OPINION: Don’t go with Taylor! Spotify’s model only chance artists have of monetising their work

11 Nov 2014

Singer-songwriter Taylor Swift. Photo by landmarkmedia/Shutterstock.com

The debate on whether commercial music-streaming service Spotify is detrimental to the record industry ignites every few months or so when a high-profile artist opts to pull his or her work from the site.

But now more than ever the spotlight is shining on the Sweden-based company after Taylor Swift, the 24-year-old singer-songwriter who has been a top selling artist for the past five years or so, became the latest to remove her entire back catalogue. As a primarily country artist, Swift has enjoyed near-unparalleled success for someone in her age bracket. But with the unveiling of her “first documented official pop album”, 1989, she may very well be coming for all the record sales. Released on October 27, it took less than a week for the album to become the first to come out this year and sell over a million copies in the US. Swift’s career is unstoppable right now. She is someone who can make a difference

Swift’s decision to withdraw from Spotify was announced by the service itself and the ‘We Are Never Ever Getting Back Together’ singer has since clarified her position, asserting that she was not willing to contribute her “life’s work to an experiment”. For the uninitiated that experiment is thus: Spotify is an app that allows users to browse and play music from a huge online library of tracks. The company generates revenue by charging customers for its premium, ad-free service (in Ireland, Spotify Premium costs €10 a month) or by selling advertising space to third-party firms that airs to listeners who download the free version. Spotify then pays music rights holders depending on how many times their songs have been played.

The problem is that many artists have been vocal in their complaints on how much Spotify pays out in royalties. There have been all sorts of reports of minuscule cheques arriving to musician’s doors from the company and these low payments have been the main reason for the opposition. But in withdrawing their support, the artists risk derailing the first truly viable model of monetising music since record sales began to drastically slump.

A song’s worth

How significant has that deterioration is sales been? Huge. There are all sorts of statistics I could throw at you, like how album sales more than halved between 2000 and 2009 and how the global revenue of the music industry declined by US$10bn from 2002 to 2013. But consider this: In 2014, only Taylor Swift has managed to move 1m units in the US. Shortly before the daddy of file sharing Internet services Napster hit its peak in popularity and internet piracy began to shoot up dramatically, reggae crooner Shaggy sold 6m copies of his 2000 album Hot Shot in the nine months following its release in the US alone. Yep, the record with ‘It Wasn’t Me’. Clearly, it was an easier time for the industry.

The reality is that the days when music venders could charge €10 to €15 for an album are gone. Internet piracy and free streaming methods are as rampant as ever, and as long as music remains in an intangible form such as the MP3, a sizeable number of listeners will not pay high end prices for music on any sort of scale.

For 12 to 13 years now the industry has looked for a way to combat the perils of internet music piracy and Spotify is it – a system that easily gives users whatever they’d like to hear but also pays out to music rights holders.

The trick has always been to look at the bottled water model. Water is a product that is generally available for free (or at least is used to be, dear Irish readers), yet people are still willing to pay a couple of euro for a bottle. Spotify works in much the same way. Unlike music downloading (legal of otherwise), which requires a song to be searched for, downloaded, tagged and added into a computer or device’s jukebox, Spotify makes just about every song the average listener might want to hear available at an instant. Lengthy party playlists can be assembled very easily and the service links into social networks, helping create a genuinely appealing system to interact with.

Breaking down the figures

Spotify’s coding, however, has never been an issue, so let’s instead examine the numbers. The company has always been transparent with its model, and regularly reminds customers that 70 percent of its total revenue goes to music rights holders (once the money makes to those rights holders it’s down to individual agreements these firms have with artists that determines how much gets passed on). Spotify pays on average a little more that half an American cent per stream, depending on variables such as how many songs a paying user listens to in a month. In July 2013, all this equated to a US$425,000 pay out to the people behind a “global hit album” down to US$3,300 for a “niche indie album”.

These aren’t the tiny figures we sometimes hear about anecdotally, nor are they a return to the turn of the millennium when obscure rapper were flush with cash and giving MTV viewers tours of their lush homes on the show Cribs. But Spotify’s model relies on scale – the more users, the more streams, the bigger payouts. The company currently boasts 10m premium subscribers with over 40m active users total (while every stream equates to some payment for the artist, premium subscriber streams generate more than non-subscriber stream).

If growth rates sustain the number of premium customers will double by late 2016. Should music streaming truly take off and Spotify continue to be the most prominent outlet ahead of Rdio, Deezer, Rhapsody and other rivals, that current figure, in my opinion, could have the potential to grow tenfold to 400m active users – not that absurd when you consider that Spotify would still only have half the number of accounts that Apple’s iTunes currently services, all of which require a credit card number to start. Now you’re talking approximately US$4.25 million being paid out for a global superstar’s music every single month, while our niche indie band’s record is now raking in €330,000 a month. Spotify also cite the fact that the average amount of money spent by US adults on music is US$25 a year, whereas the average user spends US$41 (although that first figure mat be taking into account the section of the population who just don’t buy music ever).

But what music is “worth” in 2014 is far from a set in stone concept. Artists who have left Spotify, I suspect, believe that the app is attracting customers who would otherwise pay for their music via legal downloads or physical CDs and vinyl. But that would be attempting to impose the economics of a bygone era onto a radical new model. Anyone web savvy enough to use Spotify has likely obtained music through illegal downloads or listens via unauthorised streaming in the past. Right now, Spotify is generating revenue that would otherwise be lost, and the evidence that’s it can work as a concept is there. As label president David Macias pointed out for Hypebot, record industry revenues shot up in Spotify’s home country Sweden by 30pc in the first half of 2012 versus the same period in 2011 thanks to the company claiming roughly half of the music business revenues.

Into the future

It’s probably worth mentioning that royalty fees are not the only form of income for artists, and it could easily be argued that giving people greater access to their music via streaming causes an increase to other forms of revenue, such as gig ticket sales and licensing. But I’m not mad at those who are weary of Spotify. While the formats changed from time to time, the model of purchasing physical music you could hold in your hand stood for a century. Once that typical method began to fail it was always going to take some lateral thinking to move forward. For me, an important part of dispelling old habits is to forget about charts and sales units as a barometer of an artist’s success. Platinum plaques are a thing of the past. A system where artists earn royalties for their good work is everything.

Spotify is far from perfect. The software is still a little buggy and isn’t as responsive as some media library’s like iTunes. But it’s getting better, and much, much bigger. While Taylor Swift has attempted to disparage the service by dubbing it an “experiment”, it’s the only viable experiment in town right now. As a music enthusiast with hundreds of CDs and a couple of shelves of vinyl in my collection I’ve seen the decline as music as marketable goods and fretted that there might be no answer. But Spotify represents a real opportunity for the music industry and needs its support to fully flourish. Swift’s lack of support stifles that development.

Taylor Swift image via Shutterstock

Dean Van Nguyen was a contributor to Silicon Republic