|THURSDAY 7 FEBRUARY 2019||COMPLETEMUSICUPDATE.COM|
|TODAY'S TOP STORY: Spotify published its financial results for the last three months of 2018 yesterday and - with beaming pride - announced that it is now profitable. Well, it was a quarter with some rarely seen positives at the bottom of the balance sheet... [READ MORE]|
Spotify reports first quarterly operating profit, buys a couple of podcast companies
"Results for Q4 2018 outperformed our expectations", it wrote at the top of its report to shareholders, adding that "for the first time in company history, operating income, net income and free cash flow were all positive".
There were various factors behind those positive figures, though Spotify bosses were keen to not get too carried away. They quickly told investors that they had updated forecasts for 2019, that they expected the firm's gross profit margin to fall across the year, which would leave them with an overall loss going into 2020. Which may account for the dip in the company's share price that followed the publication of yesterday's results.
Though before getting all sombre and cautious, the Spotify team did allow themselves a brief moment of celebration, during which they threw half a billion dollars at a couple of podcast companies. Because, hey, why have just one podcasting company when you can have two? Following rumours last week that Spotify was about to buy podcast maker Gimlet Media, the streaming service announced deals to buy that company and podcast distribution platform Anchor.
Why the cash splash on all things podcasting? Well, reckons Spotify CEO Daniel Ek, after ten years in the music game, Spotify now wants to become the destination of choice for all your audio listening needs. And not just to occupy more of your time, but because there's lots of money to be made from people's ears that's currently just sat on the big imaginary table.
"Video is about a trillion dollar market", he says in a blog post. "And the music and radio industry is worth around a hundred billion dollars. I always come back to the same question: Are our eyes really worth ten times more than our ears? I firmly believe this is not the case. For example, people still spend over two hours a day listening to radio - and we want to bring that radio listening to Spotify, where we can deepen engagement and create value in new ways. With the world focused on trying to reduce screen time, it opens up a massive audio opportunity".
Of course, Spotify previously tried dabbling in that trillion dollar video market, creating its own much hyped video content, none of which gained much momentum. Though one possible reason for that was the fact many people saw Spotify as an audio app, and weren't keen on suddenly having to look at it. In which case, beefing up audio-only offerings beyond music does make sense.
While it took time for Spotify's move into podcasts to get going, it is now the second biggest podcast listening platform in the world. Although it's still a long, long way behind market leader Apple. However, Spotify has been more proactive in this space of late and has gained ground quickly. And the acquisitions of Gimlet and Anchor represent a big step in that regard.
Founded in 2014 by former 'This American Life' producer Alex Blumberg, Gimlet has launched a number of hit shows - one of which, radio drama 'Homecoming', was developed into a TV series for Amazon last year. It also has a branded content division, which works with companies to create their own shows.
Anchor, meanwhile, is a platform that gives anyone the tools and platform to create, distribute and monetise their own podcasts.
"Based on radio industry data, we believe it is a safe assumption that, over time, more than 20% of all Spotify listening will be non-music content", says Ek. "This means the potential to grow much faster with more original programming - and to differentiate Spotify by playing to what makes us unique - all with the goal of becoming the world's number one audio platform".
"Just as we've done with music, our work in podcasting will focus intensively on the curation and customisation that users have come to expect from Spotify", he goes on. "We will offer better discovery, data and monetisation to creators".
Whether this means Spotify will start giving out per-play royalties to all the podcasters on its platform remains to be seen.
The key revenue stream for podcasts at the moment is advertising. If Spotify was to implement a system where premium subscribers could listen to shows distributed by Anchor without the ads, while creators were still remunerated, that might be a draw for listeners and podcasters alike, which would help Spotify to grow as a podcast destination of choice.
Quite how that would work isn't clear though. Spotify's music industry partners will also have strong opinions on monies in the streaming service's big subscriptions pot being shared out with podcasters as well as the labels and publishers.
Another possible benefit for Spotify in growing its spoken word provision is on the ad-funded side, where the firm is actively trying to boost revenues, possibly with more branded content. It's much more cost-effective to involve brands in spoken-word output than linking them to music, because the latter requires the involvement of any artists that feature as well as any labels, distributors, publishers or societies which have a stake in their recordings and songs.
Nonetheless, Ek insists that all this talk of getting users to listen to people talking "doesn't make music any less important at Spotify".
