Taylor Swift vs. the Mad Men

FILE - In this Tuesday, March 23, 2010, file photo, the Google logo is seen at the Google headquarters in Brussels. Google is
FILE - In this Tuesday, March 23, 2010, file photo, the Google logo is seen at the Google headquarters in Brussels. Google is about to change the way its influential search engine recommends websites on smartphones and tablets in a shift that’s expected to sway where millions of people shop, eat and find information. The revised formula, scheduled to be released April 21, 2015. (AP Photo/Virginia Mayo, File)

"I need you to go and get a cardboard box. Then put your things in it."
Don Draper to Pete Campbell, Mad Men, Season 1, "New Amsterdam"

You've heard about Taylor Swift's leadership in the soft power of artist rights. You may not have heard about the commercial collision--literally--at the heart of the conflict. And as more content creators from artists to journalists realize that Ms. Swift's approach might work for them, too, tech giants with "advertising in their DNA" may worry where it's going to stop.

The collision is as old art and commerce. The contemporary story confounds the companies lacking experience with artists or songwriters but that are invested in advertising-supported models including Spotify and of course Google's YouTube subsidiary. While no Pandora, Spotify and YouTube have had more than their share of highly publicized collisions with the artists and songwriters they purport to serve.

What is less well known is a new alliance between Google and Spotify that highlights the market dominance of each. As the well-respected tech journalist Kara Swisher wrote in Re/Code, Google recently gained a seat on Spotify's board of directors where Google placed Omid Kordestani, Google's Chief Business Officer. She also reports that Spotify hired Shishir Mehrotra, a former YouTube product expert, to advise Spotify's CEO Daniel Ek. Google provides advertising to Spotify's "free" or ad-supported service.

It should come as no surprise that YouTube wants to buy Spotify if available, also according to Ms. Swisher. That puts the migration of Google employees in a different light.

Considering these facts, it becomes nigh impossible for Spotify to maintain their "at least we're not YouTube" argument to artists. Spotify's and YouTube's gambits must also be read together.

The recent antitrust complaints to the New York and Connecticut Attorneys General and the European Commission about Apple Music--mysteriously timed around the launch of Apple Music--raise questions. As we saw in the Wall Street Journal's reporting on the Federal Trade Commission's antitrust investigation of Google, such investigations are often started by competitors' confidential complaints to regulators. Who might have lodged complaints against Apple Music and the major labels? Spotify and its board member Google?

Could Google portray itself as a victim using Spotify as a shield? This might be a particularly appealing gambit with the European Commission that has Google on the back foot in a long-standing antitrust complaint.

When Spotify's CEO Daniel Ek gets into public spats with artists who provide the music that drives his service, it's unclear just how much he is also carrying water for his board member, revenue partner and potential exit strategy provider. Their interests seem quite aligned.

There are at least two reasons most frequently given for creators opposing "free" music services--"free" usually means ad-supported music services for which Google sells advertising one way or another. First is that the royalties are determined with a byzantine calculation resulting in abysmally low payments for artists and especially songwriters. This includes independent artists who get paid the label and artist share of royalties no matter how much YouTube and Spotify want to claim the labels are stiffing their artists. Not to mention that the "free" model fuels the commoditization of music that trips the art/commerce circuit breaker. Commoditizing content through advertising is the bedrock on which Google and Spotify have built their businesses.

The other is the bait and switch. Spotify the start-up sold creators on supporting "free" music by claiming that Spotify would transition "free" users to subscriptions and away from stealing music on pirate sites (pirate sites are monetized by some of the same advertisers and ad networks).

This claim has turned out to be somewhere between a charade and a failure. As a senior YouTube executive recently said, "It's in Google's DNA to be in the ad-supported business. Subscription is an add-on. It's an adjacent business that we're building."

Subscription is an add-on? That's not how it was sold when Spotify needed licenses. Is ad-supported also in Spotify's DNA? Apparently so.

And there's the bait and switch. Artists were told one thing and are now told another after Google's is on the board and Spotify has an $8 billion valuation on the artists' backs.

What explains this apparent change in Spotify's business goals? It might be explained by Google's influential board seat and whatever Google did to get that board seat (usually involving writing a check). When you consider that Google earns the overwhelming majority of its revenues from advertising, is it surprising that Google has no interest in an acquisition target converting users from ad-supported services to subscriptions with no advertising.

And it's not just Spotify. Ms. Swift's approach to YouTube was to limit distribution of her current videos to the higher-royalty Vevo service available on YouTube through Vevo's relationship with Google. (Google owns part of Vevo.) This is good for the fan who can still get Taylor Swift through YouTube, and good for the artist who makes a higher royalty through Vevo. (Also good for Google who gets a share of Vevo's profits.)

The Swift approach, of course, is an example to other artists. That must give both Spotify and Google pause. Spotify spokesmen such as Sean Parker emphasize that Spotify's refusal to accept Ms. Swift's terms had no impact on Spotify financials. While doing without Ms. Swift may not have been an existential threat to Spotify, having the biggest pop artist in the world withdraw from the service surely had some effect.

Parker told CNN's Poppy Harlow that Taylor Swift is an "anomaly" because of her "built-in fan base." Parker also said that she is one of those artists who still sells downloads and even compact discs "in some parts of the country." This highlights Parker's fundamental lack of understanding of the music business--artists like Ms. Swift are called "stars," not "anomalies." And you know what's cool? Stars are cool.

Ms. Swift's 1989 album is still selling 30,000-50,000 a week nearly nine months after release. It's the #4 album this week on Billboard's Top 200 album chart. She is currently on a sell-out international tour for as long as she wants to stay on the road. It's easy to see why Parker, Spotify and YouTube might be quick to try to dismiss her as an "anomaly"--she's doing it all without them.

Ms. Swift hasn't offered a one-size-fits-all solution to what's wrong with the online music business. But that works both ways. Ad-supported streaming is not the silver bullet answer, either--artists should have the right to reject it without being called an "anomaly" and fans should have the right to prefer downloads and CDs (still 50% of at least Universal's U.S. record sales) without the implication that only people who live in flyover country would do such a thing.

Make no mistake--this is actually a collision between artists and the Mad Men of online advertising. Not to mention the commoditizing corrosion of advertising-driven business models. Somebody give me a cheeseburger.

And the last thing that ad-supported streaming services want is for a cascading wave of artists (like Prince) to start getting the idea that streaming is just another exploitation window they can do without.

Somebody might be cleaning out their desk.