Just over two months ago, Swedish streaming music sensation Spotify opened its service to listeners in the United States. Commentators announced that “the future of music,” including unlimited access to “a huge chunk of the world’s recorded music library,” had finally become a reality.  Being a music/technology geek, and being ever-curious about new streaming services and music business models, I jumped on the Spotify bandwagon as soon as I could get an invitation to open a free trial account.  Soon after, I upgraded to the premium service to give the extra features a spin around the block.

For a streaming service, I found Spotify to be quite impressive.  Unlike Pandora, which restricts user control to avoid royalty obligations under the copyright laws, Spotify gives users a la carte access to its entire song catalog.  And unlike Grooveshark, Spotify has a slick desktop application akin to iTunes.  If it’s worth $9.99 a month to you (as it was to me), you can upgrade your Spotify account to include mobile and offline access to your playlists, which means that you can access your Spotify playlists anytime, anywhere.

Unlimited access to almost any song for a minimal monthly fee is a fairly attractive deal, but is it truly the future of music?  Even though I’m a big fan of the service, I am dubious for several reasons that Spotify is the silver bullet that both music producers and consumers have been looking for.  Here are a few of those reasons:

  • Consumer Preference for “Ownership.” I doubt that the majority of the population is prepared to completely shift their listening experience from files to subscriptions.  The statistics doubt this, too: only about 15% of Spotify users pay to upgrade their accounts.  I’ve often heard people say this is because they prefer to “own” their music.  Technically speaking, no one “owns” the music in their CD or mp3 collections; rather, buying a CD or an mp3 gives you a never-ending license to listen to that song, whereas Spotify gives you that license on a monthly basis.  In any case, it seems that most people aren’t ready to accept the paradigm of paying for temporary access to music content.  Then again, Generation Z-ers are entering adulthood, and perhaps as they play a bigger role in the marketplace, we’ll see a change in consumers’ attitudes toward subscription services.
  • Less-Than-Infinite Song Library. While Spotify prides itself on its expansive library, the fact of the matter is that it is not exhaustive.  For instance, if you’re looking for The Beatles, the best you’ll find are tribute band covers, which means that the copyright owner of Beatles recordings did not license Spotify.  Unlike traditional radio stations, which do not have to pay royalties to record labels for use of sound recordings,  “interactive services” like Spotify are not exempt from these royalties, and must negotiate directly with sound recording copyright holders.  So long as the law requires streaming services like Spotify to negotiate with the owners of sound recordings, there are bound to be gaps in the service’s master library, which undermines the main benefit of a subscription service–access to an unlimited song bank.
  • Value to Artists. It isn’t clear to me that Spotify provides enough value to musicians.  One U.K.-based band reported that, for each song Spotify plays, it receives $.0041.  Assuming that number holds true for most independent artists, a band would have to generate nearly 1,500 song plays to earn a profit equal to that from a CD sale.  It may be that Spotify’s royalty arrangements accurately reflect how consumers value music.  Nonetheless, if artists are dissatisfied with this payoff, might they refuse to license Spotify, contributing to the problem discussed above?
Do you think that paid streaming services are the future of music?  Musicians, do you think that Spotify’s royalty payments will provide artists with enough financial incentive to continue creating?  Music lovers, are you willing to trade “ownership” for service-based listening?
– Jordan Teague

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5 Responses to Does the Music Industry Have a Spotified Future in Store?

  1. Andrew Ralls says:

    Sounds like Napster’s $15/month plan with better features. Hope it succeeds!

  2. Kelly Donley says:

    Interesting topic! You are right to note the issues surrounding the value to rights holders. Spotify’s payout structure has been hotly debated…check out these sources!

    Here’s the breakdown of revenues that the article you linked to writes about… http://uniformmotion.tumblr.com/post/9659997039/release-day-economics

    Here’s Spotify’s response…http://www.digitalmusicnews.com/stories/091911spotifydefends

  3. Megan LaDriere says:

    Jordan – great post! I recently started to use Spotify, based on a recommendation from a friend, and I love it. The problem I noticed is that new music has a slight delay in showing up on Spotify. For example, I downloaded a CD from iTunes the day it was “released” but it didn’t show up on Spotify until a few days later. If Spotify has a licensing agreement with whatever label who put out this CD, why is there a delay? Is that a strategy by the label to make sure there are still big sales for the Billboard charts despite the free streaming services?

    Spotify (the free version) has already changed the way I listen to music and I’m looking forward to seeing if your predictions about the future of music are true!

  4. Jordan Teague says:

    Thanks for that point of clarification!

    Perhaps a better way to restate what I said above is that, when you purchase an mp3, you become the lawful owner of only that particular copy of the mp3. You aren’t paying for the privilege to make copies and share the copies with friends (although whether file sharing should be made legal has been thoroughly debated).

    In contrast, Spotify doesn’t give you ownership over a copy of a song, but it does permit you to share songs, but only within the framework of the service.

    Thus, the tradeoff is between 1) technical ownership of a single copy, with no right to make and share copies, and 2) no technical ownership of any copies, but the contractual right to share songs with friends.

  5. One Note says:

    Just to clarify: buying a CD does not give you a license to listen to the music privately, because you don’t need a license to do that. The exclusive rights of the copyright owner are listed in 17 USC 106, and private listening is not one of them. The owner does, have the exclusive right to copy and distribute the music, but once they give you that CD no license is needed unless you plan on making one of the uses listed in section 106.

    Other than that, great insights!