How Taylor Swift's punches are hurting Spotify

In Taylor Swift’s songs, the good guys and bad guys are clear. “Mad love” passes directly to “bad blood” with no friendzone in between.

That also appears to be the case for Taylor Swift the businesswoman, as she made clear in a new Vanity Fair interview. When asked about Apple caving to her demand for additional payment, and Spotify not doing so, she gave Spotify the same kind of verbal backhand as she does to exes in her songs.

“Apple treated me like I was a voice of a creative community that they actually cared about,” she said. “And I found it really ironic that the multi-billion-dollar company reacted to criticism with humility, and the start-up with no cash flow reacted to criticism like a corporate machine.”

Does Spotify really need to be concerned with Swift’s absence? After all, it is now a company with more than $1 billion in revenue. While its cash-flow issues are very real (its net loss nearly tripled in the past year), the company continues to add users at a steady clip.

But here’s the thing: Taylor Swift is almost a mini music industry all by herself, having topped Billboard’s list of money makers in both 2011 and 2013, earning an estimated $40 million in 2013. And she is pretty much a lock to take the title for 2015 once her current “1989” tour is complete.

Spotify recently released data that reflect the heft of “global superstars” like Swift as revenue sources.

Spotify projects that, on average, payouts to a “global superstar” and her label will be $13.9 million over the next 12 months. That is 4.2 times larger than the next largest payout category, a “Spotify Top 100” artist (presumably someone with a song consistently in Spotify’s Top 100 but not yet at the Global Superstar level), projected at $3.3 million.

In November a Spotify spokesperson told Time Magazine that the total payout for Swift’s streaming over the previous 12 months globally was $2 million, representing 0.2 percent of Spotify’s total $1 billion in payouts for 2014.

But that does not include any payouts for streams from Swift’s smash hit album “1989,” which never made it onto the service.

Michael DeGusta, a tech blogger who has explained how streaming service royalty payments work, argues that Spotify now faces opportunity costs from listeners using the service less because Swift isn’t on it.

“There’s got to be a fair number of people who view Swift’s presence as a minimum requirement, and therefore when that [0.2 percent-worth of streams] left, more [potential revenue] would surely have gone with it,” he told Fusion in an email. “And obviously now 0 percent of those people are on Spotify, and more than 0 percent are on Apple Music, possibly a good number in light of Swift’s personal stance on it post-the initial kerfuffle.”

He also believes there could be a group of once-potential Spotify users who will now steer clear of the service as a result of Swift’s pulling her music, because they will deem the overall service inferior compared to another service, like Apple, that does have her music.

“Even someone like me who isn’t a Swift listener per se is aware of her absence and [there is] the resulting sense that ‘Spotify doesn’t necessarily have the A+ stuff you want to listen to now,’ which can’t be good for sales,” he told Fusion in an email.

He also notes that younger listeners have been Spotify’s heaviest listeners, and are more oriented toward new and popular music.

Indeed, according to analyst group Civic Science’s InsightStore, 61 percent of Spotify users are 29 and under, vs. 45 percent of Pandora users. The same report found Spotify users are 16 percent more likely to be millennials (18-34) than Pandora users.

Pandora, it should be noted, has managed to hang on to Swift’s music, as has YouTube, creating additional avenues for Swifties to steer clear of Spotify.

The big difference between Swift and other artists is that she owns her own label, and the decision of whether to stream music through Spotify almost always lies with the labels rather than the artists.

But many artists of Swift’s caliber have managed to retain some leverage over how and when their music arrives on these services — such as Beyoncé’s decision to withhold her self-titled album for a year.

There are signs that the music industry at large is questioning the value of putting popular songs on services like Spotify. Other big-name musicians who have openly criticized the business model of streaming their music include Radiohead’s Thom Yorke, Garth Brooks and Prince. Just last week, David Byrne wrote an op-ed in the New York Times calling out the “rising tide of dissatisfaction” in the industry.

In a statement to Fusion, Spotify said it had no comment on Swift’s Vanity Fair interview or how her departure has affected the company.

As Fusion previously reported, Spotify has now grown to the size of Pandora despite having only been in the U.S. for a few years.

But industry analyst Bob Lefsetz has argued a company like Spotify not responding to Swift like Apple did will come at a cost.

“People will forget Apple didn’t want to pay, but they’ll always remember Taylor Swift standing up to the company,” he wrote in June. “Apple nipped the problem in the bud, the longer you let the negativity fester, the longer the stink holds.”

Correction: This post is a revised version of the original. It has been altered to make clear that Spotify has $1 billion in annual revenue, that Swift’s payout represented 0.2 percent of Spotify’s total payouts, and that labels usually decide whether to feature an artist’s music on streaming services. It also removes a chart and a paragraph with estimates of how much of Spotify’s business is related to “global superstars.”

Rob covers business, economics and the environment for Fusion. He previously worked at Business Insider. He grew up in Chicago.