After my initial article about how Spotify will affect the music industry, I feel it’s time to follow up after giving the Swedish start-up a chance to settle in the United States. There have been articles popping up on the Internet claiming that Spotify isn’t going to be successful in the United States, and that already, Spotify is struggling to convert their services into revenue. Journalists and critics are claiming that American listeners are too accustomed to free music at this point, deeming Spotify and its subscription-based revenue plan a failure from the get-go.
Slooooowwwww doooooowwwwwnnnnn, critics. In my opinion, what people are failing to recognize is that Spotify is still allowing its US users unlimited streaming. That means no cap on how much music you can listen to for free. This is a brilliant approach on their end because it allows U.S. users to experience all that Spotify can be, but at some point they will retract some of the free rights and people will be left itching to pay for service to regain access to what they once had. I’m sure there will be some stingy people unwilling to pay, but frankly, it will be their loss when they get a pop up telling them they’ve reached their maximum streams for the month.
Others are complaining about Spotify’s inability to create any substantial revenue for artists. In response to an angry call-out from a record label who claimed that Spotify wasn’t able to pay the labels and artists, Spotify said the following:
Spotify was launched out of a desire to develop a better, more convenient and legal alternative to music piracy. Spotify now monetises an audience the large majority of whom were downloading illegally (and therefore not making any money for the industry) before Spotify was available.
Spotify is now generating serious revenues for rights holders; since our launch just three years ago, we have paid over $100 million to labels and publishers, who, in turn, pass this on to the artists, composers and authors they represent. Indeed, a top Swedish music executive was recently quoted as saying that Spotify is currently the biggest single revenue source for the music industry in Scandinavia.
Spotify is now also the second single largest source of digital music revenue for labels in Europe (IFPI, Apr 2011). Billboard reported in April that Spotify territories saw an average digital growth rate of 43% last year. By contrast, neighbouring countries (without Spotify) saw only 9.3% digital growth.
$100 million is surely a lot more than artists are seeing when people are illegally downloading their music from sites like Mediafire, Hulkshare, Box.net and the like. People are not buying physical copies anymore (with the exception of vinyl, which may just be a trend.) They’re either illegally downloading, buying digitally, or they’re simply streaming. That leaves artists and labels with the ability to make money via online sales and through live performances and merchandise sales. With online sales in jeopardy due to the high rate of illegal downloads, artists need to give Spotify’s mission to pay per stream a chance. This is a huge opportunity for artists, but they need to be patient. Something tells me that when U.S. users with free accounts are limited to the normal streaming limit that comes with a free account, Spotify will see a significant jump in their revenues and their payout to artists may increase. As their revenues increase, their advertising prices will likely increase, bringing more money and possibilities to both the company and the labels/artists.
Just a few days ago, an artist wrote an article about receiving their Spotify royalties, claiming to be “A-mazed: the rates were between 0.88 and 0.73 cents per play.” They continued, “We’re actually approaching a sustainable per-play rate here: at a median rate of 0.8 cents per play, or so, the sale-to-stream income ratio is around 1:88 – 88 streams of a track from a single user would generate income comparable to a single sale of that track.” At first glance, that may sound like an unreachable goal, but when you stop to think about how many users are on Spotify and the scalability included with sharing playlists among friends, songs can quickly become “hot” streams. Just like that…a song gets high streaming rates, and the artist finds money in their pocket. Just by sitting idly and letting their music do its thing, as it used to go in the record stores.
As I said, the critics need to slow down and give Spotify a chance to breathe and grow on this side of the pond. It’s already changing the way that listeners view music ownership, allowing artists an alternative to the continually dwindling revenue resources, and in my mind, is well on its way to saving the music industry. Just wait.
And to end it with some tunes, here is a song I’m digging today.