This is the same problem that any unlimited service has to deal with. Why does a user who downloads 10GB of data per month on their cable modem have to pay the same price as a user who downloads 300GB? They're subsidizing his usage! Why should I have to pay the same price as everyone else for Netflix when I really only ever watch House of Cards?
The reason Spotify specifically works this way is because any other reimbursement model is untenable in the streaming world. Rev share works "off the top" because the overhead of managing reimbursement (specifically the audit overhead) at the subscriber level would wipe away too much margin. Pandora had an overly complicated revenue sharing scheme and it nearly bankrupted the company until they moved to a model closer to Spotify's.
But more specifically, revenue share works this way because that's how it's defined in the contracts that both the major label and the indie label signed. If the indie labels thought it was a terrible idea, they wouldn't have signed it. Most indie artists anymore simply expect to make next to nothing on distribution and playback of their music: they make their money on the live shows.
I always thought bands make their money on tour. live shows & merch; and the label makes more money from CD & song sells. I guess there is a new type of indie. Those that don't go on tour much and want money?
That was a different era in music. Technology has made it a lot easier to create and distribute music, so there is a lot more music out there, which means the value of the recording is less than it was prior to the 2000s. The Beatles were also an anomaly in the music industry; they were so popular they basically WERE the industry. Music today is much more of a long-tail market now that there's not a bottleneck in the recording and distribution functions.
This can't be all that new. I feel pretty sure that the group of bands who don't go on tour much, and still want money, is basically the same group as "bands who don't go on tour much".
The reason Spotify specifically works this way is because any other reimbursement model is untenable in the streaming world. Rev share works "off the top" because the overhead of managing reimbursement (specifically the audit overhead) at the subscriber level would wipe away too much margin. Pandora had an overly complicated revenue sharing scheme and it nearly bankrupted the company until they moved to a model closer to Spotify's.
But more specifically, revenue share works this way because that's how it's defined in the contracts that both the major label and the indie label signed. If the indie labels thought it was a terrible idea, they wouldn't have signed it. Most indie artists anymore simply expect to make next to nothing on distribution and playback of their music: they make their money on the live shows.