When it comes to music streaming, Spotify is the leader with over 60 million listeners, 15 million of which are paid listeners.
Over the last year or so, some artists have been VERY vocal about the small amount of revenue that Spotify actually pays out per X amount of listens. It got to the point where Taylor Swift pulled her music down, refusing to put her new album 1989 up for streaming because she felt that Spotify was undervaluing music and underpaying artists, before striking up an undoubtedly profitable deal for herself with Apple for their fledgling music offering.
Even Jay-Z and a bunch of other successful music artists got behind lossless streaming service Tidal claiming to pay artists more than Spotify, irrespective of the fact Jay-Z an already wildly rich and successful artist from a time when people actually still bought CD’s is one of the owners. And numerous other well-established artists like Jack White were also involved.
All of this trash talk about Spotify, you would think that Spotify are pocketing profits for themselves and paying labels/artists nothing, right? Spotify is not a profitable company and they continue to operate in the red every year since their inception (only being kept afloat by investment capital).
Spotify have taken quite a lot of investment to stay afloat and they have yet to make a cent of profit. They pay a lot of money to labels in royalties, around 70%, the rest is divided up between various operating expenditures.
Let that sink in for a moment. Of all of the money that Spotify earns from advertisements and paid subscriptions, around 70% of that goes to labels and publishers, which in turn should be going to artists (we all know how music industry economics work though). The other 30% goes towards the expensive operating costs (hardware, bandwidth, storage and salaries).
The cap table that leaked a few years ago (showing who owns what of Spotify) actually showed that a few of the major record labels own various portions of Spotify. The very thing that is supposedly not paying artists their worth is partially owned by the labels that represent these artists.
If Spotify is so bad, what is the alternative? Is it making people go out and buy music again? Is it jailing your fans because they can’t afford a $20 CD or $100 ticket to come see you in concert? Implementing laws that make it illegal to not buy at least 2 CD’s per month?
The streaming subscription model works, radio in many ways is the original Spotify (except free-to-air radio costs consumers nothing) and way for artists to get promotion. Even so, unless you’re signed to a major or a success story like Macklemore, your only option is to grind and struggle and hope that one day, you too can be repeated on the radio alongside Taylor Swift 30 times a day until people grow tired of your music.
The alternative to Spotify is piracy. Is making a little bit of money better than making no money whatsoever from people torrenting your music? I used to download a lot of music. Everyone my age does, I grew up in the age of; cheap CD singles, Napster, Kazaa, WinMX, Rapidshare and Mediafire.
Since Spotify came to Australia, I rarely ever download music (unless it’s a leak). I actually have found a heap of artists via Spotify I probably wouldn’t have found if I just torrented music. I could not honestly tell you the last album I downloaded that I didn’t just listen to on my Spotify Premium account.
If Spotify has stopped me and my close friends from torrenting, I would be inclined to agree it has for others as well. Sure, those artists are probably making a few cents a month from me, but they’re making nothing if I torrent their music.
So while spoiled little rich girls like Taylor Swift moan they’re not making billions off of Spotify and Jay-Z pushes a music service he has a vested interest in (which is failing), we need to realise that Spotify represents a golden opportunity for artists to reach new audiences and make a little money (without spending a dime of their own money).
As history has shown, there has and continues to be resistance when it comes to innovation in the music industry and shaking up old business models. Dear music industry, innovate or die. When you’ve killed all of the innovation, you will have no scapegoat to blame for declining music sales.