Spotify: The Debate

Other | Thursday 18th July 2013 | Keshav

The Debate on Spotify is in Full Flow

Last week Radiohead frontman Thom Yorke pulled some of the bands albums from music streaming service Spotify. The frontman was annoyed by how much spotify paid the artists. In a tweet he said ‘Standing up for musicians’ (by removing the albums). The decision was a strange one but one that comes with a little bit of truth.  The music streaming service is now all over all forms of social media. Take for example Facebook. Every time these days I seem to log on to my profile one of my friends always seems to be listening to something on Spotify. Clearly the move to integrate the music streaming service into Facebook is a chance for friends to see what each other are listening to. It also allows friends to potentially discover new artists and share their favourite songs online to help their favourites. All sounds pretty good to me. So why the fuss?

Well dive deeper into the issue and artist payment is clearly a big issue. According to the sites home page

‘Spotify pays out the majority (approaching 70%) of ALL of our revenue (advertising and subscription fees) to rights holders: artists, labels, publishers, and performing rights societies (e.g. ASCAP, BMI, etc.). In just three years since launching, Spotify has paid out over 500M USD in royalties.’

Such bold claims from the company all seem to be backed up by real evidence. Things however start to go pear shaped when the numbers are crunched. Although the business model of a subscription based music site is difficult to understand. What’s key here is understanding where revenue comes from and who it is shared amongst.  Spotify continues to claim all its revenue comes from : Advertising and also those who pay subscriptions. Artist payment is based on the percentage of the total number of streams. Bear with me here as it starts to get even more technical.  The website music think tank explains:

‘So, if an artist on Spotify received 20 streams out of 13 billion (Total Streams a month)  and Spotify grossed 244 million dollars, that artist would have earned a little over a penny per stream. It’s pretty safe to assume that the 13 billion songs streamed were listened to more than once and the higher the amount of total streams, the lower the amount of per stream payout for each artist.’

At this point I was supposedly very confused. If this is the way the market works then why are so many artists still involved with it? If Lady Gaga reportedly only earnt $167 for 1milion plays of hit ‘Poker Face’ then why hasn’t their been more artist revolt?

Take a look at the other side of the argument. Youtuber Music / Nerd released a video denying these claims. In it he explains:

 ‘Artists make 10cents from every 99 cent itunes download. To make the some money from Spotify a song needs to be streamed around 64 times. Approximately 1 million Lady Gaga streams divided by approximately 64 multiplied by 10 cents means she made approximately $1052’.

He goes onto explain that it would in the short term make perfect business sense for an artist to release their album as a single in the shops and boycott Spotify. Artists would see the profits role in and streaming the album online would make little sense. However the long term benefits are clearly evident through a track that streams on Spotify. For example, when music is bought once the artists only receives a single one of payment for that song. However artists can continue to make money from Spotify due to the fact that every – time their song is played more than that average 64 time threshold they receive a payment.

It should be clear that Spotify and subscription based music services are still in their infancy. This type of model however can draw comparisons to youtube’s model. For example a video gaining a certain number of views can make money. Over a thousand views for example can lead to payment much like over 64 spotify plays can lead to payment. Over the years the payment levels for videos has gone down from the high number that it used to be. There is no reason Spotify should follow the same logic.  

It would be hypocritical for me to suggest a total boycott of Spotify considering I am listening to it right now. Although I only use the free version subscription seems very likely within the next few months. Personally I find it easier to have all the music I want. What is also easy is the access to new music and now I can share music with others as well as see what they are listening to without a fuss.

It’s all a little too early to be discussing the credibility of Spotify yet. Radiohead’s manager Brian Message came out just yesterday to say that streaming is good for artists he said :

Streaming services are a very new way for artists and fans to engage," he said. "Technology is here to stay … [and] it's up to me as a manager to work with the likes of Spotify and other streaming services to best facilitate how we monetise those for the artists that we represent.’

Message taps into an important point here. It’s true that Spotify is in line with the digital future of the music industry. With sales in shops slowly declining and more and more personal MP3 players being sold digital music is definitely the future. Whether this future will be led by Spoitfy is yet to be seen but at the moment there is no hiding from the Swedish giants.

Keshav Kapoor