At the beginning of this month, Taylor Swift announced that she was totally over Spotify. Or rather, that was the message she sent by removing her entire back catalog from the popular music streaming service, a move that caused an outcry from the 15 million subscribers–one third of Spotify’s total user base–who actively listen to her music through the service.
While more dramatic than most, Swift’s move is not unheard of. Last year’s album Red took several months to appear on Spotify after its release, and the hit single “Shake It Off” was never posted at all. This trend of delaying or withholding music from Spotify has become increasingly popular as influential artists like The Black Keys, Coldplay, Beyoncé, and Radiohead have spoken out against Spotify in the media. The reasoning for this has been practically unanimous: the artists don’t think they are being fairly compensated.
So how are they compensated? First, Spotify generates revenue by displaying advertisements to free accounts and collecting $10 a month from premium subscribers. Spotify first lifts approximately 30% of revenue, and the remaining 70% is distributed proportionately to artists by the number of track listens they receive in a given period. This cut to the artist, however, is further divvied up between publishers, labels, and the artists themselves. In practice, this equation generally results in a payout between 0.006 and 0.0086 cents per track listen, a rate that produces far smaller royalties than most artists have enjoyed in past decades.
As a result, many artists have begun to protest against the way they see Spotify depriving them of their livelihood. Smaller artists are left asking how a huge success like a hundred thousand listens can only translate to a few dollars a month, and larger artists as well have felt their shrinking pockets. As popular indie artist Beck puts it, “the amount of money that you get from Spotify doesn’t allow you to actually pay the musicians or the people who work on the record. The model doesn’t work yet.”
So if Spotify’s payouts are so dismal and the streaming model broken, why does the overwhelming majority of the industry still license their music to Spotify?
Well, let’s look at the state of the music industry. For most of the last century, music has been a physical good that was produced by records companies and bought in a record store. The new millenium, however, introduced digital audio files that could be easily copied and shared through illegal services like Napster and Limewire. As the industry was slow to respond to this change, piracy soon became the best way to access digital music, regardless of whether one wanted to pay or not. Music sales plummeted, piracy skyrocketed, and the industry was stumped as to reach its lost customers.
The industry’s initial response was to restrict the sharing of files through copyright infringement litigation and software restrictions. These attempts, however, failed to address the primary issue that was driving the declining sales and increasing piracy: convenience. While the industry obsessed over driving customer’s back to physical sales, they neglected the potential improvements to the industry that the internet could create. The rise of iTunes around 2005 became a clear indicator of this, the first online service that could easily sell, manage, and play music becoming a wild success. (Apple has continued capitalize on the sale convenience, a major selling point of its hardware and software.)
Still, however, iTunes held onto the same bundled pricing models of the traditional album. While music discovery exploded through the ease of accessing new music over the internet, this old structure failed to offer the same convenience and potential. It was this market gap, where the music industry’s archaic model of sales failed to entice the new digital generation, into which Spotify stepped.
So, how does this context change how you look at Spotify? There is the simple fact is that there are very few artists who could survive entirely on their Spotify royalties, but the history of the industry reveals why it has gained so much traction; it’s the best we’ve got. While it may not pay much, music streaming isn’t the alternative to buying physical albums; it’s the alternative to rampant piracy. (Spotify actually started in Sweden, a country previously swamped in piracy, for the very purpose of providing this alternative.) Streaming is a stop-gap solution while new models are being developed, new models that can hopefully both preserve the livelihood of artists and leverage the functionality and convenience of technology for consumers.