So it seems artists' beef is not, or should I say, should not be with the likes of Spotify and Pandora...etc but with their labels. The music business is shady as hell. From Forbes:
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To understand the urgency the labels feel, it’s helpful to walk through what they’ve endured. Total U.S. album sales peaked at 785 million in 2000–the year after a pair of teenagers named Shawn Fanning and Sean Parker created Napster, which allowed anyone with a computer and a reasonably fast Web connection to trade music.
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By 2008 annual album sales had plummeted 45%. Between then and now, even as the labels reined in illegal downloading, sales dropped another 40% to 257 million. That means, at $15 per album, the industry is currently taking in $7.9 billion less in annual retail sales than it was a decade and a half ago. Initially, the labels’ response was to fight piracy in court and to fold into one another. There were six majors in 1999; now there are three.

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Apple provided a respite. Selling billions of 99-cent songs on iTunes gave labels a few years to catch their breath as the streaming revolution approached. Now, as the MP3 heads the way of the eight-track tape, it seems the labels have learned from their mistakes. Led by Warner’s new billionaire owner, Len Blavatnik, Universal CEO Lucian Grainge and Sony’s music chief, industry veteran Doug Morris, the majors have figured out that it’s smarter to bully their way into companies seeking to eat their lunch rather than perpetually try to sue them, Whac-A-Mole-style, out of existence.
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So far two dominant streaming models have emerged: Internet radio companies like Pandora that allow subscribers to passively listen to music that’s customized for their tastes and interactive ones like Spotify that allow users to pick songs.
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The former can operate under a government-mandated license that dictates how much they have to pay. By contrast, Spotify and others must strike deals with labels and publishers in order to license music for legal use in the U.S.
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One insider says YouTube alone paid the majors more than $1 billion in advances over the past two years. Spotify pays out about 70% of its revenue–at a rate of 0.7 cents a spin–to labels and publishers, who then pass along a small fraction to their artists and songwriters.
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These arrangements offer labels another way to leverage their artists to make money from digital streaming: arbitrage. The formula for how much Pandora, YouTube and Spotify pay the labels isn’t related to the formula that the labels use to pay the artists whose songs are played. The latter is determined by a combination of individual contracts and a structure so byzantine that it goes by a moniker only a secretive hedge fund quant could love: the “black box.”
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So how do the labels make money from the spread? Let’s understand the concept of “breakage.” The labels generally ask for digital partners to front an advance, not unlike how they worked with the record clubs of yesteryear. When a contract expires, there’s often a difference between the royalties earned and the initial advance. The labels generally keep that difference. When the labels re-negotiate, it’s with entities in which they hold significant stakes, ensuring the same rules apply all over again.
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The black box has many other ways to squeeze money from the artist. For example, “Drunk in Love” is undoubtedly a hit single performed by Beyoncé and Jay Z–but it exists under many different names (“Drunk in Love” by Various Artists, by Beyoncé feat. Jay Z, etc.). In cases of mislabeling, royalties don’t typically go to music’s royal couple but rather a pool of unclaimed cash eventually doled out to the labels at a rate commensurate with their market share.
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And while U.S. laws exempt broadcasters from paying out royalties on the recording side, foreign laws often do not. When an American act scores a hit in the U.K., it’s not clear how often the U.K. label pays through to the U.S. label and performer. FORBES estimates that labels are collecting $300 million worth of putatively “unattributable” money each year.
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“By not having great data and not having a worldwide database,” says John Simson, who used to run SoundExchange, a nonprofit trade association responsible for collecting artist and label royalties on digital transmissions, “it just makes it easier for money to go to the black box.”
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Labels have also increasingly used their leverage to get a piece of concert revenue. This is relatively new: Historically, touring was often a loss leader to boost album sales. Now that it’s reversed–most of the profit in the music industry comes from live shows–the majors take a piece of the profit in exchange for their promotion and marketing for the acts overall. These so-called 360 deals date back to the days of the Monkees and became prevalent when Live Nation started shelling out nine-figure advances to the likes of Jay Z and Madonna (both now stakeholders in Tidal) for such arrangements about a decade ago.
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These days 360 deals are mostly reserved for young acts with little leverage; under such an agreement they typically give up 10% to 20% of what they net on shows to the label. Of course, these sorts of heavy-handed tactics have existed since the early days of the phonograph. Thomas Edison himself founded Edison Records–and refused to even print artists’ names on his products, let alone pay transparent rates.
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The difference is that artists now have choices. Most of them rail about the system–and then buy in anyway. But some put their money where their mouth is and go their own way. Taylor Swift owns a piece of her label, Big Machine Records, and she pulled herself off Spotify after a reported dispute over her fees (months later she agreed to put her music on Jay Z’s Tidal). Hanson puts out its own albums, cuts it own deals and books its own shows. “We have a really good 360 deal,” says Isaac Hanson, one of the three famous brothers in the group, “with ourselves.”
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So essentially Tidal looks like a way in which Jay Z wants to enrich his friends. He is hoping for a valuation that will place Tidal into the Billion dollar club like Spotify, go public and profit from the billion dollar windfall Tidal would be valued at. This would earn him a massive windfall. Clever business guy that Jay is, assuming Tidal can work.
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Will.I.Am said it best, the music business is designed to sell everything but music (e.g Selling Sony walkmans, MP3 players, iPhones, Record players, concert tickets, merchandise, perfumes, Spotify subscriptions...etc).