"Our core business is performing very well", he says. "But as we expand deeper into audio, especially with original content, we will scale our entire business, creating leverage in the model through subscriptions and ads". Hence the two acquisitions. "This is why we feel it is prudent to invest now to capture the opportunity ahead. We want Spotify to continue to be at the centre of the global audio economy".
Another thing Spotify announced in its quarterly update yesterday is that it had 96 million paying subscribers among its 207 million monthly active users at that end of last year.
That's up from 87 million three months previously. It's important that Spotify's paying-user base continues to grow at a decent pace because, as it currently stands, that brings in most of the income. And to be properly profitable long-term the company needs to reach a certain scale where the tricky streaming business model starts to become viable.
Also, the value of each subscriber varies greatly around the world, with monthly subscription fees different in different markets, which means that the required level of scale is all the higher the more emerging markets start to dominate in terms of overall subscriber numbers. But still, 96 million premium users, an operating profit and lots of podcasts. Woo!
Copyright directive talks could resume after France and Germany compromise over reach of article thirteen
A very quick recap! The European Union is reviewing its copyright laws, to make them fit for the digital age. The music industry wants the copyright safe harbour that protects internet companies from liability for their users' copyright infringement to be reformed. It wants the liabilities of user-upload platforms like YouTube to increase. Article thirteen of the proposed directive tries to do that. YouTube is not happy. It says article thirteen will kill the internet. The music industry says YouTube is full of shit.
There are now three versions of the directive: the original written by the European Commission, another amended and passed by the European Parliament, and another still amended and passed by the European Council. Commission, Parliament and Council must agree a single final draft in what is known as the trilogue stage. YouTube hopes that while those final edits are being made, someone will slip and accidentally delete article thirteen.
Which brings us to last month when a trilogue stage meeting between the Commission, Parliament and Council was cancelled at the last minute because it turned out the Council itself couldn't agree a final position. And it's quite hard for the Council to agree a final position with the Commission and Parliament if it can't agree a position with itself.
The European Council is made up of representatives of the national governments of each of the 28 countries within the EU. It turned out that a key sticking point was whether or not smaller or newer user-upload platforms should also be subject to all the new liabilities. The French government said "bien sûr que oui!". But the Germans shouted back "Warum denkt denn niemand an den 'kleinen Kerl'?"
However, it transpires that France and Germany haven now reached a compromise, in which the new liabilities will be restricted for user-upload services that have been live for less than three years, have an annual turnover under ten million euros and under five million unique uses each month. The reworked proposal is now set to be voted on by a meeting of the permanent EU representatives for each of the 28 member states tomorrow.
If the Council can then agree on their latest draft of the directive - article thirteen and all - trilogue talks should begin again next week. There's a deadline for all this, remember, because there are European Parliament elections in May and the whole thing needs to have been agreed upon, voted on, passed and shouted to the skies in a final finished format before then.
So, tick tock, tick tock.
US Copyright Royalty Board confirms 44% increase in streaming royalty on songs
The new rates were first published a year ago and include a top line 44% increase in the revenue share rate being paid by the streaming services, which will ultimately rise from 10.5% to 15.1%. Additional motions were submitted by both music owners and music users after last year's initial announcement, leading to more consideration and investigation, and then this week's 'final determination'. Participating parties now have one more chance to appeal.
The reproduction of songs in the US is covered by a compulsory licence, which means songwriters and music publishers are obliged to allow labels and digital services to make copies of their work at industry-wide rates. Those rates are set by the CRB which has long been criticised in the music community for under-valuing music rights. Though this time round the music industry has generally welcomed the CRB's decision for mechanical royalty rates moving forward.
Commenting on this week's final determination, Benjamin Semel at a law firm that works for the National Music Publishers Association, Pryor Cashman, said: "The final determination that became effective today is even stronger than the initial determination, as the judges clarified an important definition during the rehearing motion phase, providing additional protection against streaming services using product bundling to exclude revenues from the royalty pool".
Digging into the details, he said: "The baseline statutory royalty rate for using musical works in interactive streaming will rise 44% by 2022, but the improvements in this determination go beyond just that. Just as importantly, the new royalty rate structure offers more protection against royalty dilution".
"The royalty pool", he went on, "will now be the greatest of three different metrics: one, an annually rising percentage of revenue; two, an uncapped and annually rising percentage of the amounts paid by the services to record labels in the free market for the same streaming activity; and three, fixed per-user royalty floors that vary among the different streaming models".
