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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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