Odd Lots - The Real Reason So Many Musicians Are Frustrated By Spotify

Episode Date: April 1, 2022

Earlier this year, there was a growing movement among some musicians (lead by Neil Young) to remove music from Spotify as a protest against Joe Rogan. But frustration at the streaming music giant goes back a lot further than that. And it has to do with how royalties are paid, and the lack of transparency about how music gets discovered on the service. On this episode of Odd Lots, Tracy Alloway and Joe Weisenthal speak with Damon Krukowsky, the former drummer of the indie rock band Galaxie 500, and one half of the duo Damon and Naomi. He gives us his perception of industry economics, and explains his frustration as an independent musician with how the service works.See omnystudio.com/listener for privacy information.

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That's vanguard.com slash audio. All investing is subject to risk vanguard marketing corporation distributor. Hello and welcome to another episode of the Odd Lots podcast. I'm Joe Wisenthal. Unfortunately, my colleague Tracy Alloway is out today. I'm kind of disappointed actually a little bit because even though like Tracy and I have been doing the podcast for several years now, there are some things I still don't know about Tracy. Like I don't really know what kind of music she's into, for example. I've gone to karaoke with her a couple of times, so I know a little bit about what she likes to sing, I think, but in terms of what she listens to, I actually don't know. I was going to ask her, as for myself, you know, like I'm 41 years old, so I have very cliche tastes, I would

suppose I like a lot of old indie rock and I hardly, I'm not very good on keeping up with new music by and large. Pretty much, if I discover new music, it's often, courtesy of the algorithm that Spotify serves up to me. But I don't really know about how it all works and how the industry works and who benefits from this current system. And I've always wanted to learn more. It's particularly interesting now

because, of course, we've had a number of artists take their music off, Spotify, notionally, sort of in defiance of Joe Rogan's role there. But also, I think there's been a lot of musician frustration with Spotify and other streaming. platforms, the new economics of music that long precede any of the current drama. So in light of all that, I want to learn more, and I'm very excited about our guest, because he writes a lot about the economics of the music business and how it all works

and where the money is and so forth. But also, beyond that, he was a member of one of my favorite bands, and so this is personally very enthusiastic. I'm going to be speaking with Damon Krakowski, he was the drummer of the indie rock band Galaxy 500 and currently part of the duo, Damon and Naomi. Damon, thank you so much for coming on Adlaught. Thank you for having me. You know, musicians don't get asked about business very often. I'm really grateful for the opportunity. Will you write a lot about business?

And I guess that's why we could have this sort of music slash business conversation. why do you write about business? Why is it, you know, there are a lot of musicians who probably are frustrated with the economics of the music industry. But you write quite a bit. You've written books. You have a substack. I have a newsletter about it. Why is it important for you to write about music?

Yeah, it's a really, it's a question I ask myself pretty often. So, yeah, I started a substack. It's called Dada Drummer Almanac. And my Twitter handle is Dada Drummer. That's where that came from. And, you know, I started writing about the business of music very accidentally. It's the same way that I had to pay attention to the business of music accidentally, which is from being a musician.

And you just end up at the other end of so many contracts and so many deals and so many accounting reports that, you know, you either, I guess, at a certain, but quickly early on decide, I'm never going to pay any attention to any of this and turn it over to someone who convinces you that they are. or you start reading all that stuff. And there actually are a surprising percentage of us that do read all that stuff. Some just out of necessity because if you don't have a manager or you elect not to or you don't trust your manager or your manager cheats you,

I mean, you know, there's so many ways that musicians end up having to look finally at, even if they didn't want to, at what the hell is going on. And once you take a look, well, it's a big business. And so it's got a lot to learn. It takes a time for you to learn how this came to be. Because musicians tend to be, they come in very young, many are not in the business very long. And the business is oriented toward the next set of musicians that are coming, you know,

not you. You're always, you're just a temporary talent for an industry that has set itself up to deal with a revolving door of talent. And so, you know, things are not explained to you. It's kind of like, who can bother? You know, why bother explaining something to a band? They're only going to be around at best, you know, a few years, a few albums, whatever. We're going to make our money and move on.

So just get what you can. So, you know, there's a lot of that. But then we learned, you know. So what happened to me was our first band, Galaxy 500. You know, we were young. We signed the classic contract that handed over all our rights. And then the record label declared bankruptcy. seek. And our contracts were thrown into a bankruptcy court in Manhattan. I spent over a year

dealing with that trying to extricate our contracts and ownership of our records in perpetuity throughout the universe known and unknown. These are boilerplate things that are typical of music contracts. I know all formats, you know, as yet, undiscovered and all, you know, blah, blah, blah, every contingency. They were just thrown into this bankruptcy court and, and and put up for auction. So I spent a long time, you know, we called our music business lawyer. We had a very fine firm, Grubman and Dersky Schindler, representing us at the time. They were Madonna's lawyer and whatever. And they said, oh, forget it. You know, you have no rights. You have no chance. I mean, you signed that deal. And we're like, you told us to sign that deal.