Streaming is a revenue share business at heart, with services like Spotify and Apple Music committing to share their monthly revenues with the music rights owners, usually based on overall consumption share. Because streams exploit both recording and song copyrights, that means sharing revenues with two sets of rights holders, label and distributors on the recording side, and publishers and collecting societies on the songs side.
A much higher revenue share is paid to the labels and distributors than the publishers and societies, while the services themselves have traditionally aimed to keep hold of about 30% of revenue overall (though minimum guarantees and upfront advances mean they often don't).
Songwriters and publishers who generally felt they were short-changed by the initial streaming deals have been pushing for a better revenue share as the streaming market has evolved. That usually means negotiating hard whenever licensing deals come up for renewal, though in the US - because of the compulsory licence - it meant persuaded the Copyright Royalty Board to increase the rates. As they have now done.
For their part, the streaming services, when faced with increased royalty commitments on the songs side, have pressured the recordings side of the music industry to accept lower rates in return, insisting that they will never become viable long-term businesses if their share of revenue goes below 30%. In fact, most expect the streaming services to ultimately seek deals where they keep at least 35% of revenue.
So, while in the US at least the rates the services must pay on the songs side are pretty much fixed until 2022, there is still room for manoeuvre regarding total royalty commitments as licensing deals with the record labels come up for renewal.
That said, as noted, the streaming services do in theory have one last chance to appeal this CRB rate review, which has somehow been going through the motions since 2016. Writing on Facebook, the boss of the NMPA, David Israelite, made it very clear how his organisation would respond to any service that did in fact appeal.
"The digital music companies now have 30 days to decide whether to appeal that ruling, and in effect declare war against songwriters", he wrote. "Apple has announced it will not appeal. The others won't say. We will know soon whether some digital companies want to be partners or want to attack the songwriters who make their businesses possible. Stay tuned".
PledgeMusic suspends payments to artist campaigns
In an email to artists, Pledge said that it felt halting sales was an "appropriate" course of action. Anyone attempting to make payments though campaign pages on the site are met with a message stating that "PledgeMusic has suspended pledges on all active campaigns and will look to resume them shortly".
How long "shortly" might be - or exactly why the company has stopped taking payments entirely at this point - is not clear. In a statement to Billboard, the firm said that "commercial sensitivities" meant it could not comment further.
This all follows an initial statement from the company last month, which was issued as an increasing number of artists went public about Pledge's late payment issues and the impact those issues were having on their own artist businesses.
The payment problems first came to light last year, but Pledge said in October that an executive rejig and new finance system should address the issues. However, that didn't happen. The company is now looking for a strategic partner or buyer which could safeguard the future of the Pledge business while also assuring that all artists currently owed money would get paid in full.
In a statement last week, the company confirmed that it was in talks with various parties about "a potential partnership or acquisition" to help overcome the current problems. It also said that in future, campaign pledges would be held by a third party, with Pledge only taking its fees out of that income.
It also confirmed that co-founder Benji Rogers had returned to the company as a "volunteer strategic advisor".
RAJAR Round Up: Radio listening down but still massive
1. Total UK radio audiences were down 0.9% year-on-year in the final quarter of 2018, with a 3.9% drop in London. I assume everyone was tuning into podcasts on Spotify instead. Though RAJAR reckons that 88% of the population still tune into the radio at some point for at least one moment each week. Maybe when they're in an Uber.
2. Radio 2 is still the most listened to station in the UK, despite its audience being down 3.9% year-on-year. Radio 1 also saw its overall audience figures dip, though your main man Greg James added listeners to his breakfast show.
3. In commercial radio, Capital and LBC are biggest in London, while nationally it goes Heart, Capital, Smooth, Kiss, Classic and then Magic.
4. Consumption of radio via digital channels accounted for 52.6% of total consumption in the quarter, up from 49.9% in the same quarter in 2017. Although the commercial sector has launched a number of new digital-only channels in recent years - and more proactively pushed others - the BBC's 6 Music remains the biggest digital-only station.
5. News UK's Wireless Group says that after it announced that Chris Evans would be joining the current iteration of Virgin Radio, that station enjoyed its highest listening hours ever, even though he hadn't actually joined at that point.
Foo Fighters announce free music education events for UK children
Taking place in Birmingham, Bristol, Leeds, Manchester, Northampton, Nottingham, Portsmouth, Guildford, Kingston and Romford, the free events will be open to children aged five to sixteen. No prior playing experience necessary.
