Will Spotify remain independent? Should he?
Discovery Mode, a new tool from Spotify that allows artists and labels to accept a lower royalty rate on singles in exchange for prioritization within Spotify’s algorithm, has been controversial to say the least. Congress is investigating, along with the chairman of the House Judiciary Committee, the representative. Jerry nadler (D-NY) and the Courts, Intellectual Property and Internet Subcommittee. Hank Johnson Jr. (D-GA) raising concerns in June letter to CEO Daniel Ek that the product could lead to a “race to the bottom” as artists seek ways to break into an increasingly competitive field.
Spotify has gone on the offensive, bringing in distributors such as DistroKid (more on that later) and Believe Music, as well as its subsidiary TuneCore, to sing its praises as a tool for independent artists to gain in marketing. without the initial costs.
Much like public perception, industry executives are divided on discovery mode, with as many supporters as detractors across the spectrum. “Spotify has always expressed a model of devaluing music,” says one CEO. “If this was a designer friendly business, it would be considered more harmless. Another C-suite executive said transparency was essential for Spotify to overcome doubt in the industry. “Unless they’re fully transparent about how the algorithms work and the percentage of revenue, it’s very difficult to adhere,” they said.
Others call it a big step for new artists, with one founder pointing out that artists don’t have to spend on TikTok to smash a song if Discovery Mode works as promised. “At Tower Records, you could pay to have your CDs turned outward or over the top,” notes one investor. Discovery mode is “more like the retail marketing function, it’s important to allow recordings to kick in,” they say.
Expect to hear more on this in the coming months as Congress gets back to work after Labor Day.
Will Spotify remain independent – and should it?
Spotify is growing slower than in previous years, its profitability is negligible, and the company’s main competitors are callout products for their respective companies (Apple and Amazon), which can inject millions into them at any time. Ek would also like a lot buy Arsenal, an English football team valued at $ 2.8 billion per Forbes, that would cost Ek around 75% of his net worth if he were to own it himself. All of this leads to the inevitable question of whether the world’s largest independent music streaming service will stay that way for the foreseeable future, and whether the music industry needs an independent alternative for streamers to continue to innovate.
“A year ago? I could see Microsoft buying Spotify,” one CEO said. “Now? It’s very difficult with mergers and acquisitions. It is getting harder and harder to buy it. The newly emboldened Federal Trade Commission – headed by the President Lina khan, a longtime proponent of splitting up big tech conglomerates – would likely be hell if a tech giant tried to buy Spotify, but several executives have mentioned Netflix (including co-CEO Ted sarandos serves on Spotify’s board) as a potential partner for a “non-traditional merger based on the streaming economy,” as one investor put it.
“The industry needs them so they won’t be bought off by a tech company,” says another CEO of Spotify. “We need competition, and we need a big player that isn’t Apple or Amazon.”
DistroKid joins the billion dollar club
Independent distributor DistroKid – which more than 2 million artists use – is now worth $ 1.3 billion after raise funds from Insight Partners in mid-August. This raises two main questions: Is DistroKid a tech startup or a music startup (which are traditionally less valued than tech companies)? And what will happen to the power dynamics within the industry over the next decade if independent distributors like DistroKid and Believe Music (valued at around $ 2 billion on Euronext Paris) continue to raise technology company assessments?
“It looks like a tech startup. I don’t know why we don’t call it a tech startup, ”a CEO said of DistroKid, noting that“ this is a testament to the huge amount of music consumption going on right now ”.
“The power dynamics will change with these valuations,” says one longtime music investor. “If the music industry hasn’t realized that the power dynamics have changed, they are blind. Yes [DistroKid CEO Philip Kaplan] distributes a third of the music in the world, he is one of the most powerful people in the music industry.
Another investor asserts that the power dynamics will not change in the short term, but says, “We are in the early stages of a new era of institutional societies.”
Startups like DistroKid still have a long way to go before they become institutional organizations in the music industry, but the rate at which tech startup valuations are increasing is making music startups icy cold. Last year, when the Trump administration tried to force Chinese conglomerate ByteDance to sell TikTok, investors valued the abbreviated video platform at around $ 50 billion, according to Reuters.
TikTok was launched in 2017.