Even the long fawning UK press is now saying what any startup who has tangled with the music industry has said all along: Spotify will not be able to launch its free any-song-you-want-to-hear-the-second-you-want-to-hear-it service in the US. The Telegraph is reporting that at the last minute the labels demanded too much upfront cash, killing a hard negotiated potential deal.
This is sad, but not a surprise. Despite all the reasons consumers would love it and labels should be empowering a rival for iTunes, the labels are in defensive mode and have never been rational when it comes to these things. My issues with how Spotify has handled this aside, I actually didn’t want to be right on this one. It’s a sad day for users.
But this will be the interesting thing to watch: Does Spotify just roll these we’re-definitely-launching-in-the-US assurances forward to 2011, the way the company has the last two years or does it pivot, and focus on building a profitable site for Europe and other less guarded pockets of the emerging world? In the Telegraph link above an unnamed source says the year of brutal negotiations has forced Spotify to “stop and think about whether it can afford the move to the US and indeed whether it is worth it,” while the article quotes a Spotify spokesman as saying the negotiations are “on-going.” Oh, Spotify.
Here’s my advice: Pivot. Spotify has spent two years, and undoubtedly plenty of money and focus, fighting what was always a Don Quixote like battle to make the US labels listen to reason. This is the same industry who sued their users. It was a valiant effort, but it didn’t work. We can argue why they should back Spotify all day long, but the last two years has proven that they are just not going to listen without Spotify having to make some major concessions.
I think Spotify should walk instead of making those concessions. No matter how hot of a startup you are, money and time are exhaustible commodities. Spotify should start directing them at challenges elsewhere until there is enough of a sea-change in the US music market that labels see reason. Giving into the labels’ demands isn’t the answer. Instead, Spotify should retreat, build in other countries, perfect its model, get to profitability, and then come back to this market when the labels are weaker and Spotify is stronger, boldly proving cynics like me flat wrong. Use your international headquarters as an advantage, not a liability.
Spotify board member Klaus Hommels told me in an interview late last year that he believed Spotify may be the venture industry’s last-ditch effort to build an online music company. (Other than Pandora, of course, the online music company with nine-lives that finally won the right to exist.) He told the labels in negotiations that if they opted instead to drain Spotify’s venture cash and leave it for dead the way they have to so many others, they may never get another hot upstart to back. And that would resign them to an Apple dominated world.
He may be right. So why not play the long game, instead of the short one?
(Note: Don’t worry, I’ve put two dollars in the TechCrunch Pivot/Swear Jar.)
One of the most discouraging things about the last two years was seeing swing voters in focus groups, when asked what President Obama's economic strategy was, repeat different versions of "Well, I know he said we needed to save the banks. Beyond that, I'm not sure." When Obama in his first State of the Union gave a vigorous defense of bailing out the banks, saying he knew it about as popular as a root canal, and saying "I get it", it was very memorable to voters. But when his predictions about what would happen when the banks were stabilized -- they would start making loans to businesses, and businesses would start hiring -- didn't happen, and instead the banks gave themselves record breaking bonuses, voters turned on Obama fast. In exit polls on Nov. 2nd, when asked who was most to blame for the bad economy, voters by a wide margin said Wall St. was most to blame, and the voters who said that went Republican by a 14-point margin.
Obviously, saving the banks hasn't been the President's only economic strategy. The stimulus bill, while too small, was an important job creator/saver. Saving the American auto industry was an incredibly important thing to do. Health care reform was in part a long term economic strategy. The infrastructure bank idea is a great potential job creator. Extending unemployment insurance helps keep money in the economy. And all the tax cutting going on is clearly meant to have some stimulative effect, although how much is highly debatable.
However, there have certainly been times where Secretary Geithner, who has been the main driver of the economic strategy, seems to think and act as if helping the big banks and helping the economy amount to the same thing. The tepid reaction to the foreclosure crisis has sure felt that way -- apparently we can't freeze foreclosures or do much to help homeowners because it might "endanger" the banks. In fact, I would argue the exact opposite: that our number one economic strategy right now should be to shift money from the big banks to the real economy, to Main Street businesses and workers and consumers. The big banks are hoarding extraordinary amounts of money, and they are clearly not investing it in job creating businesses. They are speculating with it, they are trading with it, they are investing in complicated financial instruments that do nothing to create jobs- in fact, they are sucking capital out of the real economy that might actually create jobs. These massive financial conglomerates have way too much concentrated wealth and market power, and that is weakening the rest of the economy.
This is one reason why, as I wrote a couple of times last week, it is so important to write down the mortgages of homeowners who are underwater. Taking that money out of the bankers' hands and putting it in the hands of the hard pressed middle class would do more to stimulate the economy than any other thing the President could do right now. This is also why the Federal Reserve's new proposed rule, out last week, on swipe fees is so good. It would generally limit swipe fees to 12 cents per transaction. Right now the average is 44 cents, and with most small businesses it's quite a bit higher. If this rule is upheld, this is money that will go straight from the big banks' profit margins into the main street economy -- all told, probably a $15 billion boost going back to retailers, restaurant owners, taxi cab drivers, and hopefully consumers. $15 billion going from Wall Street, speculative economy into the real economy is a nice lift right now. This is why I have been working with retail business leaders and consumer groups to support this new regulation.
Unfortunately, not all Democrats see it this way. Tom Carper and Mark Warner tried to head off the amendment that made this regulation happen in the Senate, and have been lobbying the Federal Reserve against a strong regulation on the subject ever since they lost the legislative fight. And Barney Frank, who is a great liberal on social issues but spends way too much time with bank lobbyists, was whining on Friday how unfair the proposed rule was to the poor bankers.
Barney, you got this one wrong. Democrats should not be looking out for the bankers, we should be looking for every single opportunity we can to drain the Wall St. swamp. The big banks are hoarding money. They have way too much market power, and when their profits expand, they put that money into the speculative economy rather than the real economy that manufactures goods, sells products and services, and creates jobs. When we take a dollar away from them, and put it into the real economy, there is actually a multiplier effect as people on Main Street spend or invest the money in real products. When mortgages get written down, it helps the real economy. When swipe fees on credit or debit card transactions get lessened, it helps the real economy. If we instituted a transactions tax on every trade made on Wall St, and put that money into a jobs program, that would help the real economy.
The big banks are hoarding our money. Our best economic program right now is to shift money from the banks, and put it into the hands of consumers who might actually buy products and businesses who might actually hire more workers.
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