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Hipgnosis - Spotify has rowed back from its initial uncompromising stance on The Joe Rogan Experience podcast. On the earnings call they said there is still 'work to be done' and that they are rolling out 'advisory content’ where needed. Although the focus has been on $100m or so that Spotify paid for rights to Rogan’s podcast, vs the relatively small amount paid to Neil Young on an ongoing basis, the resulting media firestorm and loss of $bns of market value has forced Spotify to take a more conciliatory approach. In our view this leaves the door open for Neil Young to return having drawn attention to the issue of false information in a bigger way than he probably expected. But it is clear why Spotify likes podcasts – they are much more profitable than music as they usually pay creators a flat fee rather than a revenue share. They also differentiate it from competitors. Music can lose out in one sense from more listening to podcasts (and podcasts have been increasing their share of listening on the platform), but on the other hand if they drive higher subscriber numbers than would otherwise be the case this benefits music as well. It will be interesting to see what impact all this has on Spotify’s market share, with Apple welcoming Young’s listeners with open arms. Young also has his own streaming service that we would expect to benefit. Some commentators focus on how Spotify pays less per stream than Apple, for example, but this is not a like-for-like comparison given that per stream numbers include Spotify's free tier.
To clarify regarding who owns the right to add music or remove music from a digital service provider (DSP), it is driven by the person who owns the rights to the sound recording, though a licence is also required from the publisher, but it is difficult to see why they would not act the same way as the label. The owner of the recording will, in most cases, be the record label, and as we have written many times the labels enjoy the vast majority of the economics from streaming. In the case of Neil Young and others, the record label's support is thus required to take the music down, and this seems unlikely to hold in the long term no matter who the artist is. But what is less clear is what the DSP’s licensing agreement with the record label includes and therefore the extent to which the DSP can resist a takedown request by the label.
We reiterate our view that the impact on SONG’s total revenues from Neil Young being off Spotify for even a year are relatively modest. Our initial back of the envelope estimates of 0.6% to 0.9% of annual income is supported by Billboard estimates of Young’s total annual revenue from Spotify of $754,000. Some of this will include his income from the masters via the record label, but to be ultra cautious and take half of this (SONG’s share of his rights), it implies a $377,000 annual hit for SONG, which is just 0.26% of our T+1 revenue estimate. Part 1

I received the following from SONG IR dept:
We can’t disclose how much of our income is related to Neil Young’s catalogue, but it is worth noting a few things: ie that Streaming will only be a part of that (cf: for our portfolio as a whole it is c33%), and Spotify will only be a part of the streaming element (cf: Neil Young said it was 60% here: https://neilyoungarchives.com/news/1/article?id=Thanks-For-Standing-With-Me)

There is a number that you might have spotted in Variety magazine (https://variety.com/2022/music/opinion/neil-young-spotify-crusade-joe-rogan-opinion-1235169321/ ) quoting an estimate from Billboard that Neil Young earns $754,000 each year from Spotify, in which case Hipgnosis’ share would be half that, which would put it at 0.25% of annual income. We can live with those assumptions.

For further disclosure, Hipgnosis bought 50% of all writers copyright & income rights (ie publishing side, not masters). There are 590 songs, as listed in the annual & interim reports (latter is page17)

Interestingly, as a result of recent publicity, Neil Young’s profile has never been higher and his music is actually seeing a significant increase in consumption despite being removed from Spotify – in the 7-day period after Neil Young asked Warner to take down his music from Spotify, the US streaming of Neil Young was up 28% and album sales were up nearly four-fold. Neil Young is also being listened to by a new younger audience that support his position on vaccination – a core part of Hipgnosis’ thesis has always been that introducing music to a new audience will increase the long term revenues.

The use of music on streaming platforms is controlled by the Master Right’s holder i.e. the record label.

In the case of Neil Young this is Warner Music who have the master recording rights and they made the decision to remove their recordings from Spotify Neil’s request. We can only assume that Warner took the view that:

1. That this is temporary – & I note that Spotify has now apologised. On their earnings call last night, they mentioned that there was “still work to be done” but “advisory content is being rolled out as we speak”, which I hope means he is having a constructive dialogue with Neil / Warner.

2. To not do so would alienate Neil’s fans who are responsible for the revenues on his catalogue being predictable and reliable; and

3. That this is likely to have minor negative impact and, as per above, could potentially be positive to both revenue and long term value as Neil’s profile is now higher than it has been for years. Other digital service providers have been promoting him actively; Apple Music, for example, put a slide called "We Love Neil" if you went on the Browse tab on Apple Music.

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