Tuesday, September 1, 2020

Artist ownership is the way to fix Spotify’s broken streaming model (guest column) | Music Ally

This guest column on artist ownership of Spotify comes from Austin Robey, co-founder of Ampled:

Collective artist ownership is the only way to fix Spotify.

If artists can collectively own platforms like Spotify, we can address the underlying problem that drives their incentives and decision making. As a for-profit, publicly traded corporation, Spotify has no responsibility to artists. Its only binding fiduciary responsibility is to seek profit and to increase shareholder value.

This dynamic inherently misaligns shareholder interests with artist interests. It’s why Spotify internally refers to payouts to artists as “content costs” or “costs of revenue.”

To address this, we should assert collective pressure against Spotify to create a trust of artist ownership. In order for Spotify to begin to serve artists interests in any meaningful way, artists must collectively become a powerful shareholding bloc.

Artist ownership

Artist ownership of Spotify could be accomplished a few ways. One way is a leveraged buyout. But, since Spotify is a publicly traded company with a $47bn market cap, this isn’t very practical. It’s unlikely that artists already kneecapped by Covid-19 would ever be able to pool together enough money to purchase a company on the New York Stock Exchange.

However, there is another way to create artist ownership: Spotify can issue new shares and create a significant trust of ownership for artists. A campaign could be organized to pressure Spotify to issue $1bn worth of non-trading shares and place it under the control of artists on its platform.

This can be accomplished both by collective action and by mobilizing Spotify shareholders who agree with this plan to introduce a shareholder resolution to study the idea.

Although it may sound like a lot, in context $1bn isn’t much to ask for. In the months since social distancing measures started in March, the value of Spotify CEO Daniel Ek’s ownership alone has grown by over $2bn in value.

How it can work

A plan like this would give artists control and financial benefit in Spotify while shares continue to trade on the public markets.

An artist trust should necessarily include several seats on their board of directors. All of Spotify’s $47bn market cap is created by artists, but not a single artist sits on the board and has any real say.

Artists could elect board representatives and vote on major decisions through elected representatives or provisional proxies. This would give artists power at the highest levels of Spotify’s corporate governance.

While a campaign like this may seem unorthodox, there is precedent for action like this. In 2017, the #buytwitter campaign was able to introduce a shareholder resolution for Twitter to study a conversion to a user-owned cooperative.

Who owns Spotify?

Spotify’s current shareholders are cabal of global conglomerates. Outside of the two founders of the company, the largest shareholders are multinational investment management firms and asset holding companies like Morgan Stanley, Bailey Giffords & Co., and T. Rowe Price. Other large shareholders include Sony Music and Universal Music, two powerful publicly traded major record labels.

The risks of inaction are clear. Unless there is a significant shift of power at the ownership level, we’ll see more economic inequality, exploitation, and value extraction from artists. Groups like the Union of Musicians and Allied Workers (UMAW) are currently organizing a coalition of music workers and allies to take action directed towards Spotify.

The #brokenrecord campaign, organized by musician Tom Gray, continues to help highlight the inequities of Spotify’s payouts to rights-holders. Artist-led efforts like these could be part of a greater campaign to address systemic problems in streaming. Yet, without ownership, artist interests will always come second to shareholders.

A meaningful step forward

An artist trust won’t solve all of the problems in the streaming economy, but $1bn in ownership for artists is a good place to start. Today, a $1bn stake in Spotify’s ownership, would be roughly equal to 2% of the company, which is much less than the value artists generate for the platform.

Artists are undeniably the most important part of Spotify’s value chain. Without artists, Spotify would be worthless. Accomplishing a collective ownership stake for artists wouldn’t completely fix Spotify, but it should be something to say “yes” to.

It’s worth acknowledging that there is a risk in moving towards what artist Mat Dryhurst calls “streaming fatalism,” the idea that fighting Spotify can be a distraction from building constructive alternatives, which can result in a tacit acceptance of the inevitability of streaming. By fighting for artist ownership, we should be mindful to not accept the premise of streaming models as the inevitable future of music.

This push for artist ownership doesn’t have to stop at demanding a $1bn artist trust, and it doesn’t have to stop at Spotify. Even a small success could dramatically move the Overton window of what we collectively view as possible. Our cultural conversation could begin pivoting towards an advocacy of collective ownership and cooperativism – across all platforms.

It’s unclear whether Spotify will be responsive to a campaign for artist ownership, but if there’s any time this kind of collective action can work, it’s now. It’s in times of flux that previously unimaginable cultural and society shifts can take root. And, in the end, popular opinion is likely on our side.

Most people would probably agree that artists generate significant value for Spotify and should, by extension, have some benefit in the value they create. How many people would find that to be an unreasonable position?

Beyond public sentiment, Spotify’s largest investors could agree with a proposal like this as well. Baillie Gifford & Co., which holds 11.9% of Spotify ownership, advocates on its website for treating all stakeholders in a “fair and transparent manner.”

Few people would agree that artists, a critical stakeholder group for Spotify, are treated fairly today. Large institutional investors love proclaiming the virtues of socially responsible investing. This could be an opportunity for them to put their money where their mouth is.

Why Spotify should agree

What’s in it for Spotify? One cynical upside: potential to increase shareholder value. Due to unique artist participation and positive attention, a bold action like this could feasibly increase the value of Spotify shares – in addition to helping launder their reputation. The non cynical reason to do it: it’s the right thing to do, irrespective of shareholder interests.

Unfortunately, even if Spotify’s leadership does see potential value in creating a trust of artist ownership, they will almost certainly resist any form of artist governance. Putting artist representatives on Spotify’s board shouldn’t seem like an unrealistic demand, though.

In Europe, several countries have existing laws that require worker representation on large company boards. For instance, in Germany, companies with over 2000 employees are required to have half the supervisory board of directors as worker representatives.

While artists, as a stakeholder class, may be more accurately classified as “producers” than “workers” at Spotify, the principles of codetermination are the same. Artists are affected by Spotify’s decisions, and should therefore have a seat at the table.

The first step: a shareholder resolution asking Spotify to study the idea. A $1bn trust of artist ownership and artist representation on Spotify’s board of directors.

Whether we take action or not, we know that shareholder interests will always precede artist interests unless artists collectively own platforms. But if we can organize and rally around concrete proposals like this, we can win significant victories towards a vision of artist ownership.

A proposal like this can be one step of many in shifting systemic power back towards artists and helping create a more equitable arts economy for all musicians.”

Austin Robey is the co-founder of Ampled, a cooperative platform collectively owned by its artists and workers – read our recent profile of the company here. You can find him on Twitter as @austinrobey_

Music Ally

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