They're like, well, that's spoiler plate. The company goes bankrupt. You know, it goes into bankruptcy court. It's an, your contracts are an asset. It's like, no fucking way. You know, what do you mean? It's just an asset into bankruptcy court. Our own contracts is like, I understood that the stock from the warehouse went in. I understood that maybe the master tapes had ownership. But I mean, our contracts were, that that was insane to me. So anyway, I was like, no. So I read all the stuff and did my own negotiations, you know, and called up the bankruptcy court appointed lawyer and taught myself the business. And we won. We got our rights. I love that. So, So I'm a Galaxy 500 fan.

I discovered it. I discovered the band, Luna, first three-year-old bandmate Dean Wareham, and then, of course, I went backwards and discovered Galaxy. For listeners who maybe aren't familiar, can you describe, like, I think it's a pretty influential band,

but a little bit sort of like how big you guys were, however you want to measure it, and what kind of contract gets offered to a sort of highly influential, but I don't think like a billboard chart-topping band in the late 80s. Right. No, we weren't a pop band by any measure. And nobody saw us that way, most importantly ourselves.

And so we had no pop ambitions. And there was no question of trying to be world-conquering multimillionaires. So anyway, we were a niche band, an indie band. When we started, it was called College Rock, because it was college radio stations that played our music not commercial stations. And that divide was very significant at the time. It meant the major labels produced music that they tried to get on commercial radio and into the chain store, record stores. And that was their world. And we really had no part of that world. But a lot of people in the music industry were not part of that world, and yet were in the music industry,

and built a fully functioning very, very efficient and good system of distribution and sales outside of that. So we had independent stores in every town. We had college radio stations, which are mostly non-profit, but or community stations also, but played our records. And, you know, the potential on the air, it's the same as a commercial station. So you still can reach people. And we had venues that we played that the major label bands didn't go near. And so we had a fully functioning network. That network was hard won. It had been built by a generation or two of bands before ours. It was really mostly the hardcore scene, actually, from my point of view of kind of white college indie rock more or less, was pretty much

forged by the hardcore bands who went out and slept on people's floors and found alternative spaces to play and built this system. We came in as sort of a more diverse musically, a little bit less 100% male, unfortunately still pretty close to 100%. percent white, which is something that really wasn't discussed or acknowledged nearly enough at the time. But we came in, sort of stepped into that world and opened it up musically, I think, a little bit more than it had been. And so a lot of types of bands went through those channels. To the point where the major labels turned around and realized that there was a market there that our world had developed and was communicating with and selling product to, and they were

not. And that's the explanation of what happened in the 90s. So the major labels kind of realized that they'd missed the boat on a whole lot of music that was potentially more saleable than they thought. So they looked at our scene and they sent their A&R scout, they hired A&R scouts out of our scene, sent them back in to kind of evaluate who could take it to another level commercially. And then there was this really pretty ugly moment in the late 80s, early 90s, where our scene that had existed was destroyed, more or less, by the major labels coming in and investing in it. So what they did was they cherry-picked from bands. They broke up Galaxy 500 by, Galaxy of America was being offered a major label contract of its own. And in its place,

Dean was offered a solo deal by an A&R guy who had worked for our record label, Rough Trade, and the independent label, had been fired by Rough Trade, had told his colleagues at rough trade that he was going to break up our band in retaliation, got a job with Electra, which is owned by Warner Brothers, and offered Dean a solo deal at the same moment that Galaxy 500 was being offered a banned deal by Columbia. So Dean double-crossed us. He signed the deal on his own with a different label instead of signing the deal that we had already negotiated with our mutual lawyer with Columbia. besides old arguments, which are long since, I mean, you know, this is a long time later. But what it illustrates is what happened to the scene as a whole. The deal that we had negotiated with our lawyer as a band with Columbia was going to have complete artistic control. We were going to choose our producer for our records.

We were going to choose our singles for our records. We were going to control our videos. Our lawyer said to us, and this gives you a hint of how this all goes down, our lawyer said to us in our band meeting with him in 57th street conference room. If you insist on that, you will get less money. You understand that. And we all said yes. But of course, I realized in retrospect that Dean didn't necessarily say yes.

He just was sitting there not saying no. So, you know, and then the deal that Dean signed with Elektra solo where he had no negotiating power as a band, because we had built our brand and we had built our audience. that deal was without any artistic control. And so he signed as a solo artist to be shaped by the label. And the band that he then put together were his employees. The label chose his producers, the label chose his singles. The labels ran him a million dollars in debt, as we all now know,

because he has spoken about it in interviews and such. And ultimately dropped the band, of course. That's what happened kind of largely too. to the scene as a whole. Because how do the major labels work? Well, it's like they have a bunch of hits that fund everything else that's not a hit. And everything else is not a hit eventually

just drops off their radar altogether. They're not really in it for anything else. And only the hits fund the business. That's how entertainment generally works as an economic model. It sounds like the venture capital industry too, where you sort of aim for one massive winner that returns 100x on your investment,

and then everything gets sort of tossed by the wayside. Before we sort of move on from like this moment, can you just talk a little bit more about the economics of a Galaxy 500 album in terms of like the income that you were able to generate, both from how much is from album sales versus how much was from the touring that you did? Like what is the, what does that look like? Obviously, yeah, on the indie labels of the time. Right. Well, it all speaks to the same two differing models, really.

