Is Spotify Ruining the Music Industry?
In recent years the way that people collect and listen to music has clearly evolved. When
there was once a time where vinyl collections would fill rooms, cassettes would need to be
rewound with pencil tips and CD’s where susceptible to scratches, it seems to have become
a normality for many to purchase and store music electronically, rather than physically. With
over 576 million active user accounts and over 25 billion songs sold worldwide, the ‘Itunes
Store’ has become the world’s biggest music vendor in the world since its launch in 2003. It
is clear that the introduction of technology and services such as ‘Itunes’ has changed the
face of the music industry. However in recent years the music industry has seen yet another
huge change with the recent introduction of streaming services such as ‘Spotify’. Spotify is a
subscription based service which allows users access to millions of songs without actually
owning them. Founded by Swedish entrepreneur Daniel Ek, the site allows users pay a
monthly subscription package, in return gaining access to millions of songs stored on
‘Spotify’. However with subscription costs not exceeding £10, I was interested to know how
much of this fee was going to the artist’s themselves. I recently read that Spotify had
generated revenues of $577.1m but still made a net loss of $77.9m, this attracted my
attention as to whether Spotify is a sustainable method of listening to music. With a keen
interest in music and a Spotify user myself; I am interested to know what sort of impact
streaming services such as ‘Spotify’ are having upon the music industry, whether artists are
being ripped off and whether this is a sustainable method of enjoying music. As part of this
project I have conducted both primary and secondary research into the incomes of artists
and how Spotify has affected this, with various opinions and points of view along the way.
How Spotify Works
To begin, all you need to do is it to start a free Spotify account. Originally, Spotify was an invitation
only service but a new partnership with Facebook has helped to build Spotify 10 million users strong.
Once you have set up your account you need to follow a few simple steps to download the Spotify
programme onto your
computer. Once this has been
completed you are ready to
enter the virtual music library.
Spotify is completely legal due
to the fact that record
companies have allowed
them to share music with its
users, as long as they receive
revenue. Many labels were
reluctant to this for example
in America. However after
further negotiation, Spotify
have managed to secure the
four major labels (Warner
Music Group, Sony Music
Entertainment, EMI group,
Universal Music Group) to
sign to them allowing users to
access music from these
labels.
On the page above you can see a picture of the ‘Spotify’ layout. Once you have searched for a song,
artist or album you will be shown information about it. Here I have conducted a search on a band
and have been given a list of their popular songs, all of their albums, related artists and information
on their latest tour. You are conveniently presented with this information, all of which is a click of a
button away. These songs or albums can then be placed into a playlist for future convenience.
Playlists can be found in the left hand column on the print screen provided.
Thanks to Spotify’s new partnership with Facebook, it places great emphasise on sharing your music
with friends. It allows you to tell friends what music you are listening to with a click of a button,
sharing to your Facebook or twitter account. The use of Facebook also means you can view friends
Spotify accounts to see playlists they have created and even subscribe to them, providing automatic
updates when they make new playlists. All of these features are optional; however it provides
another insight into how our music experience is constantly evolving.
Free accounts do however have limitations compared to those who pay for the service. A new
account enters a six-month trial, in which users are allowed up to 20 hours’ worth of music per
month. Users will also face audio advertisements, which will be paused if muted or turned down.
After your introductory trial you are entitled to 10 hours’ worth of music per month and can only
play the same track 5 times per month. However for £4.99 per month you can purchase an
‘Unlimited Subscription’. For this price you can avoid advertisements as well now having access to an
unlimited limit of music playback. The third and considered most prestigious subscription is known
as the ‘Premium Account’. This option is arguably the most revolutionary. For £9.99 a month you can
access and listen to your music on a wide range of devices. This covers a wide range of devices such
as iPhone, iPad, iPod, Android, Windows Mobile etc. This means you can access your music on your
laptop or PC as well as your mobile device. Your mobile device will also store the tracks for you and
save them so that you can access them when an internet connection is non-existent.
When explained like that, Spotify seems to be a perfect idea. It allows you access to virtually any
song for a small monthly fee, even when you’re on the go. However as previously stated, I was
interested to know whether I should feel guility about using Spotify. Is it really the future of music?
