In the first three weeks since its debut, Adele has sold 5.19 million copies of her third album, 25. Released in the penultimate month of 2015, it’s the best-selling album since 2011, and well, you know, 21. Plenty of people will tell you how big a deal this is, and with the ungodly amounts of money that she will make for XL and Columbia, her labels have probably already canonized her.
But more important than how fast Adele records are flying off the shelves is where you can’t find 25: Spotify. Or Apple Music, or Tidal, or Google Play, or Deezer, for that matter. The biggest record of the year isn’t available on the biggest streaming platforms, which are the way that most young people are listening to music. Some of that no doubt has to do with age demographics. The new Adele record is the perfect gift for that boomer aunt that you don’t know what to buy for Christmas, and auntie probably doesn’t know WTF a Tidal is. But that’s just one part of the reason that Adele doesn’t need to play nice with the streaming services. And her decision to withhold her album from them speaks volumes to both the state of the recorded music industry and her considerable influence over it.
To truly understand the relationship between the record industry’s biggest star and its newest revenue stream, we need to understand the state of streaming in 2015. As broadband proliferates to the point that bandwidth is able to support cloud-based music libraries, streaming is no longer a novelty, but often the way music fans first hear their favorite records. YouTube, accidentally the largest music streaming service in the world, is ubiquitous, and even as some streaming services die, more (increasingly corporate) ones step in to take their place. And that corporate influence complicates things.
With streaming no longer solely the province of tech geeks and upstart pirates, the major record companies now have a firm stranglehold over the most prominent digital music platforms. YouTube uses advanced algorithms to pull down copyrighted music, and Soundcloud, formerly the vaunted home of amateur (and professional) remix DJs worldwide, signed a licensing deal late last year with Warner Bros., much to the dismay of the countless DJs who would quickly see mixes pulled and accounts suspended on copyright grounds. Pandora, who has the most users among streaming music services not named YouTube, is a bit of an outlier; as an Internet radio service, they don’t offer music on-demand, and their royalty rates are set by the government.
But Spotify, founded in Sweden in 2011, is the market bellwether; the licensing contracts negotiated with the service tend to set a precedent that reverberates through younger on-demand streaming services such as Deezer, Tidal, and Apple Music. Many speculate whether or not Spotify has a future, as it’s in the unenviable position of having to regularly renegotiate deals for its content; the more ubiquitous streaming becomes, the logic goes, the more valuable the content, dooming Spotify to be forever unprofitable. But it’s more complicated than that. Since the labels are now investors in Spotify, owning as much as 20 percent of the company, the labels are now negotiating with themselves.
What does that mean? It means the record companies are still focused on short-term gains at the cost of long-term vision; they saw Dr. Dre, Jimmy Iovine, and Universal Music make out like bandits on the sale of Beats Music to Apple, and they want some of that sweet, sweet tech bubble cash for themselves. Rather than focus on the continued success of the next-generation platform for generating revenue from recorded music, they’re squeezing as much cash out of the business as they can, hoping to inflate the company’s value before cashing out on a big sale. In the meantime, they command tens of millions of dollars in up-front payments from Spotify for the right to license their catalogs. These are intended to serve as an advance on future royalties earned from stream counts, but they rarely amount to more than the advance, and if it doesn’t, that money never has to be paid back. In addition, when negotiating royalty rates, some labels screwed over their publishing arms in order to get favorable terms on the recording royalties, which benefitted the owners of the master recordings (the labels) while screwing the people who own publishing rights (the songwriters).
In a capitalist economy, it’s the labels’ right to be ruthless in support of profit. But as we’ve spoken about at length, the truly sinister side of their tactics involves trotting out artists as victims of the evil geeks at the streaming services, when they themselves are the ones exploiting artists’ work. If Spotify sells for billions, yes, its founder, Daniel Ek, will get rich (and maybe he should, since he poured most of his own money into launching the business). But with their (at least) 20-percent ownership stake, so will the labels. Spotify’s valuation was built in no small part to the music their artists produced, but will the artists see any of that windfall? Not a chance.
And when Sony, Universal, or Warner Bros. collects their fat lump sum payments each month, how much of that cash makes it to the artists? They’ll never tell, but a report from Ernst & Young and the French record label trade group SNEP shows that labels are hoarding the lion’s share of the profits. The next time you hear an artist complaining about how Spotify is robbing them because their 100,000, or even 1,000,000 streams earned them some paltry sum, just remember that someone got paid off of that song, even if they didn’t. And it wasn’t Spotify; their cut is capped at 30 percent, and heading into their fifth year of existence, they still haven’t turned a profit. The other 70 percent goes to the label. Where does that money go? Hmm.
The post-tax split of streaming revenue from a report by Ernst & Young, funded by the French recorded music trade organization SNEP, whose members include Universal Music, Sony Music and Warner Music.
Which leads us back to Adele. If Spotify’s agreements with the labels set the pace for licensing payments for streaming music, then Adele sets the tone for the artists. She’s in an elite class of pop star; one of the three women with the biggest albums of the last three years that decided to forgo offering their records to the streaming services upon release. Surprise-released at the end 2013, Beyoncé was first an iTunes exclusive. Physical releases came later, but it was out for a solid year before Queen Bey released it to the streaming services. Taylor Swift took it one step further, pulling her entire catalog from the streaming services leading up to the release of 1989, which is still download- and purchase-only. But Adele is a singular commercial force. Unlike Taylor Swift’s Big Machine, she rarely tours, yet she moved almost as many copies of 21 as Beyoncé and Swift have sold in their entire careers. So all eyes were on her leading up to the release of 25: would she stream, or would she not stream? In the days ahead of 25’s release, the verdict came down: She would not.
For their part, Adele’s team wasn’t totally unwilling to play ball; it’s been reported that their main beef was with Spotify’s free tier, which generates considerably less revenue per stream through advertising than the subscription tier. For better or worse, Spotify refused to fragment its library, so Adele took her ball and went home. And with the sales numbers through the first three weeks, it’s hard to argue against her: 25 represented 41 percent of all albums purchased during November 20-26, the week of its release.
So Adele, Taylor Swift, and Beyoncé don’t need streaming to make mountains of cash — for now, anyway. That’s great for them and their families, labels, and hangers-on. But what about everyone else? No matter what the labels do to Spotify, the public has gotten used to this new way of listening to music. It’s not going away. Independent artists increasingly rely upon their music being available on-demand, for free, in order to grow their audience as fast as possible, making profits on merchandise and tour dates. And of course, the overall revenue pie from streaming is currently smaller than the inflated numbers of record sales in the early ’00s, but some artists with favorable record deals can still make millions streaming a hit song. As the streaming market gets increasingly fragmented, there’s almost too many moving parts to see how it’s all going to shake out. The major labels continue to license their catalogs to more and more services, further devaluing the exclusivity of its product, but as the overall number of paid subscribers on Spotify, Apple Music, and the like continues to grow, so does the overall revenue generated by streaming.
As long as Adele is selling millions of records while keeping her music off streaming services, other big pop stars will likely follow suit. Despite the digital direction in which the market is leaning, selling a CD, vinyl, or even a digital download of an album is still more profitable than a stream. Record companies will do everything in their power to maximize this most lucrative of revenue streams as long as it remains even remotely viable. Streaming has already surpassed sales revenue from an industry perspective; eventually, we’ll see an artist make more money from streams than from sales (our money is on Drake). But not this year.
This piece is part of Flavorwire’s series of essays on 2015 in culture. Click here to follow our end-of-year coverage.