Right. So we just talked about the major label model classic entertainment business. And it's interesting to hear you compare it to venture capital. I'm sure it's the same idea. You're basically gambling, but the odds are pretty good that if you have like a thousand pieces of product, you know, one is going to become huge. And you stack the deck by making sure you control the distribution channels and the promotion channels that, all those hits go through. So whatever's going to hit is going to be one of the ones that you have. It's not going to be somebody else's. Right. That's crucial. And that's crucial to looking to what's happened now with streaming. The other model is an independent model, a niche model, which is what the independent world that I was a part of and still am operates on. And that is like, I've always said it's

like running a lemonade stand. It was like, we didn't need any more economic know-how than a kid opening a lemonade stand on those sidewalk. It was like, we had a product, we had to sell it for a couple, a little bit more than we cost us to make. And we had to know who, how many to, how much to make. I mean, that was all it was. It was like, it was just like basic capitalism that any like American five-year-old understands. And that's all we were doing. And that's all any of the bands in our scene were doing. We were pressing records in selling them for more than they were costs us to make and making a small profit. And there was no model that would take that much bigger. But as you well know, on that model is pretty much like every small business, traditional small

business ever. So it was like having like a small grocery store or a hardware store or anything that serves a neighborhood, a community and survives by pays the bills plus than some. And you have a profitable business model. It is not a business model. It is not a business model that attracts capital. Right. Today's show is brought to you by Vanguard. To all the financial advisors listening, let's talk bonds for a minute. Capturing value and fixed income is not easy. Bond markets are massive, murky, and let's be real.

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go see the record for yourself at vanguard.com slash audio. That's vanguard.com slash audio. All investing is subject to risk vanguard marketing corporation distributor. If Belfib TV is now streaming, is it still TV? Is it still TV? if there's no TV box. If I can stream all my favorite channels and pause and record shows,

that's TV, right? A new era of Fype TV. It's streaming, but it's still TV. Well, glad that's settled. Bell, connection is everything. So this is really interesting, and I guess it gets to the heart of the tension here, which is that we all sort of understand

that I mentioned V.C. but I think Hollywood is the same and I guess currently sort of mainstream music, which is it's really about the hits and you aim for one hit out of, I don't know, 100 or 1,000 and it's just so big and so massive

that you could have numerous flops and it doesn't matter. And the tail is very, very skewed towards these megastars. And today, you know, obviously Taylor Swift and Adele and a handful of artists that just sell an abyss. absurd amount. And so I guess the question, and maybe this sort of leads into where we are now,

is like, is the lemonade stand model effectively dead at this point? There's just no other route to music other than, uh, or sort of, yeah, is the lemonade stand model dead in a world of, uh, streaming only? Yes, that's the way to put it. Yeah, in recorded music. Yes. Because what happened was there were, there were parallel methods of distribution and sales and reaching your audience before. And the majors, so the majors, when they broke up, for example, my, I mean, they've done this time and again, but my particular moment, it wasn't like indie rock was like the only time this ever happens, happened over and over and over and over again, in many, many different genres, too, the independent jazz world, that, you know, all these things have

gone through similar cycles. My particular world, you can see it very clearly again, to stick with, references to your generation and my generation of artists. You can see it in Nirvana. Sure. At that moment, the Galaxy Founder broke up was also the moment that Nirvana was signed by Geffen. And we all knew, we were all told. Because Nirvana was on another independent label subpop. They were on our scene. We were playing the same venues that they were. We had all the mutual friends.

Everyone knew before the public knew that Nirvana was going to be a huge hit. And this was going to change everything. And that's also why that's when Dean got signed to a solo contract. Everybody was already in gear looking for more Kirkgo. Baines because it was like, okay, they can take something from our scene and turn it into this other model, which is you have one hit and a thousand failures, and that's just part of the model. Right.

And so what I witnessed on my own little scene in the late 80s, early 90s, was the way that that all shook out. The difference to now is that even though that happened, the rest of us could continue our non-major label model of distribution and sales and of lemonade stand style business. And we did. You know, Naomi and I formed a duo. We signed with subpop, which had been Nirvana's previous label, and continued making records and touring at the same kind of scale budget that we always had, reaching the same sort of curtailed subset of a music audience that we always had been a part of. and being played on college radio, not on commercial radio, and not making videos for MTV, etc.

So that continued. And so what's changed now is that there's no parallel network for distribution and sales. So what Digital did was, as in all our businesses and all our communications, it scaled everything up through fewer channels. And you don't really have another way now of distributing your music. indie channel for sales and distribution online. We have to go through the same channels that everybody does. It's Spotify, it's Apple, it's Amazon. These are the biggest corporation, well, Spotify's not one of the biggest corporations, but in music they're enormous. I mean, their valuation on the stock market is bigger than the major labels. And Apple and Amazon are literally among the biggest corporations in the world. So we're talking about like little me and also not just middle-aged me, but young versions of the

pattern that I followed who really have no choices and no already established audience and no ways of navigating this outside the way that everybody does. So everybody just has to put their music up in the same platform. It's as if back then in the 80s and 90s, we all had to put our compete for this for the sales space in Kmart and Walmart and, and, and, and, and, and, and eventually target, instead of being able to go to the independent record stores, if you see what I mean. Yeah, no, that makes a lesson.

