Spotify currently is one of the most famous platforms in its industry. Ever since its launch in September 2008 the service has grown expeditiously, currently entertaining over 100 million active users and over 40 million paying subscribers worldwide. Spotify provides free and paid music streaming services on digital devices and sells advertisement placements to third parties on its platform. Spotify is renowned for its innovative business model and their contribution to the modern music industry. They have diminished piracy in this industry and at the same time created a new revenue stream for artists and record labels. Despite their success, there is still no consensus whether Spotify has been a good or bad addition to the music industry.
Criticism has come from the supply side of the Spotify platform. Artists and record labels have shown contempt about the revenue stream coming from their portfolio available on Spotify. On average a song has to be streamed 137 times in order to generate the same amount of revenue of one track sale, which is between $0.006 and $0.0084 according to Spotify’s latest figures. The suppliers argue that Spotify captures too much of the value themselves. Furthermore, these royalties are not paid to the artists, but to the record labels, leaving even less income for the artists. This has resulted in some major artists abandoning the platform, such as Radiohead and Taylor Swift.
Spotify has also caused upheaval regarding the privacy of their users. The large growth of their platform has resulted in the company being responsible for a vast amount of personal and financial details. As a consequence successful and less successful attempts have been made to hack Spotify’s information systems. This has led to some customers being afraid of having their financial details exposed and therefore deleting their account.
Hi Luuk,
Interesting Blog. I can imagine it must be frustrating for artists to see their money disapearing in the record labels’ pockets. However, they have all signed their contracts, so is this the fault of spotify? Or is this something between the record labels and the artists?
I am also wondering, what alternatives do the artists they have? According to fastcodesign.com all of the major music streaming services pay more or less the same. Personally, I think that they are quite lucky that the (illegal) music downloading industry has turned into a (legal) music streaming industry. Artists must be happy they still have the opportunity to make money from a single song, because the music market has completely changed over the past years. People are not willing to pay $25 dollars for a cd album or $1,29 per song anymore. Maybe spotify is not paying too little, but have the artist just become spoiled, finding it difficult to adapt to the new margins.
Source:
https://www.fastcodesign.com/3048607/what-major-music-streaming-services-pay-artists-visualized
Dear Luuk, thanks for the cool post on a service that I use on a daily basis! I would love to see some sources or links especially with relation to the last sentence of customers being afraid of hacked details. Maybe we could already contrast some competitors such as Apple Music or Tidal to check for differences in business models? How Spotify provided tremendous value to me personally is by being able to match new songs according to my taste in its “Discover Weekly” function among others. This is why I would always choose Spotify over their competitors because the intelligent matching algorithm is the most advance, in my opinion. On another note, one can see that artists nowadays have to create more engaging experiences in order to get their fans to support them. Simple albums and mixtapes are not enough, but customers are more spoiled and expect cinema level video content creation and live touring with constant releases.
Thank you for the interesting post! Spotify is a very innovative company but it does have its flaws. The company has not made a profit since and the future does not seem to be any brighter for them. Another student also made a blog post about the increasing losses of spotify (Jovan Gligorevic). The impact therefore on the music industry could be limited, because it is unsure how long Spotify can keep making losses.
Although you provide the most important implications of Spotify’s growth, there’s so much more to discuss. First of all, think of the popularity gain that Spotify potentially can offer to upcoming artists. In many cases, these young artists are not necessarily driven by monetary incentives. The primary motivation for this group of musicians is to reach a large as possible audience. Since Spotify has grown to a substantial size, the platform can fulfill exactly that need. It is also interesting to see how network effects work out well for Spotify. The increasing number of listeners stimulates more artists to share their music through Spotify. Again, this attracts more listeners, and so on and on. Nevertheless, you mention that there have been still some users that resigned from a Spotify subscription. I wonder how significant this percentage is in comparison to the total number of users. Moreover, I find it questionable whether the trade-off between privacy/security and the unlimited access to an infinite music library is actually a fair one. If users really value their privacy/security, then they could switch to a free version of Spotify, right? And I assume that these reluctant Spotify listeners also have accounts on other online platforms/ channels, so it would become a hell of a task to exclude any risks from online activities.
Hi Luuk,
First of all nice blog post. I think Spotify did a great thing for the music industry. Without a platform like Spotify artists generate less revenue, because customers prefer to download illegal music rather than buying music.
I think about the privacy principle, in my opinion people shouldn’t complain about it. I think every little detail about a certain person is already known by others, because of platforms like Facebook, Twitter and Instagram. Furthermore, we can assume that large companies such as Spotify has an up-to-date firewall and protection which can protect the customer of data leaks.
Hi Luuk, thanks for an interesting post. As a user of Spotify, I have a fairly good understanding of the platform and find your points compelling. I rarely consider the supply side of Spotify’s service, if I’m honest, because the demand side seems so strong and successfully-met! On this note, however, it is a disappointing prospect that the company is accused of retaining the majority of the revenues for itself, and it is on this point that I would like to focus. It seems especially unfair that the artists, above all other stakeholders, receive so little of the profit made from Spotify’s streaming services. Despite that, I believe the platform offers an incredible service to artists that may even reap greater benefits to them than it does for us, as listeners. In the past, it was excessively difficult for budding artists to make a name for themselves. Today, while it isn’t going to make their chances of success significantly greater, it does give the artists some power to take things into their own hands. From this perspective, Spotify is a platform that gives niche artists the same stage as our most popular icons. If we were to extrapolate the concept somewhat, perhaps it may even become possible that Spotify replaces today’s record labels in the future, offering notably more autonomy to artists than is currently possible. To bring the conversation back to the initial point, I don’t necessarily agree with the company being able to absorb the majority of the profit made from songs hosted on the platform. With that said, I strongly feel that Spotify does more than just allow us, as users, to stream and listen to music, and more credit should be given for what the platform offers to artists outside of potential revenues.
Nicely written article! I also doubts about the length of the current domination of Spotify of the streaming market. What is also a big reason for the currently declining success, is artists increasingly signing exclusive deals with the other streaming services, only releasing songs on that particular platform. Customers, me included, do not want to sign-up for three different streaming services only to be able to enjoy contemporary popular music.
In case you haven’t come across it, I really suggest this article by FiveThirtyEight on the topic: http://fivethirtyeight.com/features/maybe-spotify-isnt-killing-the-music-industry-after-all/?ex_cid=538fb
While Taylor Swift’s claim that streaming had “shrunk the numbers of paid album sales drastically” may be objectively true, it doesn’t really say much about the music industry in general. Especially since music streaming, not ownership, seems to be the future of the industry. According to the numbers shown in the article, total streaming revenue is up $0.5 billion in 2010 to $1.9 billion in 2014 and now amounts to more than 25% of all earnings in the entire music industry. So Spotify might be simply shifting the revenues that USED TO come from the traditional music industry’s sale of albums to streaming. What if Spotify is simply changing the way music is consumed, as opposed to the music that is being sold? I agree with this view, curious what you think about this as well!