In negotiations, our success often hinges on our bargaining power—which in turn can depend on forces beyond our control. That truism was highlighted back in 2014 in two disputes arising from business negotiations over the pricing of copyrighted material in the digital era, one from the music world, the other from publishing.
Let’s take a look at the negotiations between Spotify and pop music star, Taylor Swift.
First, country-music star Taylor Swift injected new life into the stagnating music industry with the October release of her first pop album, “1989.” The album sold 1.287 million copies in the United States in its first week, instantly becoming 2014’s bestseller.
Amid the win-win-win news for Swift, her fans, and the music industry, there was one clear loser, however: Spotify, the world’s most popular music-streaming service.
In the business negotiations surrounding the release of “1989,” Swift and her label, Big Machine, told Spotify they only wanted the company’s paid subscribers to have access to her new music. Spotify has a two-tier system: about a quarter of its 40 million users pay a subscription fee to listen to streamed music free of advertising; the rest listen to music (and ads) for free. Spotify’s subscription tier pays higher royalty rates to artists than its free tier. Artists like Swift have criticized Spotify and similar sites in the past for paying low royalty rates.
Spotify denied Swift’s request to keep her music off its free tier. In response, Big Machine asked to have her entire catalog taken off the site. The decision was a huge blow to Spotify, whose success depends heavily on its ability to provide the new music its listeners crave. Other streaming outlets have retained access to Swift’s catalog by agreeing to her demand to keep her music out of free tiers or only available for a fee.
Swift’s decision might have been predicted by an op-ed she wrote for the Wall Street Journal in July 2014.
“It’s my opinion that music should not be free,” she wrote, “and my prediction is that individual artists and their labels will someday decide what an album’s price point is.”
Spotify tried to resolve the dispute by launching a social media campaign aimed at recruiting Swift fans to try to entice her to return to the site. But Swift and her record label held firm. The company made changes to its business model to raise royalty rates to a level that would lure back Swift and keep other popular artists from following her lead.
Notably, however, Swift’s ability to walk away from Spotify is an anomaly. Most musicians must “follow fans where they are, and that’s on streaming services,” writes Victor Luckerson for Time magazine. Music taken off these services would likely result in the return of the “rampant piracy” of the Napster era, according to Luckerson.
In recent news, Taylor Swift’s Big Machine label was recently sold, preventing her from owning and thus performing much of her old music. We’ll see how that negotiation pans out.
Hachette and Amazon at the Bargaining Table
Turning to the publishing industry, the dispute between publisher Hachette and Amazon over the pricing of Hachette e-books dragged on throughout spring 2014. When Hachette reportedly refused to meet Amazon’s steep price concessions, Amazon engaged in hardball tactics such as raising the price of Hachette books and delaying their delivery. As a result, sales of Hachette titles have plunged, leaving many of the publisher’s authors feeling like pawns in the ongoing dispute.
Hachette might have gained negotiating leverage by offering Amazon Kindle users a significant discount on Hachette e-books downloaded from the retailer’s competitors (like Apple, Google, and Nook). But, due to its own lack of foresight, Hachette is prohibited from doing so, writes Cory Doctorow in a recent article in The Guardian.
Ironically, Hachette was a staunch supporter of a 1998 law that gave retailers, and not publishers, control of piracy-prevention measures for e-books.
That is, having instructed Amazon to “lock” its e-books, Hachette is now legally prohibited from taking the locks off or from encouraging consumers or retailers to do so. Consequently, “Hachette has allowed Amazon to utterly usurp its relationship with its customers,” writes Doctorow. And it squandered a key bargaining chip in the process.
Publishers could level the playing field in their pricing disputes with retailers like Amazon by refusing to put digital locks in their e-books, says Doctorow. He notes that the Macmillan imprint Tor Books, the premier science-fiction and fantasy publisher, has achieved steadily rising e-book sales with no corresponding rise in piracy levels since it stopped putting digital rights management protections (DRM) on its entire catalogue two years ago. Doctorow urges all publishers to avoid the “Hachette trap” by releasing their entire catalogue unlocked.
Lessons from Dispute Resolution Between Amazon and Hachette
What are the lessons from these two related disputes? First, power matters, and your level of power depends on your BATNA, or best alternative to a negotiated agreement. Taylor Swift was able to turn her back on negotiations with Spotify because she had no shortage of other negotiating partners eager to work with her. Hachette, meanwhile, is stuck doing business with Amazon, by far the largest game in town. Dispute resolution remains a necessity.
In our digital era, negotiations surrounding new technology are in a constant state of flux. As CDs give way to downloads and streaming, and physical books make way for e-readers and e-books, new pricing models are born, and new issues, such as piracy, become open to both exploitation and discussion. Wise negotiators try to think several steps ahead to prepare for industry-wide change, lest they be left behind.
Do you have a powerful approach to negotiations? Leave a comment.
Originally published in 2014.