There's no other channel. And that's the problem with the model that's going on now. Because there, I mean, there are many problems that I'm happy to go into. But the basic, basic one from a music business point of view, or a band's point of view, is that there's no choice. And the other thing is that these platforms treat us just like they do consumers. We're kind of just like another, it's just like Facebook, you know, we're just like users. We don't get some special status because we're producing the content.

They treat us just like all social media. There's no distinction really between content producers and consumers. So I just have an account, basically. I can't get anyone on the phone. I can't ask a question. Can you update, like can you write your band bio, anything like that? They're very limited ways in which you can interact with these platforms, just like there are in any platform. Like, yeah, you can change your profile picture. You know, it doesn't go much

beyond that. On Spotify, you can't just upload your music to Spotify. There are a handful of distributors that have access to that. Obviously, the three major labels are the main ones. They hold, I forget the exact percentage. It's over 75% of the copyrights that are on there. The Indies go through consolidators that are approved and have an account with them. It's already limited in that way. It does make room for independent artists and all kinds of artists. Everything can be up there theoretically. That's important to their business model. But that doesn't give us any status beyond really essentially just another user on the account.

They create websites that we can interact within this extremely limited condescending manner and change tiny little bits of the individual page, but really so limited that it's ridiculous. But limited enough that I've gone on Spotify and our one artist official playlist that we're allowed to create, is called, I forget exactly your doing. I said, Damieni Naomi official downloads available on Bandcamp. That's the name of the playlist. So that if you click on it, if you look for the artist official playlist, it will be called Go to Bandcamp.

And of course, Spotify doesn't notice that and take it down because they're not looking at my account. So, I mean, Galaxy is there's probably a lot of listeners on Spotify still. I presume, I don't know, I mean, it comes up on my playlist a lot, but I guess that's because I listen to it. But I presume that on sort of related artists, it's probably, I don't know, above it for people who are fans of a certain style of indie pop

comes up decently. What do you get from that? Like, what are the benefits to you? And, you know, obviously one of the things that people talk about all the time is like, okay, yeah, you're not going to, people, musicians don't make that much recording, but other things, live concerts, and so forth.

Like, what does that look like as a not huge but also not irrelevant indie band now the sort of the ongoing listenership of Spotify. I think you said there had been something like 62 million users or 62 million streams of your song. Like, what's the benefit to you from there? There's only really one for a band like ours, which is no longer performing.

We haven't played a show as guys of reference since 1991. Right, right. But that's not irrelevant because the bulk of streaming on Spotify is catalog because the platform is actually oriented toward non-working bands or, anyway, old records catalog. So it's no surprise. Why is that?

Sorry, how is, like, in what sense does Spotify orient itself towards non-working? Well, it's a really, it's a great question. I mean, one of the things that Spotify is not is transparent. So we don't know how those algorithms work, and they won't share that information. So why my band, my old band might pop up on your feed will never know. But I'll tell you this, if we pay Spotify to boost our work in their algorithm, they tell us, they brag about it, that it will come up 40% more often. 40%.

I didn't even know that was a thing paying to boost. Well, it shouldn't even be legal is the other thing you might say. I didn't even know that was legal. Because if it was radio or analog distribution, it would not be legal. That is payola. These were fights that were fought in the 1950s and 60s about radio broadcast because radio had become so powerful and corrupt and a famous DJ got caught. And there was congressional action about it. So Paola wasn't illegal before Congress got involved.

Spotify's in a digital space. They claim they're not governed by radio broadcast rules. And so they say they're not covered by Paola rules. So they have official marketing. It's two-sided marketplace. They brag about it in their investor calls. It's the discovery mode, they call it capital D. And it's a program where this is the small way they say it's not Paola.

They say they're not taking cash. They're taking a lower royalty on selected tracks. Yeah. But for all we know, there are other ways that they are taking cash because their contracts with the major labels, for example, are privately held and never disclosed. So we've always believed in the industry, those of us who watched this, that the playlists were for sale. How could they not be? Radio always was.

Radio continued to be after pay-all the laws just in third-party arrangements, so-called radio promoters who handled the cash in between. I mean, this is in my experience and my direct understanding and knowledge. So how could it not be on Spotify, which is so powerful these playlists? So in any case, but then, lo and behold, while we're busy accusing us, them with that. But officially, just, but just officially we don't, there's no evidence as such other than the part about how you can, an artist can agree to take a lower royalty and theoretically. Right. But take, here, but here's the evidence. I mean, for one, taking a lower royalty is paying Spotify, obviously. Secondly, they say their algorithms are based on the consumer's interest, right?

Like, so if you, if you're wondering, why is Galaxy 500 come up in your playlist, you'd be thinking, what is it about my taste? That's the first. thing you said as you introduced it. But if that's the case, how could it change by 40% if you give them a lower royalty on a given track? This is not editorial placement on, they have two types of placement on playlists. One is editorial, one is algorithmic. They distinguish them even on their reports to us. They give Galaxy 500, for example, next to no editorial placement. I don't know if that's because I've been so vocal, but I will tell you that Damon and Naomi, my own personal band, get zero editorial placement.