Artist Royalties
Traditional forms of music purchasing means that the consumer pays once for a lifetime access to
this piece of music. Spotify however pays the artist every time the user listens to their song. On their
website, Spotify claim;
‘We pay out the majority (approaching 70%) of ALL of our revenue to rights holder’s e.g. artists,
labels, publishers. In just over three years since launching, Spotify has paid out over $500 million US
Dollars in artist Royalties.’
Without any statistics this statement comes across as fair. Spotify pay the majority of their revenue
to artists using their service as a platform to share their music, seems fair? Spotify also explain how
they pay royalties in relation to an artist’s popularity. By this they mean that the more popular
artists will receive a higher percentage of Spotify’s revenue. For example an artist who represents
5% of what users stream will receive 5% of Spotify’s royalty pay out. Exactly how much the artist
receives however is a topic which has formed much rumour and speculation among online forums,
blogs and newspapers.
A particularly famous case involving Spotify and their payments was the royalties paid to ‘Lady
Gaga’. Lady Gaga has become a huge name in recent years, toping CD charts, streaming charts as
well as selling out arenas. However it was reported that for her single ‘Poker Face’ she received just
$167 from over 1 million plays across a 5 month period. ‘The Independent’ newspaper stated that
based on these figures, for a solo artist to reach the minimum US monthly wage of $1,160, they
must have their tracked streamed 4.5 million times per month earning a scarce tenth of a penny per
play. Clearly this is a near impossible task even for A list stars such as Lady Gaga, let alone for artists
fighting to make a name for their selves. This article bought the issue of artist royalties to the
attention of the general public, sparkling debate in various internet forums.
However these statistics are incredibly unreliable. With Spotify unable to comment on the topic
Royalties for a number of reasons, it is hard to find out exactly how much artists are being paid. Not
only do Spotify need to keep artists information confidential, they also need to think about artist
complaining of unfair treatments if artists are earning more than her.
I did however come across an artist called ‘Zoe Keating’ who had shared her accounts online in an
attempt to bring the issue of artist royalties to the attention of the public. She has a reputation of
releasing accounts such as these which have been very useful in my investigation. According to
figures posted in
her document the
cellist earned $808
dollars from
201,412 streams of
tracks from her
releases in the first
half of 2013. The
streams of her
songs worked out at under 0.3 pence after her digital distributor ‘CDBabys’ 9% cut is taken into
account. It also shows that the ‘Xbox’ streaming service offered a much higher average price per
stream of 2.2 pence. I have highlighted this in the blue box. The first of the three numerical columns
represents the number of plays, whilst the next is the average price per play and the final being the
subtotal for the month in dollars.
The Xbox streaming service however was not able to generate enough plays to dramatically
influence Zoe Keating’s income. Her total streaming payments for her two releases was $3,454.28
for the first half of 2013.
2012. Rather than just accounts of her streaming, Zoe also included sales from people who had
actually purchased her music rather than just streamed it. In the notes section of Zoe’s accounts she
added.Prior to releasing her streaming income of 2013, Zoe also posted her general online sales of
2011‘But all the way at the bottom of the food-chain, how does a recording artist make a living? How
much cold cash does an unsigned DIY artist make from a stream or a sale? These figures are
surprisingly hard to come by, which is why the Future of Music Coalition has been surveying
musicians on how they make a living’
This statement outlines Zoe’s reasoning for posting her accounts online. She wanted to show people
the difference in revenue from a stream of a song compared to the actual sale, suggesting that she
did not support the streaming services. This document provided the following data;
 During the 4thquarter of 2011, Zoe received $149.7 for 40,573 streams, resulting in $0.003
per stream using the Spotify service.
 During the 1st quarter of 2012 Zoe’s income was even less with a total of $132.15 from
32,227 streams, meaning an average stream earned Zoe $0.0041 per stream.
 However during the same period, Zoe earned a net income of $82,651.22 from actual online
sales rather than streams.
 Roughly half of this income came from the Itunes service which generated $46,477.
