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Peloton royalty surprise reveals few understand music business

By Rich Danker

There was much surprise recently about a report that Spotify pays just one-eighth in music royalties per song compared to Peloton as tracked for 2019, the last year for which data is available. The large difference in payouts between the two services is supposed to be an indictment of Spotify, a firm that warred with music publishers for years to be able to essentially offer all popular music on demand in unlimited consumption. 

In recent times, Spotify’s path to dominance included a four-year feud over payouts with Taylor Swift. Eventually, she rejoined the platform in 2018, without any convincing explanation from either side. Our guess is Swift had the epiphany that streaming wasn’t worth fighting over.

This gets at where value is unlocked in today’s music business. A song played in a Peloton class is worth more than a song played on the Spotify app because of audience size and engagement. 

Peloton’s payouts to artists and their business partners are higher per unit because its fees reward performance rights in addition to traditional publishing rights. Performance rights cover music played in TV, film, or other public venues like online fitness classes. 

Record sales used to drive the music industry because there was perceived value in owning the recorded work. The formats changed – vinyl to tape to disc – but the methods of consumption simply replaced one another in revenue as technology improved. 

But once the MP3 format caught hold, listeners had relatively little interest in paying to collect digital files. The capability to deliver music through streaming commoditized recorded music. Now, all music sales are essentially bundled by Spotify and its competitors for a monthly fee of about half the amount of what a CD once cost.

Tech people like to hold up the music industry as an example of failure to adapt, but their narrow minded view causes them to miss the story.

The value of music consumption shifted from recorded to live performances as it went digital. Concerts and other live performances like Peloton’s – not streaming – is what replaced CD sales. As Bharat Anand put it in his excellent book The Content Trap, live performances always served as advertising for recorded music sales and now it’s the other way around.

The music business is the rare story where creators (save for Swift) happily swapped their product and marketing content in response to changing consumer tastes. Technology removed barriers to entry and caused listener tastes to expand and diverge. In essence, it became harder to agree on what to listen to.

Live performances became more valuable as the way to replace the shared connection over music lost at home. Fans now allocate their music budgets mostly to that thrill, which is inspired by their streaming discoveries. 

Hollywood did not make this leap. Technology caused the same divergence in film and TV tastes, but production companies have yet to offer a meaningful way to recreate the lost shared enjoyment.

They invest little in methods such as live performances, staggered release schedules, or relatable user interfaces. They are satisfied in offloading their content to Netflix and other streamers that market their apps mostly in solo-viewing mode.

Quibi, the short-lived Hollywood-meets-Silicon-Valley behemoth led by Jeffrey Katzenberg and Meg Whitman, is the best example of the flaw in this approach.

It failed because it doubled-downed on this trend and designed a product for viewing on the go on a smartphone screen. The value in a streaming video service is the same as what it’s always been for a TV network: the compelling stories presented through its programming. Quibi mistook value in its delivery-based strategy of shorter, mobile-friendly segments.

It’s too soon to say that streaming video is doomed to be commoditized like music. You can’t get all the shows you’d ever want to watch from one service. The challengers to Netflix, including even Amazon, all have marketable proprietary programming. 

But HBO Max, a grab bag cooked up by AT&T to sell broadband plans, is a cautionary tale of diluting the underlying brand. As the novelty of streaming video subscription options wears off, it will be harder to convince viewers to keep subscription services that are indistinguishable from Netflix or Amazon. 

The music industry settled its copyright infringement lawsuit with Peloton just weeks before the pandemic hit in March 2020. The timing of this decision enabled a new revenue stream to emerge as concerts were cancelled. Meanwhile, Spotify has gone headlong into podcasting and even found a way to fuse music into it

Changing tastes has brought different responses. Video, social media, and advertising have been reengineered through algorithms to try to keep up. Music belatedly found a new business model. Guess which one consumers are happiest with?

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Rich Danker


Rich Danker worked in politics from 2010-2019 before entering the business world. He served in the Trump administration as a senior advisor at the U.S. Treasury and the Commodity Futures Trading Commission after running several federal election and advocacy campaigns. His writing has been published in the Wall Street Journal, Washington Post, and he was a columnist for Forbes.com.

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