They give us a percentage of our plays based on playlists, and the percentage for editorial placement is zero percent. And other artists who are very active in critiquing Spotify have a similar issue. Now, I'm not saying I know that that's why, but I will put it out there that we know. What is the, for Galaxy 500,

what is the breakdown of algorithmic streams versus editorial? I think editorial streams for Galaxy is something like 5% of our total. stream. So that's next to nothing. In other words, we have not been given the benefit of their officially declared editorial interventions, which is they create a playlist that's like, this is the music you should listen to if you like. Now, then there's the other type, which is algorithmic. Now, the algorithmic playlist, which both of my bands get to various degrees and it swerves around with time, are totally opaque. We have no way of knowing what is doing

this. But they have now admitted, by bragging for their own marketing program, making this available for manipulation, that if you cut them a deal, they will boost it by 40%. So that's the algorithm. That's not the editorial side. So this is the side that's supposedly based on nothing but, you know, all this data that they're collecting. So obviously the data is manipulatable. The algorithm is manipulatable. I mean, of course it is theoretically anyway, because human beings create those algorithms and make choices. But this is officially. saying it is manipulatable for business purposes. Now, once you get that understanding of how Spotify is working, then it starts to open up a whole lot of other explanations of how their entire

business model is working. Because let's not forget, since we're on a business podcast, Spotify declares a loss nearly every quarter on music. Music is a losing proposition for Spotify, according to them. And yet, I'm sure a lot of people are listening to this, have invested in Spotify. and are not thinking they're losing proposition. Because, of course, they aren't. But music is a lost leader for them. That's what they claim. So where is their profit coming from?

And that's what you've really got to start to look at with Spotify. It's obviously coming from, like other tech platforms, that give away their product for free, their content for free. It's coming from data. It's coming from two-sided marketplace deals like Paola. It's coming from the stock market, from capital investment, from growth. It's coming from market share that they leverage in all kinds of other ways that have nothing to do with music. So they move further and further from the lemonade stand version of music.

It's not my product or Galaxy 500's product that makes Spotify any money anyway. And that's crucial to seeing what's wrong with the industry. Bell Pure Fiber internet? It's fast, like really fast. And the offer, it's good. Like, really good. Switch to Bell Pure Fiber, Canada's fastest internet. awarded by Ukla, with plans starting at $60 a month with auto pay credit. Whichever two-year term plan you choose, the price is guaranteed for two years. Fast internet, long ad. What's so worth it. Visit bell.ca for more details and to check availability.

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Well, let me, I mean, the whole reason Spotify is back in the news, and I mentioned this in the intro, of course, Neil Young saying he's going to take his music off of Spotify, ostensibly out of his anger about their contract with Joe Rogan. But how much is that as sort of, in your view, I guess a, I don't know if an excuse, but a sort of like trigger point of, there's already a number of musicians large and small frustrated with Spotify. Spotify, in your view, doesn't care that much about musicians. It may view podcasts as more profitable and a potentially more durable business model. So how much is the recent kerfuffle, like sort of like a bunch of people who didn't like the model anyway, sudden, like this is a good rallying point to voice their displeasure with the platform. There was certainly no organization taking advantage of this current moment.

Neil Young did that, as he's always done things in his career, completely on his own, without announcement and without contacting groups like my group, Union of Musicians and Allied Workers, that's been organizing very diligently for over a year about the financial model of Spotify. But the flashpoint is telling for so many reasons. Actually, if you're interested in pursuing a musician's version of what's going on with Rogan,

I would look to India Ari, who was very, very articulate about putting together all these various issues that are going on with Spotify. Joe Rogan's racism being paramount because it speaks to a model of discriminatory practices that are tied to the type of capitalized business that Spotify is. And that, I mean, I don't think you have to be a Marxist, like I probably would be identified by some of your listeners, to appreciate that these issues are tied together, that how you treat your labor force is tied to how you reward your labor force and also how you set up your business in terms of capital and labor. Spotify is set up 100% capital. They have no connection to music. We are the labor that provides the content on that platform or that has built it to, at least in its first stage of development as a corporation, to the point where they're on the New York Stock Exchange. They are a music company. And they do not negotiate with us. They do not extend us even the common courtesy of having a relationship with us. And they certainly don't reward us in any kind of way that we consider, most of us consider fair. And yet we have no way of organizing

demanding anything from them. We're not even at the table. They only cut the deal with the three major labels, not their artists, but just the labels themselves. And the way they cut the deal, the way they entered the U.S. market, was they gave the three major labels ownership, shares in Spotify before they went public. Now, this is how then the labels cut them a deal that screwed their artists. They cut them a deal of minuscule royalties because the royalties from major labels point of view, passed through the major label to the artist accounts. Ownership was held by the corporation and was pure profit for the corporation. So they traded ownership for decent royalty deal. So the artists on the major labels were not

any better represented than I was without any seat at that table at all. They were sold out by the majors. So the major label artists are no happier with this than the rest of us. Now, the one difference, though, is that there are certain artists on the major labels who've been making money hand over fist from streaming because what the model does is consolidates more of the money in the music industry into the top of the pyramid. It's designed that way. The way they calculate royalties, they put everything into one pot. It's called a pro rata system that they capitalized on. The majors approved this. So my streams go into the same pot as Taylor Swift's streams. And then we each get paid back out according to the percentage of all of the total