 This means that nearly 97% of Keating’s income came from sales of her music through
Itunes, Amazon and her own ‘Bandcamp website’.
Despite Zoe clearly earning very little through the Spotify service in comparison to her actual sales of
music, she still seemed to support Spotify in the notes section of her spread sheet. She states;
‘I think Spotify is an awesome listening platform. In my opinion artists should view it as a
discovery service rather than a source of income.’
This quote interested me as I was able to match it to Zoe’s sales figures. She received a very small
amount of revenue from Spotify, but a reasonably large amount from online sales. It made me
question; maybe her online sales were increased by customers initially discovering her music on
Spotify? Zoe also went on to say;
‘The income of a non-mainstream artist like me is a patchwork quilt and streaming is one tiny
square that is that quilt’.
‘I do not see streaming as a threat… if people really like my music; I still believe that they’ll
support it somehow, somewhere’
These quotes again interested me. Zoe had outlined that she does not believe streaming is currently
a threat to the music industry due to her belief that people will support her music if they appreciate
it. Zoe’s patchwork quilt quote broke down her view for me. It showed me that streaming does not
have to be an artist’s one and only source of income. It can supplement further sales due to the fact
that it helps consumers to discover new music.
Flaws in the system
Whilst carrying out my research I came across a man
named Matt Farley. Matt is an example of a musician
who has made Spotify work for himself, some may
argue immorally however. Farley has released about
14,000 short, ridiculous and often-improvised songs,
over 200 albums under 65 artist names, generating
£13,000 per annum. Despite the fact Matt’s music is
not necessarily good, he based his song titles around
algorithms that Spotify use for recommendations. Matt
figured people were searching popular names and
phrases which weren’t necessarily incorporated into
existing songs names. Matt therefore creates band
names, albums and tracks relating to these popular
phrases meaning that his music appeared in people’s
searches and recommendations. One particular
example of people this is Matt’s bands ‘Papa Razzi and
The Photogs’ who make songs about celebrities.
This was following Matt’s discoveries that people
often search for ‘Celebrities’. A simple search of a
celebrities name is likely to land you in one of
these traps, requiring you to simply click on a song
to provide Matt with a source of revenue. On the
left is one of Matt Farley’s album covers. Farley
told BCDwire;
"I did a series of prom songs. A '________, Will
You Go to the Prom with Me?' song for 500
different girl names, I named the band 'How To
Ask a Girl to the Prom,' with the album titles
being 'Play This Song For Her Vol. 1-5.' But I was
told that online music stores don’t like band names that describe the music so plainly. So I
renamed them The Prom Song Singers."
He then told reporter Ryan
Walsh that ‘recording those
types of songs is "not fun at
all," but that they're the kind
of thing that are most likely to
bring in bucks when random
people get excited to find
songs containing their own
name.’
Despite the fact that Ryan is
arguably scamming the Spotify
service, I later went on to
discover that Ryan was in face
part of a real band ‘Moes Haven’ however for now, Matt will continue making money off of his fake
bands to make his money.
A Michigan-based funk band called Vulfpeck devised a similar plan that goes by the name of
‘Sleepify’. Vulfpeck released an album with 10 tracks, each 31 seconds long (Tracks must be 30
seconds long to register that they have been played). These tracks however where of pure silence.
They have then requested that their fans play this album on repeat whilst they go to sleep, in order
for the band to generate enough revenue through royalties to go on ‘The Sleepify Tour’.
The album will play for just over 10 minutes, assuming a fan sleeps for 7 hours they would stream
roughly 840 tracks (accounting for the odd few seconds on the end of each track). If we assume the
average price per stream is roughly $0.007, the fan would generate $5.88 for the band. This may not
seem a lot but if the band convinced 100 fans to stream the album, the band are looking at $588
dollars per night in royalties.
Dedicated fans could even stream the album on multiple devices, or even through longer periods of
time into the day. This is an ongoing act but I believe that if the band regularly updated the fans on
their earnings, they could be looking at earning A LOT of money for an album of pure silence.
