Distribution is king, never forget it.

All those cable channels disrupted by Netflix and the internet? The systems distributing them are doing just fine, better to own the pipe than that which flows through it. As for Netflix…

It owns both content and distribution.

Which is why Disney is trying to imitate it.

As for HBO, it’s caught in the “Innovator’s Dilemma,” so busy trying to protect its old model that it can’t jump into the new. As you will remember, Clayton Christensen said to build your competitor across the street, and when the time is right, you JUMP! NOW IS THE TIME!

And now Spotify is worth more than all three major labels COMBINED!

Think about that, Spotify is worth more than Sony, Universal and Warner put together. Talk about leverage! And that’s what Spotify plans to employ, it’s right there in its investment materials, they want to drop the cost of wares.

Will the labels say no?

Well, when Spotify owns the marketplace, it gains power. Never forget that, in internet world one entity controls 60+% of the vertical. Can you say Google in search, Amazon in retail, Facebook in social networking? All the competitors are also-rans. The music business thought it was building a competitive distribution marketplace, but with all outlets just a click away, people gravitate to the one with the best user interface where their friends are, as long as you continue to innovate, you win, until someone comes along and completely disrupts you. Could that disruption be voice control? Interesting. But right now, we are in the heyday of on demand streaming.

Which the music business infrastructure fought for eons, some of the musicians are still fighting it, even though streaming has caused recorded music revenues to spike by double digits, because they just can’t understand it, and refuse to accept that music is now akin to the rest of the world, the rich get richer and the poor…stay that way. Although with Spotify data you can build a cottage industry, you just won’t get rich on recordings, but you can tour and sell merch but you won’t be ubiquitous.

The labels screwed up. Primarily because they are public companies without vision, everybody’s on the short term payroll. Did you see that Sony dropped a ton of Spotify stock yesterday? Maybe they were acting as a market mover, but that’s a contracted exec for you… Cash out on my watch, so I can get my bonus! All those label incubators, they’ve delivered bupkes. As for 360 deals, now you can build yourself online and negotiate them away, and the labels never added any value, it was all a land grab, while the labels were protecting their margins, like the newspapers, they faded the same way.

So…

Can Spotify eradicate the majors, or at least their power?

That’s what the company so publicly states, that it wants to cut out the middleman, i.e. the major label, to increase its margins.

Well, Spotify will never become a label, never buy a label, you don’t compete with your suppliers, especially when legacy assets are worth so much. Amazon tried to do this by starting a publishing house, they were frozen out. Furthermore, it’s bad business. Without said catalogs the labels would be in the toilet, catalog, already paid for with low royalty rates, props up the majors.

But beginners are pissed at said loyalty rates. When they can make a direct deal and earn a multiple.

BUT HOW DO YOU GET STARTED??

Spotify went public to return value to investors. Can you make it without investors?

Some can, most can’t.

You don’t need a label, just someone with deep pockets. But odds of success are so low, deep pockets are hard to interest. And, deep pockets want a ton of upside, that’s right, Daniel Ek may control Spotify with Martin Lorentzon, but they don’t own the majority share, that’s the way business works.

So majors give cash for low royalty rates because they can survive on catalog and hits, and so far no one’s come up with a better business model. Most managers refuse to spend and…until someone does, we’re stuck with the same damn system.

Marc Geiger said WME was gonna lend to artists, but we haven’t heard him talk about that in eons.

And in today’s cacophonous world, if you don’t have the investment to raise your profile, forget it.

But Chance succeeded on his lonesome. Buoyed by the hip-hop culture online. That’s right, cultural capital can be as valuable as cash.

So, Spotify has a cost issue, it prevents scale, they say they’re going to attack this via leverage with the major labels and going direct with the indies, they’ve delineated their strategy, disregard it at your peril.

But there will be some movement along the way..

And sure, Spotify stock could crash, like ArtistDirect, but Spotify’s an ongoing concern with income, unlike ArtistDirect, it won’t go to zero.

So, we’re in a new era, the shine is off the major labels. Hell, if you want cash, you’re better off going to a concert promoter, who’s got it, will spend it and will take very little in return.

Proving, once again, the lack of importance of recordings in the ecosystem. Hell, if you’re a great performer you don’t even need a ton of streams. But if you’ve got them, you’ve got people who want to see you in a world based on experiences, i.e. live.

So Spotify now has more power than the people it licenses from. They did this by building a better mousetrap and being respectful, taking the fox into the henhouse.

They’re gonna start eating the chicks soon, just you wait.