Streaming music: friend or foe?

Spotify logoTaylor Swift made headlines recently when she and her label announced that they would withdraw her catalog from Spotify, the popular streaming music platform. The complaint: Spotify insufficiently compensates artists for playing their music. Spotify is now in 58 countries, with a user base exceeding 50 million—12.5 million of whom are paying subscribers (the monthly fee gives you advertisement-free listening). The difference between Spotify and other Internet radio services like Pandora is that Spotify is interactive. Who needs to buy music when you can have access instantly to millions of songs and control what you want whenever you want it? The question, therefore, whether Spotify is beneficial to artists is hotly debated.

As John Seabrook writes in the November 24 issue of The New Yorker, Spotify relied on a usage-based algorithm to connect users and music when it launched in the U.S. in 2011. At first, the algorithms were more annoying than useful, crudely matching listeners with new music based on their listening preferences. But the algorithms have purportedly improved since then. Spotify now uses tools like the Echo Nest and Truffle Pig, which provide intelligence on how listeners consume their music and thus enables smart programming of what each listener expects throughout the day. Although, for Seabrook, the result is still far from perfect, and the “human or A.I. who chose Pharrell’s ‘Happy’ for the ‘Mood Booster’ playlist isn’t getting the job done for me.”

Spotify made deals with the major labels for access to their catalogs. Spotify establishes a royalty rate per stream, then divides the monthly streams of a single artist’s work by the total number of streams on Spotify that month, arriving at the artist’s share. It multiplies that number by the total monthly revenues and keeps 30 percent. The labels, in turn, aggregate all of that revenue and reimburse their artists according to the royalty deals. But Spotify’s actual royalty rate for a single stream is far from apparent. It depends on many factors such as how popular the artist is, the country in which the stream occurs, whether the stream is free or ad-supported, etc. According to Seabrook, if you do the math based on Spotify’s claim that the average stream is worth between six-tenths and eight-tenths of a cent, 150 streams is the equivalent of one 99 cent download.

Musicians already experienced an erosion of their livelihood from the first Internet music revolution where Napster allowed users to share music without paying for it. iTunes partly rectified this situation by setting up a means for collecting money for individual downloads, but de-bundling songs from albums meant listeners were paying a fraction of what they had previously. Now Spotify (and similar streaming sites like Rhapsody and Google Play Music) are eroding that revenue base further. In 1995, 150 consumers might have paid $1,800 for an album. In 2005, those 150 consumers might have paid $594 for four songs from that same album. In 2015, 150 consumers listening on Spotify might only yield a mere 99 cents for that album. Of course, it’s possible that more listeners might be listening to songs they would not otherwise have purchased, but this still represents an enormous erosion in revenue for musicians. And the labels are always there taking their share, no matter how little the total.

At the moment, streaming seems to be the future of how we will consume music. It’s a great win for the consumer, at least to a point—how many musicians will be able to sustain a living and continue to create music with so little compensation? (So far, there is no indication that this is dampening creativity, as the all-time low cost of producing and distributing music electronically enables more artists than ever before to throw their music into the ring, and to do so without having to give most of their revenue to a label.) But it doesn’t seem like much of a win for musicians. In any event, there is no going back. Some artists will thrive. Many more will struggle. And perhaps the bottom line is, for the average musician, nothing has really changed.

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