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Spotify: Savior or Destroyer of the Music Industry?

by Brian Swarth (@bswarth) Back in January, I blogged about how the music industry continues to evolve due to pressure from diminishing traditional sales.  One bright spot?  According to Nielsen data, record sales went up this year for the first time since 2004.  My good friends Adele and Lady Gaga deserve at least some of Read more

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by Brian Swarth (@bswarth)

Back in January, I blogged about how the music industry continues to evolve due to pressure from diminishing traditional sales.  One bright spot?  According to Nielsen data, record sales went up this year for the first time since 2004.  My good friends Adele and Lady Gaga deserve at least some of the credit

Still, new models are constantly evolving, and lesser-known bands and emerging artists are finding innovative ways to support themselves since sales and touring alone don’t cut it anymore.   Subscription music services have led the charge with major players like Microsoft, Real and even MTV (anyone actually heard of URGE?) developing a digital music subscription service.  Too bad none have been successful.

Luckily, newer, more interesting models have emerged. Most notably, Spotify, which launched in the US after several years in Europe.  Spotify offers a free ad supported service, so in exchange for selflessly listening to a few ads between songs, you can stream an unlimited amount of music on your PC.  There are two different paid tiers, including the option to listen to unlimited music, ad free, and a tier that lets you access your music on mobile devices.  This level grants the option of listening to music minus an internet connection. Spotify also boasts a really cool integration with Facebook.  Spotify Social, easily lets you connect with your FB buddies and listen to music they’re jamming to.  You can even create a collaborative playlist.

Spotify has been well received here, with an estimated 1.4M members since launching. And over 177K are paying subscribers.  My sense is that most of the paying subscribers are opting for the tier that lets you to port music onto your mobile device, including the iPhone.

It’s great for music lovers, but what does it mean for the folks who are, you know, actually responsible for the music we’re listening to?  How will our fave bands and artists fare? Will the music industry embrace free ad-supported streaming services, hoping they’ll become viable alternatives to pirated music?   While Spotify was able to get buy-in from all four of the major record labels before the US launch, I think it is too early to tell.  In recent days and weeks, a few smaller labels have voiced concern over the underlying economics that Spotify offers.  One indie label recently pulled its music off of Spotify, citing that the model just doesn’t work for smaller artists.  Century Media, a heavy metal and hardcore label group, said in a statement “Spotify in its present shape and form isn’t the way forward.  Physical sales are dropping drastically in all countries where Spotify is active.”

In another related development, the CEO of Mode Records (a classical and jazz label), Brian Brandt (no relation to our very own Jason Brandt) wrote on the company’s blog “If one cares about music, then you should support the artists and labels you like: buy a real CD, or buy the album or track from someone like iTunes,” he said. “While the major labels and pop music may be able to reap a real income stream from Spotify simply due to the sheer volume of streams, the Spotify model is not financially sustainable for any indie niche label.”

Spotify has ambitions to reach 50M subscribers within the year, but I’m not sure how this will benefit bands and artists.  Take for example, David Harrell’s (a US artist) analysis of revenue from Spotify, which averages $0.2865 per stream.

Is Spotify bad for the music industry?  Depends on how you look at it.  The company itself argues that its service provides an alternative to illegal sites, where artists receive nothing.  But if you compare Spotify revenue to that of digital downloads on services like iTunes or Amazon, it seems that the Spotify model continues to push the price of music to free.

What are you thoughts?  And most importantly, WWGD (What Would Gaga Do?)

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