The corporate doctrine for the last forty years, and the state doctrine for the last forty years, has been that monopolies are okay provided they’re not raising prices on consumers. So, monopolists have figured out how to corral audiences or consumers within a walled garden — that’s made partially out of laws and partially out of technology — to make it hard for you to reach them as a creator or as someone who wants to bring something to market without going through them.
That is the chokepoint. . . .
The entertainment industry is getting bigger and more profitable, and yet the share of income going to creators, both in real terms and proportionately, has just declined steadily over that same period. It’s because you have to go through a chokepoint with your copyrights in order to reach the audience. And whatever the person operating that chokepoint wants, you have to surrender if you want to reach that audience, including whatever copyrights you have.
There’s a good example in the book of how the extraordinary collections of long-lived copyrights in music that the three big labels have — Sony, UMG, and Warner — meant that when Spotify wanted to start, they could only do so with permission from those three companies, which gave them the power to bargain for whatever they wanted. They took big ownership stakes in Spotify. Then, they came up with arrangements for royalties that allowed them to get guaranteed monthly payments — a large portion of which they wouldn’t have to pay to any artist — and to suppress the price per stream so that the 30 percent of the market that they didn’t control would get so little from Spotify that they wouldn’t be able to make any money or grow or challenge them. This is a really classic example of how chokepoints ensure that whatever alienable right you give to workers will be taken away if the workers can’t take their labor to more than one place. . . .
[Giving] giant ownership stakes to the three major labels . . . meant that the better Spotify’s cost basis looked on paper, the bigger the pop would be when they had their IPO, and the more those label shares would be worth. And so, the labels said, “We would like a very low per stream rate,” which means that the inputs for Spotify are now artificially cheaper, right? They’re less than they would normally cost because the streams are less than they would be if they were sort of bargaining on the open market.
[The labels are saying,] “We will take a low cost per stream, but we want a guaranteed minimum monthly payout from you.” Sony may be getting $30 million a month from Spotify, but because the price per stream is so low, only $15 million a month is attributable to the streams that were played.
If you add up all the streams and multiply them by the fraction — the penny per stream — it only comes out to $15 million. What that means is that the other $15 million is unattributed royalties. And Sony can keep these; they can give them to one artist, they can give them to all the artists. They can do whatever they want with them.
This scenario also allowed the big three labels to come up with this arrangement where the way streaming royalties are distributed doesn’t comport with the way most people think their payments will be turned into royalties. Say you have this favorite high school band, the Honey Roasted Landlords. Every day, for ten hours a day, you just stream that band, meaning you’ve given Spotify fifteen bucks that month. You might think that Spotify takes whatever share it takes out of that $15 and sends the rest to the Honey Roasted Landlords’ label, and that the Honey Roasted Landlords get the rest of it, or most of it minus whatever the label cuts out for themselves.
That’s not how it works at all. What happens instead is Sony or UMG or Warner takes all the money they’ve been remitted by Spotify, and then they divide the attributable portion of those royalties by the number of streams that each artist has had. That means that even if you listen to only the Honey Roasted Landlords, nearly all the money that Spotify passes on to their label goes to Kanye West. It doesn’t go to them — it goes to some other giant star. That’s another piece of the scam.