streaming that we each hold. Mine is obviously zero to disappearing infinity compared to what the few people at the top hold. Now we get back to the whole question of the playlist and the algorithm where Spotify is steering consumers to listen. Of course, they're steering them toward a handful of places because the whole thing is designed to consolidate as much all the money in the industry into the top. Then we get to the podcast because here's the magic for podcast. from Spotify's point of view, you might have been wondering, why are they spending so much money on podcasting? Podcasting doesn't seem that lucrative. I mean, in present company, I'm sorry, but podcasting is not that lucrative for a lot of reasons. But of course, it has a lot of

listenership. Can you turn that into money somehow? Here's the thing for Spotify. There are no royalties on podcasts. So Joe Rogan streams have no royalties to pay, right? Taylor Swift's due. Adel's due. it may be from my point of view too little that Spotify is sharing for the royalties but from Spotify's point of view it is a serious expense and the more they stream music the more that expense goes up it's one to one they can't get around it except by pulling cockamamie schemes like reduce your royalty and will boost your algorithm right that what they're after is reducing their overhead i mean again it's just back to the that's lemonade stand i understand they're trying to reduce their royalty exposure they only have two

Two ways to do it. Pay musicians even less or get to stuff that doesn't have royalties. So they're doing it in multiple ways. One is podcasting. There are no royalties on podcasts, as you know. Second, they're commissioning music and owning content. Now, there's another longstanding scandal in the music world that didn't get out to the general media, but did enough in the music press that is commonly accepted now of the so-called fake artists. This is because Spotify, at the top of some of Spotify's most popular playlist. So that means all the money in Spotify is in the playlist, okay, because you go on the site, they push you to a playlist, then they control what you, what you're going to stream. And it's not just on the popular place at the top of the playlist, because of course, how many

songs you listen from the beginning and how deep do you get in the playlist? Well, most listeners just get a few songs in. So all the money is, it's the same pyramid thing. All the money is concentrated in the top of the top playlist. That's where the bulk of the streaming is happening. That's why Paola is so crucial here because, of course, getting on the top of those playlist will make you a living. What did Spotify do to reduce their royalty exposure? Well, they started inserting tracks in those playlist and those popular playlist that they own 100%. How did they do that without consumers noticing? They created fake bios for fake artists.

That's why it's called fake artists with photos that they pulled off of the internet, fake bios and a song type. and they slip it in to a playlist. I mean, is this just on like an instrumental sort of ambience? No, no, no, no, no, no. No, no, no. It's anything. So are there are there fake country musician? Well, I don't know specifically country, but there are fake, well, so-called fake. There are fake tracks scattered throughout Spotify.

The only way we know about them is that journalists, investigative journalists figured it out. They figured it out by not recognizing a name at the top of the playlist and Google it, finding a bio page, and then finding no other links. It didn't have any existence. These artists have no other existence anywhere in the world, except at the very, very top tier, tier, playlist. So it's clear that it's Spotify owned and not just someone who used, like, one of the aggregators to upload. Because I found that, like, because you can trace the copyright and where did this music come from. They all come from Swedish recording studios. Spotify's a Swedish company. Spotify said, well, these aren't fake artists. These were created by these producers in

Sweden that we paid to produce this music. Got it. So their argument is, what do you mean fake? This is as real music as anything else. And now you get into another set of investments that Spotify's been making, which is into AI. What is AI going to do for them or is already doing for them? You can create sound-alike music that people can't distinguish in terms of style or, you know, so you feed in, take the, take whatever is at the top of the charts at the moment, feed it all into AI, and have it spit out a track. That's enough like it that a listener on a playlist, a passive listener on a Spotify playlist, will not stop the playlist and move away from the, from it, letting go continue when they hear it is maybe not an artist they recognize, but they accept

it going past them. It sounds true. I'm just looking, I'm reading AI, I pulled up a variety article from 2017, and it sort of gets at this. And they deny that fake artists exist, although the variety article cites insiders who say that it is about, as you say, reducing the streaming royalties that they owe, the leverage that they have against the record labels. Yeah. But I think if you look at the language of their denial, all they're saying is that these are real people. Yeah. But the fact that they own those tracks 100% is the crucial part here. I mean, whether it's an artist that they signed to their own label like Rogan, that they own 100%. So the key, the difference would be essentially, in your view, that they are real people, but if Spotify commissioned the songs and therefore the royalties, they're not leaving.

They're not going as far. They're not. Well, they're not going anywhere. They own them 100%. The problem is Spotify cannot be, and this is the Rogan controversy has brought this to the four, and I've been really, really happy to see this terminology surface in the mainstream press about it. Spotify cannot be a platform if they're also a producer, right? They're a producer of music tracks. We have known this for years. In the music business, we have been screaming about this. Nobody cared, of course,

outside the music industry. And those who are running the show don't care because they're making money hand over fist. I mean, the estimates are that the major labels are making a million dollars a minute from streaming. So obviously, I mean, we started this conversation and, you know, as you point out in the beginning, Galaxy 500 never aspired to be like a true like pop band that was going to have like a mega head. It wasn't your scene. You had the lemonade stand business model. Nonetheless, the pop scene has always existed. The hits driven record, you know, whether it's radio stations, record stores, CDs, et cetera, that's always existed. Just within the realm of pop, Setting aside the end of the lemonade stand model, has it gotten even more skewed?

