The arrival of Spotify to the United States in July of 2011 brought a lot of attention – good and bad – to the newest music consumption trend of subscribing to services that provide massive musical libraries for a low, monthly fee. Although websites like Rdio and MOG had already been in place in the U.S. long before last summer, Spotify, with its backing from billion- dollar social networking company Facebook, promised to revolutionize the music industry and help propel it into a new and thriving digital age. However, as the months passed, many artists and record labels began to complain that the sums they were receiving from streaming services for the use of their music were minimal at best. This led to a wave of both major and independent labels/artists announcing that they would either be removing their music from the streaming services, or refusing to further release new albums onto the platforms.
The debate over whether current payout methods used by Spotify and other subscription models will help the sustainability of the music industry in the long term has to be explored before jumping to any conclusions about streaming’s importance in the revival of recorded music sales. Furthermore, by tackling the recent questions about the profitability and sustainability of Spotify in America, we can also ask exactly how the streaming service has affected music consumption and the music industry. Finally, we hope to suggest a way forward.
The most prevalent problem being debated about online streaming services has to do with their current payout structures. Although the numbers vary from one site to another, and apparently from one artist/label to the next, many individuals have publicly released their royalty statements in order to help educate their fellow artists. This is the case with a group called Uniform Motion, which recently announced that they made only 4 cents per time their entire album was streamed on Spotify.i This amount seemed especially small when compared with the $8.59 obtained from a sale of the same album on iTunes.ii Another website called www.informationisbeatiful. com created a chart showcasing how much money artists earned from various streaming websites. Last.fm was paying out artists .075 cents per play, while Spotify only .029 cents for the same play per song.iii Such numbers make it extremely hard for any musician to earn a significant amount of money from these streaming services alone, no matter how famous they may be. A case in point is Lady Gaga: a 2010 article in the The Guardian claimed that the hit Poker Face earned a little over $167 for the 1 million plays it received on Spotify in 2009.iv
Streams vs. Downloads
At first glance, the meager amounts paid out to artists by streaming services may cause many to believe that subscription based websites are really no better for artists than illegal downloads. However, it is important to analyze what exactly constitutes a “stream” and how this differs from actually owning the music, whether in physical or digital form. Services like Spotify allow premium users to stream songs as many times as they want, so long as they are connected to the Internet. The user, in fact, simply pays for the right to play it and never actually owns the song . As soon as payment is stopped, the user is forced to temporarily listen to advertisements in order to retain access to the streaming service. Following this logic, it would only make sense that royalties from streams be lower than royalties received from physical/digital sales, as in the former case, users never become proprietors of the music.
Threat vs. Opportunity
The problem with the reduced royalty rate is that many artists claim it may not be sustainable for the industry as a whole, and that if streaming were to ever replace physical/digital sales, many musicians would lose a significant proportion of their income. The main flaw with the aforementioned claim is that it takes for granted that streaming music online is likely to ever replace the more conventional ways of selling music, when no evidence indicates as much.
In fact, many Spotify users would argue that the service is used as a cost-effective music discovery tool, which continues to complement physical/digital sales. While they enjoy the ability to have access to the millions of songs in an online catalog, many customers may continue to desire to own music. Accordingly, Spotify could act as a supplement to traditional music consumption (digital/physical sales) rather than as a substitute, meaning that it may not actually threaten physical sales of music, and by inference, overall artist income. Moreover, streaming services could be seen as promotional tools, allowing consumers to discover new artists, which could eventually lead to sales that would have never occurred in the absence of the streaming website.
Crossing the Mark
This strict differentiation between true ownership (a digital/physical sale) and temporary right to use recorded music (a stream) becomes blurred with Spotify’s implementation of the “locker.” Premium users have the right to create musical libraries, store them on their electronic devices, and access these same songs offline, so long as the device is connected to the Internet at least once a month in order to verify that the monthly subscription is still being paid. This means that songs no longer need to be streamed, as they can be accessed from users’ electronic devices offline, and can be listened to anywhere.
Although extremely convenient for users, the “locker” service no longer fits within the traditional definition of an online stream, and therefore should be treated differently in terms of royalty calculations. One of the basic reasons why people continue to purchase both physical and digital works of music is for the convenience of being able to access it anywhere, at anytime. This is an important distinction to streaming, which was traditionally restricted to wherever an Internet connection could be obtained. In this case, instead of acting as a supplement to traditional music consumption, Spotify’s implementation of the locker function could very possibly threaten physical sales. Accordingly, industry professionals should attentively explore this issue in order to avoid further harming the already fragile recording industry.
One Size Doesn’t Fit All
Another issue that has been the center of numerous debates is the fact that there is no standardized royalty rate in place for any of these streaming websites. Different websites pay different rates using complicated customized metrics, which makes it extremely difficult for artists to keep track of how their royalty statements are being calculated. For example Rhapsody is said to pay 0.22 cents per stream,v Pandora pays 0.12 cents,vi Last. fm pays 0.075 cents, and Spotify pays 0.029 cents.vii These are only four of a very large list of streaming websites available to consumers worldwide, many of which may be unknown to artists whose music is being played. Much like in many other parts of the music industry, a standard royalty rate should be set for all streaming services and be regulated by an outside collection agency (instead of being released directly from the service to the artist/ label). Similarly to terrestrial radio, it is nearly impossible for an artist to monitor every time a song he wrote is played on any one of hundreds of streaming websites; for the artist, it is important and convenient that an outside collection agency monitors this usage.
While many musicians and record labels were quick to jump to the conclusion that streaming services were here to further destroy the already meager revenues received from record sales, it could be said that Spotify has the potential to improve the current economical situation if used properly. While there is no doubt that the current royalty rate paid per song is extremely low, Spotify continues to be used as a supplement to other forms of record sales (such as iTunes and physical records). It is far from being a substitute to such sales and it may actually increase the overall revenue generated from music consumption. Furthermore, by being treated as a music discovery tool, it could open an entirely new marketing tunnel for artists to further promote themselves in the cutthroat online world. The implementation of an outside, non-biased collection agency who sets a standard rate for all streaming services would also serve to make these websites more regulated and, by the same token, more artist friendly. With these changes in mind, although it may be exaggerated to say that subscription websites will revolutionize the music business, they may very well improve the current state of record sales, and act as one of many useful tools at the disposal of the ever-growing group of musicians.
By Frederic Choquette
i. http://www.digitalmusicnews.com/ stories/091311artistmakesii.
iii. http://www.informationisbeautiful.net/2010/how-much- do-music-artists-earn-online/
iv. http://www.guardian.co.uk/music/2010/apr/13/spotify- songwritersv.
v. http://www.informationisbeautiful.net/2010/how-much- do-music-artists-earn-online/
vi. http://www.billboard.biz/bbbiz/industry/digital- and-mobile/business-matters-pandora-grew-like-gang- busters-1005205492.story
vii. http://www.informationisbeautiful.net/2010/how-much- do-music-artists-earn-online/