Unlike online music predecessors like Napster, Spotify sought licenses from the labels for the music it made available. This gave those labels a *lot* of power over Spotify, but not all the labels, just three of them. Universal, Warner and Sony, the Big Three, control more than 70% of all music recordings, and more than 60% of all music compositions. These three companies are remarkably inbred.

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Their execs routine hop from one to the other, and they regularly cross-license samples and other rights to each other.

The Big Three told Spotify that the price of licensing their catalogs would be high. First of all, Spotify had to give significant ownership stakes to all three labels. This put the labels in an unresolvable conflict of interest: as owners of Spotify, it was in their interests for licensing payments for music to be as low as possible.

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But as labels representing creative workers - musicians - it was in their interests for these payments to be *high* as possible.

As it turns out, it wasn't hard to resolve that conflict after all. You see, the money the Big Three got in from dividends, stock sales, etc was theirs to spend as they saw fit. They could share some, all, or none of it with musicians. Big the Big Three's contracts with musicians gave those workers a guaranteed share of Spotify's licensing payments.

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Accordingly, the Big Three demanded those rock-bottom per-stream rates that Spotify is notorious for. Yeah, it's true that a streaming per-listener payment should be lower than a radio per-play payment (which reaches thousands or millions of listeners), but even accounting for that, the math doesn't add up.

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Multiply the per-listener stream rate by the number of listeners for a typical satellite radio cast, and Spotify is clearly getting a *massive* discount relative to other services that didn't make the Big Three into co-owners when they were kicking off.

But there's still something awry: the Big Three take in *gigantic fortunes* from Spotify in licensing payments. How can the per-stream rate be so low but the licensing payments be so large? And why are artists seeing so little?

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Again, it's not hard to understand once you see the structure of Spotify's deal with the Big Three. The Big Three are each guaranteed a monthly minimum payment, irrespective of the number of Spotify streams from their catalog that month. So Sony might be guaranteed, say, $30m a month from Spotify, but the ultra-low per-stream rate Sony insisted on means that all the Sony streams in a typical month add up to $10m.

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That means that Sony still gets $30m from Spotify, but only $10m is "attributable" to a specific recording artist who can make a claim on it. The rest of the money is Sony's to play with: they can spread it around all their artists, some of their artists, or none of their artists. They can spend it on "artist development" (which might mean sending top execs on luxury junkets to big music festivals). It's theirs.

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The lower the per-stream rate is, the more of that minimum monthly payment is unattributable, meaning that Sony can line its pockets with it.

But these monthly minimums are just part of the goodies that the Big Three negotiated for themselves when they were designing Spotify. They also get free promo, advertising, and inclusion on Spotify's top playlists.

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Best (worst!) of all, the Big Three have "most favored nation" status, which means that every other label - the indies that rep the 30% of music not controlled by the Big Three - have to eat shit and take the ultra-low per-stream rate. Only those indies don't get billions in stock, they don't get monthly minimum guarantees, and they have to pay for promo, advertising, and inclusion on hot playlists.

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When you understand the business mechanics of Spotify, all the contradictions resolve themselves. It is simultaneously true that Spotify pays a very low per-stream rate, that it pays the Big Three labels gigantic sums every month, and that artists are grotesquely underpaid by this system.

There are many lessons to take from this little scam, but for me, the top takeaway here is that artists are the class enemies of both Big Tech *and* Big Content.

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The Napster Wars demanded that artists ally themselves with either the tech sector or the entertainment center, nominating one or the other to be their champion.

But for a creative worker, it doesn't matter who makes a meal out of you, tech or content - all that matters is that you're being devoured.

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This brings me to the debate over training AI and copyright. A lot of creative workers are justifiably angry and afraid that the AI companies want to destroy creative jobs. The CTO of Openai literally just said that onstage: "Some creative jobs maybe will go away, but maybe they shouldn’t have been there in the first place":

bgr.com/tech/openai-cto-thinks…

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OpenAI CTO thinks AI will kill some jobs that shouldn’t have existed in the first place

For a company that wants to build AGI for the benefit of all of humanity, OpenAI sure has a strange way of talking about that work.

^{Andy Meek (BGR)}

Many of these workers are accordingly cheering on the entertainment industry's lawsuits over AI training. In these lawsuits, companies like the *New York Times* and Getty Images claim that the steps associated with training an AI model infringe copyright.

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This isn't a great copyright theory based on current copyright precedents, and if the suits succeed, they'll narrow fair use in ways that will impact all kinds of socially beneficial activities, like scraping the web to make the @internetarchive's Wayback Machine:

pluralistic.net/2024/05/13/spo…

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But you can't make an omelet without breaking eggs, right? For some creative workers, legal uncertainty for computational linguists, search engines, and archiving projects are a small price to pay if it means keeping AI from destroying their livelihoods.

Here's the problem: establishing that AI training requires a copyright license *will not* stop AI from being used to erode the wages and working conditions of creative workers.

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The companies suing over AI training are also notorious exploiters of creative workers, union-busters and wage-stealers. They don't want to get rid of generative AI, they just want to get paid for the content used to create it. Their use-case for gen AI is the same as Openai's CTO's use-case: get rid of creative jobs and pay less for creative labor.

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This isn't hypothetical. Remember last summer's actor strike? The sticking point was that the studios wanted to pay actors a single fee to scan their bodies and faces, and then use those scans instead of hiring those actors, forever, without ever paying them again.

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Does it matter to an actor whether the AI that replaces you at Warner, Sony, Universal, Disney or Paramount (yes, three of the Big Five studios are also the Big Three labels!) was made by Openai without paying the studios for the training material, or whether Openai paid a license fee that the studios kept?

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This is true across the board. The Big Five publishers categorically refuse to include contractual language -romising not to train an LLM with the books they acquire from writers. The game studios require all their voice actors to start every recording session with an on-tape assignment of the training rights to the session:

pluralistic.net/2023/02/09/ai-…

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And now, with total predictability, Universal - the largest music company in the world - has announced that it will start training voice-clones with the music in its catalog:

rollingstone.com/music/music-n…

This comes hot on the heels of a massive blow-up between Universal and Tiktok, in which Universal professed its outrage that Tiktok was going to train voice-clones with the music Universal licensed to it.

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UMG Offers Voice-Clone Tech to Artists With SoundLabs Partnership

Universal Music Group announced a partnership with AI music startup SoundLabs, promising artists an ethical way to make their own voice-clone models.

^{Ethan Millman (Rolling Stone)}