’s price point is.”
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Spotify denied Swift’s request to keep her music off its free tier. In response, Big Machine asked to have her entire catalog taken off the site. Swift also took her music off of Pandora and other streaming sites. The decision was a blow to Spotify and other streamers, whose success depends heavily on their ability to provide users with new music. Swift left her music on Apple’s streaming service after the company agreed to pay artists royalties during its three-month trial period.
Notably, Swift, as a top-selling artist, had a unique ability to walk away from Spotify. By contrast, most musicians had to “follow fans where they are, and that’s on streaming services,” writes Victor Luckerson for Time magazine.
Eventually, without changing its business model, Spotify raised its royalty rates and lured back Swift in June 2017. The two have had a win-win relationship ever since: Swift’s album The Tortured Poets Department, launched on April 19, 2024, broke a Spotify record with over 300 million streams in a single day.
A Time to Change
By 2022, streaming accounted for 84% of recorded music revenues in the United States. But, following several boom years, growth slowed in streaming in the early 2000s, according to Bloomberg. At the same time, record labels became increasingly unhappy with the model streamers use to divide up royalty payments. Most of them pool together ad and subscription revenue, then pay artists based on their share of the total streams, according to Music Business Worldwide (MBW).
“That may sound fair at first glance,” according to MBW, “but as the music industry is currently discovering, the pro-rata model can be ‘gamed’ in favor of small (and sometimes unscrupulous) actors who siphon off the potential earnings of legitimate artists.” Making matters worse for record labels, content providers have diluted the pool of money to be divided by uploading huge numbers of cheaply produced tracks, such as white noise and AI-generated content, to streaming services.
Universal Music chief Lucian Grainge and other music studio heads pushed to negotiate a new royalty system with Spotify, SoundCloud, and other streamers.
Toward Win-Win Negotiation
The situation could have led to another standoff, but Spotify pursued a win-win negotiation model rather than exercising its best alternative to a negotiated agreement, or BATNA, and standing firm. In October 2023, following conversations with leaders at major record labels, Spotify adopted a new royalty system that implemented several major changes.
First, only tracks that generate 1,000 or more streams in a year will qualify for royalty payments. This disqualifies two-thirds of tracks on Spotify, according to Variety. (One thousand streams adds up to only about $3 in revenues for artists on Spotify, so the loss is not significant for individual artists. Rather, the change targets distributors who upload large numbers of fraudulent and cheaply produced tracks.)
Second, under the new model, Spotify has begun to impose financial penalties on distributors and labels that upload tracks with fraudulent activity on them. Third, nonmusic tracks, such as bird sounds and white noise, must be at least two minutes long to generate royalties on Spotify.
The new model appeared to be a win-win negotiation (or even a win-win-win) for Spotify, record labels, and recording artists. Record companies praised the changes, which Spotify predicted would generate an additional $1 billion in royalties for artists over five years. Spotify itself benefits from improved relationships with artists and labels. For the major parties, the win-win model was a far more satisfactory outcome than the standoff that drove Swift and Spotify apart years ago—and a testament to the value of pursuing win-win negotiation.
What examples of win-win negotiation in the news have you observed lately?
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Calling this a win for Taylor Swift fans sounds strange to me, as they lost access to a very convenient and cost-effective way of listening to Swift’s music. For Swift and the music industry, if this can be called a win at all it will likely be a very short term win in my opinion. Her album sales are not directly related to what she could have earned (in addition) through Spotify, especially in the long run. This is not a win-win-win by any means.
Really? Spotify the loser? Come on, I think it was a god send to get that horrible singer off there. She’s actually done us a world of favor taking her songs off there that seem to be only about the guys she’s slept with. While She may be the highest paid musician in the States, taking her catalog off Spotify will only give room to other upcoming and more talented musicians. In my opinion, Spotify works like a radio station, it promotes music while you have to listen to adverts who sponsor the radio station. Even if Spotify has paid her royalties, without spotify I think those little children who can’t afford to buy her songs, would not have access to her. So spotify is doing them and her a favour by paying the royalties and promoting her music. The biggest loser? Her.
Yes, you are right about Spotify.