Some may see these acts as impressive entrepreneurship, some may see this as an unethical manner
of earning money but some may simply see this as artists beating Spotify at their own game? Either
way this is surely a flaw in the Spotify system which is bound to catch on. This may not affect the
average Spotify user in the short run, but this could potentially bankrupt Spotify and reduce the
chances of it becoming a sustainable future for the consumption of music.
Primary Research
As a keen music fan, I attend various gigs and festivals across the country. On the 28th of September
2013, I attended a gig at the Bristol Thekla. The band I was travelling to see where called ‘Decade’ an
up and coming alternative rock/pop punk band from Bath. They have very recently release their
debut album following various single and EP releases. With the venue holding a maximum of 400
people, the gig was relatively small. Due to this I managed to ask the lead singer Alex Sears, his views
on Spotify shortly after coming off stage. This is how he replied;
‘Spotify is great for bands like us at is promotes our music to people who wouldn’t necessarily
listen to it in the first place.’
‘It’s not as if small bands like us make much money on small EP releases which we have
produced anyway. We make the majority of our money on tour through the sales of tickets
and merchandise. Therefore the more people discovering us on Spotify, the more tickets we
can sell for our gigs’.
Alex therefore supported Zoe Keating’s opinion that Spotify should be used more as a ‘discovery
service, rather than a source of income’. It also opened my eyes to the fact that Spotify can be used
as a platform for their music, allowing more people to hear the band’s music and in effect support
the band in the form of attending live performances.
The fact that Alex told me he does not expect to make money on music releases made me question
where the money was coming from to fund the band. Zoe Keating is a much more established artist
than the band ‘Decade’. The fact that Zoe is a more established artist means that she is generating
profit through her record sale. But how do upcoming bands make a living, when they make very little
off of their releases due to their relatively small name?
How do Artists make money besides their record sales?
During my research I came across an article written by Mike Kaminsky published by a magazine ‘Alt
Press’. Mike is known as a veteran artist manager who had transferred his knowledge of the music
industry into the ‘Alt Press’ magazine. This particular article was entitled ‘What you don’t know
about how much your favourite band makes’ which immediately grabbed my attention as it related
with my investigation as to how artists and bands make money.
During Mike’s introduction he states ‘I wanted to touch on a common misconception that kept
coming up again and again from fans and aspiring artists. That is, your favorite band is (likely) not
very rich.’
He then goes on to explain that as a manager his first shows were all at clubs with capacities of
roughly 300-500 people. If the headlining band sold out the venue, they would be earning roughly
$1500 whilst the opening acts earn between $50-$500. The headlining band will be touring for
roughly two months, clearing generating a lot of money nearing $100,000. However, there will
obviously be high costs to cover when touring. First of all there is fuel to get to each venue around
the country; this has been estimated by mike as $200 a day. There is then a hotel room, which the
band will attempt to pile into, costing $75 a night. A small two man crew to help the band with
transportation and setting up of equipment charge $150 a day if they are working cheaply. Clearly
the profit margin is already incredibly slim if there are any at all.
The real profit from the tour is earned through the selling of merchandise such as t-shirts,
wristbands, physical copies of the artist’s music. Mike has estimated that this will generate roughly
$1000 a night. Across 45 shows this adds up to $45,000.
Out of this $45,000 however the band manager and agents must be paid. This $45,000 will therefore
become roughly $30,000. An average band consists of 5 members so the $30,000 is split between
them generating roughly $6,000 each. If a band where to do a headline tour 3 times a year they
would earn just under $20,000.
To put this figure into perspective, in the year that the article was published, the poverty level in the
USA was any yearly salary under $9,000. For any act that isn’t headlining the tour i.e. the opening
act, it is likely that the band members will fall into this category.
It is unlikely that a band will be able to make a substantial amount of money unless they are touring
theatres i.e. venues with capacities 2000 and above. Clearly it is unlikely that any band or artist will
ever reach this level.
Statistics have shown the 100,000 albums where released in 2010 with just 1% selling more than
10,000 copies. This put into perspective the likelihood of artists selling enough copies of their album
to generate a fan base big enough to play venues with capacities of at least 2000 people across the
country.
This broke down to me the fact that it is unlikely the bands I go and see make much money at all and
arguably the most substantial source of income is through the sale of merchandise.
