The streaming platform Spotify has increasingly come under fire from established artists, concerned by the fact that the services’ free streaming business model doesn’t seem to result in enhanced royalties, while potentially cannibalizing sales from other sources. Last year, Taylor Swift joined other critics in the entertainment industry, such as as Bjork (whose latest album, “Vulnicura,” isn’t available on the service), Garth Brooks, and Radiohead, specifically characterizing Spotify as a “grand experiment” whose revenue model failed to fairly compensate song owners and music creators. Swift is not against emerging digital media platforms. Last year, she wrote an op ed piece for the Wall Street Journal and offered a generally positive outlook on the state of the music industry, citing the roles social media and digital services could play in enabling talented artists to promote themselves & build sustainable careers. Why is the singer joining Spotify’s critics, and going one step further than many by pulling her entire catalog from the service?
The answer probably lies in the tension between profits generated from music, with individual song owners and music creators mainly receiving income from public performance royalties that are often a fraction of the amounts that are generated by live concerts and merchandising. Digital streaming through free to stream services has not noticeably increased this income. Spotify for example, generally pays out $0.006 to $0.0084 per stream from the free, ad-revenue supported part of the service, with an unidentified but higher payout available per stream from the premium, subscription based portion of the system billed at $9.99 per month. The actual income to any single individual songwriter or composer can be quite low after the payout is split between the other rights owners (See Future of Music Coalitions helpful chart for a breakdown of how the revenue flows in the comparative business models here).
Independent artist, Zoe Keating, has made her income derived from digital sales available on her blog since 2013, allowing comparisons between what a “niche” independent songwriter/artist can earn from Spotify versus a comparable music service Bandcamp. Reviewing her profit breakdown from 2013 reveals some interesting information about the two services – she was paid $1,764.00 for 403,035 streams on Spotify versus $25,575.00 for the sale of 185 tracks & 2,899 digital sales through Bandcamp. While the tracking mechanisms between the two services differ, it can’t be denied that Keating simply didn’t see as much revenue generated from Spotify, despite having vastly more listens on the service. This doesn’t necessarily mean that Spotify is a big bad wolf. The snapshot simply gives some credence to the critique that free digital streaming’s value may lie in the additional promotional opportunities it presents, while providing another source of revenue in addition to traditional income sources. Keating herself doesn’t rail against the service, recounting a meeting with D.A. Wallace, Spotify’s Artist in Residence, who suggested that artists shouldn’t necessarily put all of their music on the service. His advice might generate some groans among fans used to having free access to all of the music they want to hear, but it makes sense from a business perspective: the presence of a paying audience, even niche, obviates the need to provide free access to an artists’ entire catalog.
Daniel Ek, Spotify’s CEO and founder, responded to Swift’s critiques and noted the high profits her catalog generated, but failed to address the concerns raised by lesser known performers and song owners about the lack of profitability they experienced with the service, with whom Swift was expressing solidarity. Spotify continues to assert a belief that the free streaming model could save the industry, characterizing it’s “free tier” as “critical…to driving subscriber growth…[and subscribers as] key to bringing the industry back to health.” This reasoning has an innate flaw – without a carrot making the premium, subscriber-based service more attractive, there is little incentive to paying the $9.99 per month price, instead of paying a minimal fee to download the same track from iTunes for less than $2.
While some of these complaints may just be a sign of the music industry’s growing pains dealing with new revenue models and technologies, they could also signal a more selective and strategic approach employed by artists and song owners when deciding how they structure deals with similar services. Interestingly, the artist Jay-Z recently announced the launch of his own subscriber-based streaming service called Tidal Hi-Fi featuring exclusive, high quality content with higher artist royalty payouts, featuring well-known artists such as Beyonce, Madonna, Nicki Minaj, Chris Martin, and, wait for it…Taylor Swift, as the initial artist team. While there is no word of lesser known or independent artists signing on to his service, this subscription-based model stands in contrast to Spotify’s approach. Time will tell if consumers are willing to pay up front for access to premium content, and if this business model will lead to a sustainable enterprise for both Tidal and the individual artists who create content for it.