This post originally appeared on Global News and was written by Alan Cross.
Oct.7, 2008, wasn’t the greatest time to release a disruptive new product. With a worldwide financial crisis getting worse by the day, a Swedish start-up called Spotify AB unveiled a new online platform that allowed instant access to a vast library of songs to subscribers in Sweden, the U.K., France, Spain and Norway.
While Spotify wasn’t the first streaming service (Rhapsody, a spinoff of Real Networks, launched its product at the end of 2001), it has become the dominant force in the space with a reach extending through at least 65 countries. It boasts nearly 200 million users a month, 86 million of whom are paying for the premium service. Everyone has access to at least 40 million songs. (All streaming services have access to the same universal catalogue.)
So has Spotify been a force for good? Or has it damaged music forever? Well, it depends.
The good (and the encouraging)
— Spotify has democratized music consumption in ways that at the turn of the millennium would seem akin to magic. Users have instant access to virtually any song ever recorded, all with a couple of pokes at their phone. The whole history of human music is now available to everyone on demand.
— If you have Internet access, you no longer have to pay for music. If you can live with the restrictions of Spotify’s freemium tier (i.e. a few hobbled features and the occasional ad), everything is available for free.
— Spring for the $9.99 monthly subscription fee and you can download music for offline listening. That music stays in your possession as long as you keep paying. Yes, you’re “renting” music instead of owning, but access can often trump possession.
— Music piracy has dropped from the levels we saw at the peak of the peer-to-peer era. Yes, 38 per cent of online music consumers still steal music (mostly via something called stream ripping), but the situation could be a whole lot worse. Streaming is just too convenient, too safe, and too free for people to bother stealing music.
— After resisting the whole concept of streaming, record labels are now all-in. About 75 per cent of all label revenues are now derived from streaming. And thanks to this shift, music revenue is growing again for the first time this millennium.
— The opportunity for music discovery has increased exponentially. Not only can we access music from all genres from all eras, but from other cultures. Would K-pop be the worldwide phenomenon it is without Spotify? Maybe not.
— The Echonest, Spotify’s backroom data-crunching division, is a constant source of valuable information on how the world consumes music. This has been incredibly valuable to artists, managers, labels, promoters, and agents.
— A new breed of artist has emerged, one who no longer relies on the sale of pieces of plastic in a retail store. Ed Sheeran’s “The Shape of You” is Spotify’s most-streamed song with 1.94 billion listens. Streaming made Drake a worldwide superstar.
— Spotify has become a stock market darling with a market cap over US$26 billion. An IPO saw early investors (including all the major labels) reap huge profits.
The bad (or at least the concerning)
— The rise of streaming, led by Spotify, has mortally wounded many hundreds of record stores, eroded radio listening, and fatally wounded music video channels. If you can get any song anytime you want anywhere you happen to be, the traditional cultural gatekeepers that regulated access to music for decades are now irrelevant to millions.
— Sales of CDs already were in decline before streaming became common — blame P2P piracy via programs like Napster, Kazaa, Limewire, et al — but streaming has accelerated that death spiral. In 2002, CDs accounted for 95.5 per cent of all recorded music revenue. Today, they account for about 10 per cent.
— Artists who used to make a good living on royalties from CD sales have seen their income drop precipitously. This explains why heritage acts like Fleetwood Mac and The Eagles continue to tour and groups like Guns N’ Roses let bygones be bygones. As streaming grew, those semi-annual royalty cheques from album sales just kept getting smaller and smaller. The only way to make up for the shortfall is to go back out on the road.
— Streaming has all but wiped out the middle class of musicians. You’re either a big heritage artist who can make huge profits playing the old hits on the road or you’re someone struggling to make ends meet on meagre streaming revenues.
— Speaking of which, there’s very little transparency on how streaming revenues make their way to artists. Spotify pays its fees to the record labels and rightsholders who take their cut. Whatever’s left goes to the artist. This has led to tremendous misunderstandings on how Spotify’s business model works.
— While Spotify’s audio quality is okay — 320 kilobits per second — it’s no match for CD-quality audio. We have a generation that has never heard full-frequency high-fidelity music in all its glory.
— Spotify stars tend to be overwhelmingly male. Why? This requires more research.
— Streaming has all but killed album artwork and liner notes. And it gets worse. Without someone or something to provide context to the music, playlists are just streams of organized noise.
— Playlists are the new albums. Fewer people are inclined to listen to albums via streaming, electing instead to listen to individual songs. Might streaming kill the album altogether? Some people say it’s inevitable.
— Because music is now free, it’s become more disposable than ever. Don’t like that song? Hit the skip button. And just to show you how much our attention spans have shrunk, a staggering one-quarter of songs are skipped in the first five seconds. Because Spotify doesn’t pay out for a stream until 30 seconds pass, composers and producers are changing the way they make music, employing tricks to hold on to the listener for that crucial half-minute. That has led to shorter intros, songs starting with the chorus, and multiple musical hooks.
— There’s even a persistent rumour that Apple will close down iTunes as sales of digital albums and tracks continue to drop. Both are down more than 20 per cent from this point last year.
— Spotify is still losing money because the current licensing agreements don’t allow it to scale. With 70 per cent of revenue going to royalties (some US$288 million a month), Spotify’s expenses go up in lockstep with revenues. Unless something changes, Spotify (and virtually every other streaming company) will lose money forever. Yet Spotify’s US$26-billion market cap is about US$10-billion higher than all global music revenues.
Whatever your take on Spotify, it is far, far too big to fail. As CEO Daniel Ek likes to say, “Deal with it.”
Alan Cross is a broadcaster with 102.1 the Edge and Q107, and a commentator for Global News.