Spotify Improvements towards Royalties
Whilst conducting my investigation Spotify made a change to their service which could potentially
provide artists with an extra source of revenue. On the 20th of January 30, 2014 Spotify announced
that they would now be allowing artists to sell merchandise on their Spotify Profiles commission
free. This statement has come following a partnership with entertainment marketing company
Topspin. Neither Spotify nor Topspin will receive any commission from the sales; all the artist needs
to do is create a Topspin account which is free of charge. Spotify's head of artist services, Mark
Williamson, said: "We're really excited that Spotify's 24 million music-loving users can now see
merchandise and concerts while listening to their favourite artists, and that we, in turn, can
provide additional revenue opportunities for artists of all sizes."
One particular drawback of this however is that Spotify is only allowing 3 pieces of merchandise per
artist. The merchandise feature is also only currently available in the US, UK, Ireland, Australia, New Zealand, Denmark, Sweden, Norway and Iceland. Despite this this however I believe that Spotify is
taking steps in the right direction to ensure that artists are being rewarded with fair amounts of
revenue. I also believe that the change will encourage a larger number of artists to stream their
music through Spotify as we have already seen how valuable the sale of merchandise is to an artist.
Piracy
For years people have pointed the finger of blame towards piracy as the reason for the decline of the
music industry. Norwegian research body Ipsos MMI have provided statistics showing that in during
2008 piracy soared to 1.2 billion downloads in Norway alone. However in 2012, the rate of piracy
had dropped by a sixth falling to a much more manageable 212 million. Although this fall in piracy
may be thanks to stronger laws regarding copyright, the extensive research carried out by the
Norwegian research body suggests otherwise. To confirm the solution to the crackdown on piracy,
the research body carried out a survey and found 47% of repliers where in fact Spotify users and
amazingly half where paying users. This statistic is explained by Olav Torvund, a law professor from
the University of Oslo “When you have a good legitimate offer, the people will use it, There is no
excuse for illegal copying, but when you get an offer that does not cost too much and is easy to
use, it is less interesting to download illegally,”
These statistics suggest that Spotify is contributing to the reduction in music piracy which I do
genuinely believe. Daniel Ek, the Swedish entrepreneur who invented Spotify also commented on
the issue of piracy by saying;
‘There are half a billion people that listen to music online and the vast majority are doing so
illegally. But if we bring those people over to the legal side and Spotify, what is going to happen is
we are going to double the music industry and that will lead to more artists creating great new
music.’
This is a statement which I support to an extent. The people who are listening to music illegally are
doing so because of the cost of music. For this reason I believe that if they are introduced to a
legitimately good offer such as Spotify, then this will provide the music industry with a huge boost.
The extent of this boost however if very hard to predict which is an issue I have with this statement.
As a Spotify user myself I can admit that the service prevented me from becoming tempted to
illegally download music. I felt immoral illegally downloading music but simply could not afford the
near £10 that is the price of an album. Spotify therefore provided me a cheap service that was legal,
allowing me to enjoy music to its full potential without carrying the guilt of knowing I had illegally
downloaded the music. Not only does Spotify offer a legal alternative to illegal download, it also
provides a much more convenient method of listening to music. Downloading music through torrent
sites can take a long time, providing you with poor audio quality and often missing album artwork.
As well as these drawbacks, illegal downloading often poses a risk of viruses entering your computer.
For this reason I agree with Olav Torvund the former law professor that ‘When people see a
legitimate offer, people will take it’ due to the fact that Spotify is a cheap, legal and convenient
method of enjoying music as opposed to illegally downloading music. Regardless of how much
consumers are paying for their music, a reduction this big in a criminal activity such as music piracy is
a huge step in the right direction. With crime being a negative externality to not only the music
industry but general welfare, is there chance that the government will support Spotify in the future
in the form of a subsidies and grants?
