Spotify and the business of making hits

Spotify has been in the news quite a bit recently, especially since their IPO announcement. The best article I’ve read so far about Spotify’s business model (and challenges) is Ben Thompson’s Lessons from Spotify:

Spotify’s margins are completely at the mercy of the record labels, and even after the [lower royalties] rate change, the company is not just unprofitable, its losses are growing, at least in absolute euro terms.

Ben goes further to explain how difficult it would be for Spotify to cut out record labels completely:

Notice how little power Spotify and Apple Music have; neither has a sufficient user base to attract suppliers (artists) based on pure economics, in part because they don’t have access to back catalogs. Unlike newspapers, music labels built an integration that transcends distribution.

Profitability aside, it’s fascinating and kind of scary to get a sense of the oversized role that Spotify plays in deciding what becomes a hit song. Austin Powell digs into the details in his article Inside the booming black market for Spotify playlists:

The biggest of those playlists can essentially manufacture hits. A single add to Spotify’s influential RapCaviar, which boasts more than 8 million followers, can result in hundreds of thousands of streams, depending on where it’s placed and how long it stays there. RapCaviar has been credited, for example, with making Smokepurpp’s “Audi” go gold, with 68 million streams and counting.

But wait, there’s more (as the say). Some of Spotify’s biggest playlists are owned by none other than the record labels themselves. From Liz Pelly’s The Secret Lives of Playlists:

On other playlists, you’ll occasionally notice different logos: the thick cursive word Filtr, the all-caps logo for Topsify, or simple rounded text reading Digster. These are the playlisting brands owned by the major labels: Filtr by Sony, Topsify by Warner, and Digster by Universal.

What does this mean?

Outside of the Spotify staff-curated playlists, those curated by Filtr, Digster and Topsify have more visibility on the Browse pages than any other playlisting brands, individuals or labels. With these playlists, employees of Filtr, Digster and Topsify can simply log in and add tracks.

“Things like Topsify, Digster and Filtr remain good resources, especially for [major label] developing artists,” says Jeff. “I know that I can plug in such-and-such track to five [of our] playlists and start to rack up some plays, some revenue for that artist, get it in front of some new listeners, and you also get some algorithmic stuff going. Like Release Radar and Discover Weekly.” By using Filtr, Topsify and Digster playlists to generate activity on their own material, the majors effectively use these playlists to pump their artists into Spotify-owned algorithmic playlists.

The musical world belongs to the “curators” and algorithms. We’re just listening in it. And the company that has the most control over it all is not even close to being profitable.