Is streaming royalties to the handful of artists that make a killing on it, like the Taylor Swift's, like the Adels? Is it even more skewed than it used to be if we went back to, say, record sales and radio plays in the era of, say, Madonna? Well, here, there's some squishiness because it's very hard to compare one to one. because there has been a sea change from analog to digital in terms of how the business is structured and how the royalties are calculated, et cetera. I think everybody feels that it has gotten more concentrated. I don't know of any good studies that I can point to to that make the case with

numbers. I hope they're out there. If they're not, I hope somebody's working on it. But it is a kind of a difficult thing to compare. And a lot of the discussions around what's wrong streaming sometimes quickly revert to, well, how many artists were making a living in 1989, right, versus today. It's just not the type of calculation that exists because, again, because the business was decentralized so much more. And I think that even framing the question in those terms is an indication of how centralized it is now. We do have the figures for right now. And here they are according to Spotify themselves. So my scrappy group of independent an artist, self-employed artists that got together during COVID and are forming a new union called

the Union of Musicians and Allied Workers, Union of Musicians.org. We launched our own punk rock campaign to alert people to what's going on with Spotify and streaming in general, but we use Spotify as our target because they're running the show. They have the largest market share. And they're, and they're such a good enemy because they put their foot in their mouth all the time. So we chose them well, I'd say, as this podcast proves. And, you know, we launched a campaign called Justice at Spotify. got close to 30,000 musicians have signed on to it. It's made ripples in the music world, and it certainly has caught Spotify's attention, because then they launched a website to answer our accusations called Loud and Clear.

And that was a website just directed to, it's like a giant FAQ with their talking points counted to our arguments for what's wrong with Spotify. On that website, so this is on Spotify's own PR designed to count. to musicians complaints. They say, wait, look how many people are making a living from Spotify. And they say it's 13,400 globally are grossing $50,000 a year or more. Okay. So this is their claim to the success of this model.

It's very hard numbers. So well, when they're just like lift a little corner. Now, the only reason they said that was they thought it sounded so good. First of all, their mission statement was to make a million artists a living. 13,400 is not a million. They're off by 987,000, whatever, right? They're wildly off. And now let's consider what 50,000 gross is for a musician.

Typically, for a band or for any artist, there is a label involved. We talked before about how Spotify doesn't even platform unless you go through at least a distributor. but mostly the lion's share of stuff on there is from the majors over 75%. And then you've got all the independent labels on top of that. So most people on Spotify are on a record label. Labels have various deals, of course, there's a private contracts, privately negotiated. But as a rule of thumb, you can assume the label's taking at least 50% of that income. Okay, so now we're talking $25,000 a year for 13.5,000 artists globally.

Now, so you get $25,000 in for a year. Now, that's gross. Say you're in a band. Say you're in Galaxy 500 that has three members that split the money evenly. Well, now you're earning a third of $25,000. Gross. That's without any percentage that goes to management, distribution, all the other overhead that any artist has producing product that gets itself on Spotify. So you're talking about below minimum wage. And this is the figure that they're bragging about as their big model of success. They have drained the music industry. Streaming is now 83% of all revenue in the U.S. for recorded music, all revenue from all sources. 83%. And of that 83%, Spotify is a lion's share. So yes, it's a little bit more from the other platform. So if you're making 50K from Spotify,

yeah, you're probably making, I don't know, 65, 70. But you're not really making that. You're making less than minimum wage. So what have we traded for this global model? For most of us, for almost all of us, nothing. We get nothing out of it. I could make that money back with 2,000 LPs or less, but they're making it impossible for me to do that. I have to go through Spotify. And that's the problem.

So before we wrap up, and we just have a couple of minutes left, I want to ask a couple quick questions about this, because this is where I was about to go. I mean, first of all, you know, you're talking about, okay, just Spotify, but versus, say, the late 1980s, a band can raise their profile in all different kinds of ways. And there's Twitter and there's Instagram and there's Facebook. And so sure, maybe the record stores, that network maybe is diminished,

although there are still our record stores and some independent music stores. But what if someone says, like, you know, look, it's 2022. Yes, there are obviously things that have gotten more skewed. On the other hand, the ability of a musician or a band to become a name, to promote themselves, they don't have to go through a record label anymore. There are other things that have countervailed that that allows someone to get awareness, build fans on the internet,

and monetize their music in some different ways. Why does that not work? Why does it not counteract by the fact that there's all these new platforms for an artist to promote themselves? Well, because none of them are monetizing. I mean, you slip monetizing in there, but the platforms you mentioned are not,

don't pay you. Twitter doesn't pay you, Facebook doesn't pay you. So the only monetization that has been open to artists in the streaming era is live performance. And it is absolutely true that you can leverage your exposure. I mean, it's basically we're all interns through our recorded music to the music industry. And then we're supposed to make our living live. I mean, the truth is only some type of bands can make a living live. I mean, live music doesn't fit all the models of the type of music that you might want to listen to in recorded music.

and there are entire genres of music that can't really turn a profit life. Like jazz, for example. I mean, there's a whole, there's a whole vast amounts of recorded music that cannot translate into, well, go hit the road and just live that way. Then there are a whole lot of personalities and lifestyles that don't fit that way. Then there are a whole lot of people who fall to pieces on the road because, you know, actually going on the road is a tall order. Okay.

