Spotify has generated considerable interest in the music industry around the world, but some of this interest stems from mistrust or is aimed at criticizing its business model and methods. Criticism has largely focused on whether the fermium model explained above is sustainable in the long term, although the hardest ones refer to the way in which the income is shared with the owners of the rights at the different levels of the value chain. There are at least two factors that encourage these criticisms. First, music companies have used a royalty model for decades in which the licensee pays a fixed amount per song sold, performed, or otherwise used.
That model is very difficult to apply to an access-based service,
since the revenue generated by the service is not based on the sale, performance or other use of the songs, but on the number of users of the service. Providers of access-based best lyrics website services, regardless of whether the services are funded by subscription or advertising, they say that instead of paying a fixed amount per song played, they should just share the revenue a song generates with its intellectual owners. Without the need to carry out an in-depth accounting analysis, it is clear that this scheme would greatly benefit the service providers, but would transfer most of the business risk to the owners of the rights.
The rights owners insist that their income cannot depend
on the results of the service’s advertising sales team and that the service must pay them for the music it distributes to its customers. In the past, a number of access-based service providers have been forced to sign contracts that have generated fixed royalties per song for rights owners. However, these contracts make the development of access-based music services extremely difficult, to the point that some pioneers in this market have not survived for long. One reason Spotify is seen as central to shaping the new music economy is that it appears to have been successful in convincing major labels in certain markets to share the business risk and instead of charging a flat license fee per track, receive a portion of Spotify’s revenue, no matter how high or low. Spotify got it after making significant concessions during the negotiation, for example by offering major record labels to acquire a minority stake in Spotify.
Spotify has reported that 70% of its revenue from advertising
And subscriptions has been used to pay royalties to right holders. By the end of 2013, the company generated more than $1 billion for rights owners around the world, which Spotify says shows its model works.
However, while it seems possible to generate revenue from access-based music services, the new contractual structure marks a sea change in the music industry’s attitude towards distributors, and is the subject of widespread controversy. Some of the criticisms made by performers and songwriters focus on the fact that the service provider pays royalties mainly to the record companies and not directly to the songwriters, musicians or performers.
Creators complain that they do not receive a fair share of this revenue and some of them have decided not to license services like Spotify because the revenue they receive is ridiculous and therefore they refuse to support a system they consider corrupt and not at all sustainable.