Why Everyone Is Misunderstanding Spotify

SpotifySpotify was once the white night of the music industry – it offered the labels a way to turn people away from piracy and towards a centralised system that they can better control, and for consumers it offered easy access to millions of songs at the touch of a button. And all with a very liberal freemium model where you users would only have to pay for mobile access or to avoid the ads – which were very sparse when it started. It was legal and paid artists for the plays, it was part owned by the major labels and Merlin (the indie label group), and it sounded too good to be true. It was.

The problem was that each party was looking for something different from the service, with none of them understanding its true value.

The labels wanted control of distribution, something they had lost since the days of Napster, and Spotify offered them this on a platter. It is a single point of distribution and so when and how music is released can be controlled unlike on the internet in general. But the labels didn’t want to let people stream music for free (which was a major reason for the US labels taking so long to come on board), as they believed it devalued music that they still want to sell as CDs, mp3s and vinyl. Why would people buy if they could stream for free?

Bands too seem to think that streams on Spotify directly take away from the number of albums they will sell. You can see this mindset through the stats various musicians have posted since Spotify became a household name last year – such the likes of Lady Gaga where 1 million plays earned her just $167. The British Academy of Songwriters, Composers and Authors (Basca) joined in the complaints, and recently the relatively little known indie band Uniform Notion offered an economic breakdown of how they earned their musical income from sales and streams.

This is where they both completely misunderstood the point of Spotify.

Spotify is trying to break a new path in the music industry – somewhere between radio and record sales. It is obviously not like traditional radio because people can choose their own songs and playlists, but equally it is not like a record sale because the label/band is paid for each stream for life (or even longer depending on copyright).

A Spotify stream can have the same promotional effect as a radio play – the reason that in the US radio broadcasters do *not* pay for the music they play. Being easily streamed for free means that a person will be able to hear a song from a Spotify playlist from a friend or music blog and discover new music – it is a promotional tool that already pays the labels and bands for the privilege of promoting their music.

If you are a person that just likes listening to your favourite few records time and time again then Spotify probably isn’t for you – the subscription fees after a few years would be more than your would have spent on albums, and the ads are annoying and plays limited on the free version. But if you like to explore new music then Spotify is a great help along with music blogs, aggregators like the Hype Machine, and some great content from the BBC.

It is a shame that Spotify had to limit the free plays to five per song, but an understandable reality when audio ads do not offer the revenues needed to pay the labels their streaming fees. It doesn’t detract from their main purpose as a music discovery tool, as after five plays you will know if you like a song or not, and pushing some previously undecided users towards the paid subscription is not a bad thing.

Spotify has offered a business model that allows people to digital share playlists of their favourite music with the friends and strangers for free, whilst the labels and bands are still getting paid. For decades people have shared mixtapes of their favourite music with their friends and lovers (remember those “home taping is killing music” campaigns?), and that moved to mix-CDs, and then MP3-playlists. Yes all of these were copyright infringement, but that stopped nobody – and Spotify shared playlists have offered the labels a way to get some money out of these shares. Spotify isn’t eating into their other business models, it is promoting their content (and paying them to do so), and monetising an action that was previously outside such scope. They are adding extra revenue streams.

It is wrong, therefore, to compare the money made with Spotify streams to those from record sales or paid downloads. Those figure do not include the promotional benefit that Spotify offers an artist, and even at the most basic level are not for the same product. A record sale is a one of credit, whilst the streams continue to pay for life, and all the time also enabling artists and labels to make money from people’s constant desire to share within a society.

About the author: Tim

Tim is a digital entrepreneur and the editor of TechFruit