"If you can help a young person feel like a rock star for a day you can inspire them into a lifelong love of making music and you can't get much more inspirational than the Foos", says Rocksteady CEO Scott Monks.
"One of the exciting things about this event is that it is for everyone, regardless of ability" he adds. "If you've ever dreamed of playing in a band or trying a new instrument, make sure you come along and get involved - it's going to be an unforgettable day for everyone".
Monks continues: "We see first-hand every day the massive benefits music can have to children's confidence, wellbeing and sense of identity. Some of the children who need music in their lives the most would not necessarily consider themselves musical and so it is imperative that they are given the opportunity as early as possible to pick up an instrument and just play".
The events follow Dave Grohl's 23 minute solo track 'Play', which was released last summer and kicked off a project to promote music education.
The Rocksteady events in the UK will take place on 16 Feb. Find out more here.
Sheryl Crow, Troy Carter, Pink, more
Other notable announcements and developments today...
• Sheryl Crow has signed a new record deal with Big Machine in the US. The musician is set to release what she has said may be her final album - a collection of duets - later this year. "When she announced that she intended to make her last album, I immediately reached out to [Crow's manager] Scooter Weintraub and got a link to the music", says Big Machine boss Scott Borchetta.
• Warner/Chappell has signed a new worldwide publishing deal with songwriter and producer Joe Kearns. He's best known for his work with Ellie Goulding.
• Kobalt's AWAL division has signed a new deal with Danish label The Bank to represent singer-songwriter Hugo Helmig. The two companies have already worked together on an EP and two singles by Helmig. "The flexibility of starting out with a pure distribution and then being able to change the deal while developing the artist has been perfect for us", says The Bank's founder Jakob Soerensen. "We are happy to tighten things up now by releasing one of the best pop debut albums from Denmark in a long time with AWAL".
• Warner Music Group has named Eliah Seton President of independent music. Which is novel. Actually, his job title is President Of Independent Music & Creator Services. In his new role, he'll oversee WMG's independent music distributor ADA Worldwide (of which he was previously president), plus the Asylum Records label and the major's DIY distribution platform Level.
• Former Lady Gaga manager and Spotify exec Troy Carter has been hired by talent agency UTA, with a particular focus on developing projects for TV, Film and theatre. "His unique vision for the future will touch every area of UTA", says CEO Jeremy Zimmer.
• Reporter Jim DeRogatis is to publish a book on the allegations of sexual abuse against R Kelly, almost 20 years after he first began investigating the story. 'Soulless: The Case Against R Kelly' will be out in June.
• Smashing Pumpkins frontman Billy Corgan has been reunited with a guitar that was stolen from him nearly 30 years ago. It's a pretty cool story.
• Anna Of The North is back with new single 'Leaning On Myself'. She's also announced that she will play Village Underground in London on 19 Mar.
• Girli has released the video for 'Deal With It'.
• Chai have released the video for new single 'Choose Go!'
• Gojira have announced that they will play three shows in the UK this summer: Birmingham Academy on 29 Jun, Brixton Academy on 30 Jun, and Manchester Apollo on 1 Jul.
• Pink will be the recipient of this year' Outstanding Contribution To Music prize at the BRITs. She's the first non-British artist to receive the award. "Since the beginning of my career the British fans have been some of the most fierce and loyal in the world", she says. "I am humbled to receive this honour and be in the company of an illustrious group of British icons!"
• Check out our weekly Spotify playlist of new music featured in the CMU Daily - updated every Friday.
Michael Bolton was tweeting, not sleeping, on morning TV show
When hosts Larry Emdur and Kylie Gillies introduced Bolton for the live interview, he appeared on screen with his eyes closed and did not respond. He opened his eyes for a second, saying "it's gone silent", before closing them again.
It sure did look like he was having a nap, but that is not so. Michael Bolton does not sleep. He hasn't slept for 50 years. He was simply glancing down at his phone. The angle just made it look like his eyes were fully closed.
"I got my first record deal when I was fifteen and I haven't slept since", he later tweeted. "In all seriousness there were technical issues with the live feed and they caught me tweeting! We had a great interview once they fixed the glitch".
To be fair, his story does check out. At the time he was said to be sleeping on camera, he posted a tweet reading, "Hi all my friends and fans down under! About to go live on @morningshowon7". So, move on, nothing to see here. No one fell asleep on camera. Sorry to disappoint you.
Let's all cheer ourselves up instead with that video of the time Bolton forgot the words to the US national anthem and had to read them off his hand.