And there's a reason why we have all these stories. and there's a reason why the end of Kirk Cobain's story is what it is. But here's what happened in the last two years, which is COVID. So all of live music shut down 100%. That's why my group got together, union musicians and allied workers, because we were all unemployed. Because our only employment in the streaming era has been live performance.

That is the only monetization available to us. All the monetization channels of recorded music have been swallowed by streaming. That's that pie chart that the RR. RIA, the record labels association, takes note of every year. That's now up to 83% from streaming. What's left in that 17 is everything else you can think of. It includes soundtracks for films, selling to commercials, it includes radio performance, it includes satellite radio. It includes everything else you can think of that monetizes recorded music. Streaming has taken it all. It's done it by going into all the other markets and swallowing them.

For example, back when we had coffee shops and bars, they play music and they're supposed to play and we pick up a small license from that music. But what are they doing if you ever ask your barista? They're playing their own personal Spotify account when it's on a phone plugged into the machine. They're not supposed to do it. And if you dig and dig and dig on Spotify's website, you will come up with a page that says do not use this for commercial situations. But boy, they don't work very hard to let people know that, do they? In fact, Starbucks has a deal with Spotify where they give free premium accounts to every employee. I mean, you can see what that does, right?

So we lose that. Satellite radio. It was a good income stream that was coming up because they were being installed in all the new cars. And there's a different royalty model for satellite radio that's very secure for musicians that was set up by Congress in the 90s. That was really booming. I mean, it wasn't a lot of money, but it was going up, straight line up. And now it's going straight down. Because, of course, what does everyone play in their cars?

They stream instead of playing satellite radio because you don't have to play, you don't have to pay the subscription to satellite radio or maybe you already have one subscription to a streaming service. You just use that. So all these other channels, branding to take a great example, people think, oh, you build your thing. Brands put our playlist on Spotify, they put our music on. They don't have to negotiate with us. They don't have to pay us anything for that because it's just another playlist on Spotify.

Nike presents whatever the hell they want to label it. It used to be a brand wants to associate themselves with their music. That was a big payday. The biggest payday Galaxy 500 ever got was from Honda, who used 30 seconds of an instrumental track of ours in a television commercial. That was a huge payday for us, more than our record royalties that we ever managed to collect from our labels that we were assigned before we made our own label.

That's much better. But in any case, that doesn't exist anymore. Honda wants to have a playlist on Spotify. They just build it. Do they pay Spotify? Probably. Does Spotify report that back as music income? No. Right? You see how this goes? Yeah.

So that's what's going on. Spotify has a model. It's unregulated. There are no set royalties from anything except the three major label contracts that they did. And that's a very winning model for destroying the music industry. But here's the kicker that I really want to emphasize for your listeners in particular. It's not a winning profit model. They still say they don't make money. money on music. And I believe them because look where they're putting their money. They're putting

their money in Joe Rogan. And that gets back to why Neil Young calling out Joe Rogan, which he had every reason to do, was explosive because it actually speaks to the whole problem. And Indiari put it all together, even putting it together with racial issues in the music industry. I mean, the music industry has a long, ugly history of making money from black artists that go to white executives. And you got to look at this tied to that too. Well, Damon, this was a fascinating conversation. And I'm sure there's plenty of more roads and other aspects of all this that we could go down. But I think that's a good place to stop it. Really appreciate you coming out on Adla. Thank you for having me. I really appreciate it. Take care, Damon. Well, that was for me,

I loved having that conversation. Like I said, at the beginning, I'm a big fan of Damon's music. and Galaxy 500. But that really did actually put some pieces together for me about the frustration. Because in my view, or the way I thought about it before, it was like the music industry is always brutal. Very few people actually get to become superstar musicians or make a living at anyone who ever has made a living at recorded music. It's, of course, been very lucky.

But this sort of comparison that he made between the hits-driven, model, which has always been hits driven, versus what he called the lemonade stand model, where you can not expect to make a gigantic hit, but maybe between record sales and touring, taken a bit more income than the cost to put it all on, that really clicked for me. And that was really striking.

And so this idea that with the loss of most record stores, the loss of the CD business, and recently, of course, the loss of live music, that really everyone is shuffled into the hits business. is that clicked to me. So I really enjoyed that conversation. And big thanks to Damon for coming on. So this has been another episode of the Odd Lots podcast.

I'm Jill Wisenthal. You can follow me on Twitter at the stalwart. Follow my co-host, Tracy Allaway. She's at Tracy Allaway. Follow our guest, Damon Krukowski. His handle is at Dada underscore drummer. Follow our producer, Laura Carlson at Laura M. Carlson. Follow the Bloomberg head of podcast.

Francesca Levy at Francesca Today, and check out all of our podcasts at Bloomberg under the handle at podcasts. Thanks for listening. I'm June Grasso, inviting you to join me for the Bloomberg Law podcast. Every weekday, we help you make sense of the legal stories that shape the nation and the world. Listen for complete analysis of the biggest court cases, the latest actions from Congress and regulators, and the legal moves driving the markets. from corporate law to constitutional law and from state courts to the Supreme Court. At Bloomberg Law, we go beyond the day's headlines.

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