Are Pandora and Spotify Scrimping on Music to Attract ‘Speculative Capital’?

As Pandora makes its big push for the Internet Radio Fairness Act, one musician wants to know.

Basically the artists probably got zero dollars from this.  (screengrab)

Earlier today, the Verge reported that Spotify, the music player that ratted you out to Facebook that one time you listened to Kenny G holiday hits, is rolling out a beta version of a browser-based web app. The feature was in high demand and should give the company a boost against competitors like Rdio.

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At least one artist, however, has a few questions about how this whole streaming music business is supposed to work in the long run.

At Pitchfork, musician Damon Krukowski argues that while arecord companies have been famously quick to screw over their artists, these days the game has changed “from individualized swindles to systemic ones.” In short, streaming services are in the business of paying very little for music. Here’s what that looks like for the artists, using a few numbers from Mr. Krukowski’s recent royalty check:

Galaxie 500’s “Tugboat”, for example, was played 7,800 times on Pandora that quarter, for which its three songwriters were paid a collective total of 21 cents, or seven cents each. Spotify pays better: For the 5,960 times “Tugboat” was played there, Galaxie 500’s songwriters went collectively into triple digits: $1.05 (35 cents each).

That won’t even buy a cup of deli coffee. And here we all felt like we were doing right by the artists by switching over from illegal downloading!

That’s the status quo. And yet, Pandora is currently making a big push for reduced royalties. Just yesterday, more than a hundred musicians (from Jimmy Buffet to Ludacris) released an open letter that leads with good cop, insisting, “We are big fans of Pandora,” but segueing into a complaint: “Why is the company asking Congress once again to step in and gut the royalties that thousands of musicians rely upon? That’s not fair and that’s now how partners work together.”

But creative accounting isn’t anything new. Mr. Krukowski’s piece gets interesting when he asks why–given their dicey histories, profitability-wise–these companies are even in business at all. He takes a dim view:

The answer is capital, which is what Pandora and Spotify have and what they generate. These aren’t record companies– they don’t make records, or anything else; apparently not even income. They exist to attract speculative capital. And for those who have a claim to ownership of that capital, they are earning millions– in 2012, Pandora’s executives sold $63 million of personal stock in the company.

It could be that once Spotify and Pandora finally achieve tech-company nirvana–better known as monetizable scale–suddenly their balance sheets will right themselves. But Mr. Krukowski’s charge has the ring of truth, for all too many venture-backed startups. For all Facebook’s talk about connection, the company’s surest achievement seems to have been making the fortunes of everyone involved. He has a point. The only speculative equivalent for musicians is Kickstarter. And even then, many backers would rather bet big on iPhone accessories and mason jar cocktail shakers.

Are Pandora and Spotify Scrimping on Music to Attract ‘Speculative Capital’?