Conclusion
My project went under the title ‘Is Spotify Ruining the Music Industry’ which is a statement that I still
feel is dependent on various factors. I believe that Spotify can be used as an effective platform for up
and coming artists to showcase their music, which will attract a larger number of listeners purely
because it can be accessed at no extra cost after the listeners subscription fee. However, I also
believe that Spotify must address their model in terms of paying the larger artists. I believe that
there is a reason as to why so many larger artists and bands have spoken out so spitefully against the
Spotify system. I believe that the larger artists should be paid in a way that reflects the income they
would receive through a typical sale of their music. The job title of ‘Professional Musician’ or
‘Touring Band Member’ is one that has inspired musicians for many years and is a full time job that
many strive towards. I do not believe that Spotify should have the right to strip the prestigious title
of a professional musician.
However I have also learnt from my project that I have no need to feel guilty about my Spotify
subscription. I have learnt that Artists earn a large percentage of their money from the sale of
merchandise and touring. As an avid gig goer, I therefore fund my favourite bands, despite the fact
that I don’t always buy their music. I also buy my favourite records on vinyl which I believe is a
satisfying way of collecting music. Despite the average price of a record usually falls somewhere
between £10-£20 I enjoy buying these and know that the money will contribute towards the long
term success of the band. These relates to the point that has arisen throughout my project that is
‘Spotify can supplement further sales’. I do not believe that I would attend the gigs and festivals I do
had it not been for Spotify, nor would I have begun collecting my vinyl collection having listened to
and appreciated the music beforehand. Having access to a wide variety of music has allowed me to
form a passion for the music I listen to, which I do not believe I could have done to the same extent
without Spotify. It has allowed me to explore different genres and artists I would not have done
beforehand as I would not have been willing to pay with the risk that I would not enjoy the music.
Beyond the sale of digital and physical music, I hope that live music entertainment will remain a vital
element of any artist’s career. I believe that shows and festivals will remain popular, providing artists
with a goal to work towards and potential revenue.
I do believe that the future of music revolves around the idea ‘access to everything’ through
streaming but Spotify must think about their revenue model in order to create a sustainable method
of appreciating music in the long run. I appreciate the fact that by increasing artist royalties may lead
to Spotify increasing their subscription fees which would lead to a large decrease in subscribers and
potentially bankrupt the business. Spotify may therefore need to invest in new methods of securing
revenue.
Spotify revealed that in the year 2012, they generated a revenues of $577.1m and a net loss of
$77.9m. This stastistic suggests that Spotify are still the losers when it comes to music streaming, but
should they continue to grow, as shown in their impressive 128% year on year rise as published by
the financial times, I believe that Spotify will soon be making a profit. Despite the lack of information
regarding Spotify’s financial information, a recent news article published by Quartz has recently
stated how they believe Spotify plan to go public in fall 2014. It claimed that Spotify have engaged in
informal chats with some of the investment banks likely to fight for a role in a potential IPO (Initial
Public Offering). Should Spotify choose to go public, then there will be whole new form of revenue
regarding the sale of shares on the stock exchange.
Daniel Ek, the creator of Spotify once said ‘I am not an inventor, I just want to make things better’.
This along with other steps in the right direction, outline to me that the Spotify service is not out to
make as much profit possible, but to provide a sustainable method of listening music. The Spotify
system is one that has created great controversy in the music world but has arguably opened the
eyes of many to the future of music. I feel that it will take far more than an issue such as this to
destroy the music industry as it will remain a way of life for many.
http://www.bbc.co.uk/news/technology-25809211
http://www.altpress.com/contributors/entry/veteran_artist_manager_mike_kaminsky_on_the_reve
nue_model_of_artists
http://readwrite.com/2011/09/29/music_streaming_services_reduce_piracy#awesm=~otLnNOUJBT
aQK2
http://www.digital-digest.com/news-63709-Music-Piracy-Down-by-80-Thanks-to-Spotify-NewReport.html
http://www.gigwise.com/news/88051/spotify-joker-earns-%C2%A313000-uploading-quite-rubbishtracks-online#YTjWsl0DCLttco64.99
http://www.businessinsider.com/matt-farley-makes-23k-posting-music-spam-on-spotify-20141#ixzz2rtN0Du29
http://qz.com/192406/spotify-is-eyeing-third-quarter-for-its-ipo/