by chris mchale


pubished by Rock Cellar




How do streaming services fit into the overall business of making and selling music? How important are they?


Sean Parker, maintains Spotify achieves what no one else has– an answer to piracy wrapped in a tasty social envelope. The way he sees it, Spotify:


  • Makes users pay for mobile app helping end music piracy.

  • Artists are happy because people discover new music from friends.

  • Sharing revitalizes music industry, record companies happy again.


Spotify is like some kind of Napster reincarnation for the 21st Century.


Spotify CEO, Daniel Ek, sees it more or less the same way.


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.


So the idea is Spotify creates a global market for music and musicians will have more opportunities to sell music.


Even hardcore anti-music file sharing desperado Lars Ulrich of Metalica joined the Spotify tribe.


“Spotify has solidified itself not just as the leading music service, but, as far as I’m concerned, the only one. Spotify is a global entity and Metallica works on a global basis, too.”

Spotify currently is a losing proposition. According to Privco, a consultancy that analyzes private ventures, Spotify has big questions on their balance sheet.


Musicians, providing Spotify’s entire product at a little return, become angel investors in this scenario, waiting for a global market of premium subscribers to materialize. Meanwhile, Spotify pays a disproportionate portion of their revenue to royalty and bleeds serious cash.

It’s hard to imagine all this working. The mission states:


Spotify’s goal is to convince millions of people around the world to become Premium subscribers and by doing so to re-grow the music industry.


And there’s no doubt the service is growing.



They hang their plan on data showing premium listeners buy more music than their non-premium listeners, so the simple formula becomes, get more premium audiences.


Once Spotify has ‘premiumed’ the world, the magic revenue fairy shows up. It makes sense people who are fans of music will pay subscriptions and buy more music. But it feels as if there may be a finite pool of potential subscribers, no matter how global you go.


Besides the almost messianic mission to save the world of music, how does Spotify rank in the revenue stream of musicians? And not only regarding royalty but importance?


A quick glance at the total business picture of a musician’s career quickly shows the number one way to make money is to sell music. Nothing’s changed in a hundred years. Create music, sell music. Sell vinyl you do really well. Sell CDs you do pretty well. Sell digital downloads, a lot less money, but still revenue.


Next up after that are live shows and merchandise. After that maybe you get lucky now and then and have thirty seconds of a tune appear on TV or in a movie.


The bottom feeders in the revenue stream are streaming services. Best to think of them as places to discover music. You want to be there, but it’s never going to be a gold rush.

I think Spotify would be better served by toning down the save the music rhetoric.


To be more transparent in how royalties are paid, Spotify released their formula.


It’s easy enough to see how labels and publishers end up the bad guys. They are still in a position to take the largest cut and distribute the royalty in a deal written in their favor. It’s also easy to see why as streaming services grow, it might be better for independent artists to steer clear of Mr. Middleman.


When you consider eliminating middlemen and subscription services, consider the TV industry. TV subscriptions services now aggressively create original content. HBO, Netflix, Amazon all see original content as a critical path toward profitability.


Perhaps if Spotify wants musicians to sing Hallelujah, they might consider creating original music. This would effectively eliminate half their royalty detail and increase revenue directly to artists.


And there’s no doubt Spotify’s been feeling the artist heat. Aware that bad PR from top-rank players in the music industry harms their image, they announced a new site, Spotify Artists, a site to increase transparency on how the service works, what it pays and how it calculates those payments. It also provides event information, tickets and key metrics on how an artist’s streams are performing.


Some model of streaming service will play a critical part in the future of music. And yes, expanding global markets can only mean increased royalty revenue, no matter how low the rate. But I suspect it might shake out differently. Just like the current state of global economics, the players in the top 1% flourish like never before. The rest?


Spotify has a place in an artist’s toolkit, but it’s more like a pair of wire strippers than a hammer–a useful tool but not something you need to get the job done.


Sean Parker is right; Spotify is like the file sharing service Napster, only legal, but that does not necessarily mean listening to music on streaming sites supports artists. If you want to support artists, help artists, be a fan, buy their music.