Is Spotify Killing the Music Industry… or Saving It?

Since its launch in 2008, Spotify has faced a blitzkrieg of criticism from all corners of the music industry. Advocates of the industry, from major artists to financial analysts, have complained that the platform is corrupt, paying its publishers unfairly. Beyoncé has withheld her acclaimed Lemonade album from the catalogue, Thom Yorke elegantly called the company “the last desperate fart of a dying corpse” and Jay Z has launched Tidal as a counter to the behemoth platform. If musicians and recording artists — the creators of music — aren’t satisfied, then how exactly is the streaming service boosting the overall business?

A recent study conducted by Goldman Sachs contends the unexpected — thanks to streaming services, the music industry is “on the cusp of a new era of growth.” The research even states that the growth of streaming will help music revenues “almost double by 2030” and that the whole music ecosystem will acquire a whopping $104 billion in just a little over a decade. So is Spotify killing the music industry or saving it? Here’s the breakdown.

Streaming Service Jargon Explained

It’s important to first understand how Spotify works for both consumer and producer. For starters, the streaming service operates on two tiers. The most popular of the two is the ad-supported tier, in which customers don’t have to pay to listen to music but have to listen to ads every couple of songs. The second option of the two, is the Premium tier, in which customers can subscribe for $9.99 per month (or less with certain discounts). On the Premium platform, subscribers experience Spotify’s full benefits and extra features, such as lack of ads, better sound quality, curated playlists, and more.

For artists, Spotify establishes a “per play allocation” to determine how much to compensate them. To configure this number, Spotify divides the remaining revenue by the publisher’s total number of service plays in that month. This royalty, called the “mechanical royalty,” is then distributed to the label representing the artist or directly to the artist if he/she is independent.

Spotify Is Not an Effective Channel for Traditional Mass Monetization

According to a report done by Audiam, Spotify’s mechanical royalty rates are decreasing on the ad supported tier. In other words, artists are supposedly losing money overall, despite the revenue growth of the platform itself. The music agency stated that in December 2016, a song on the ad based tier with 448,672 streams earned $100. In order to gain that same $100 amount in February 2017, just a month later, a song on the ad tier in would have to be played 703,581 times. Though premium streams have slightly increased, the overall trend slopes south.

So why the inverse relationship between Spotify’s revenue and artist payout rates? As it turns out, people like free stuff. The public is milking the streaming industry — listeners are hitting the play button more frequently than the company’s revenue can keep up. So while Spotify’s “all you can listen” buffet is a boon for the public, an affordable source for music bingeing, it is an economic nightmare for artists and publishers. In the previous system, music was a physical product. Therefore more sold vinyls or cassette tapes equaled a predictable salary. On the contrary, in the 21st century digital economy, more hits means less money than previously deserved. Though Spotify has revolutionized the listener experience, it has failed to revamp the value chain; consequently, until the mechanical royalty rates are stabilized, critique of Spotify’s pay methods is warranted.

Spotify Is an Effective Tool for Branding and Globalization

While the organization in and of itself is not the pot of gold, it can be utilized as a bridge to more lucrative means. Spotify appeals to young adults with its consumer friendly options and social media ties. From its connection to Facebook to its affordable premium subscription, the service has hooked mainly millennials. A Forbes article states that the demographic makes up 72% of all streams per week on Spotify. This group is responsible for roughly 4.5 billion minutes of music consumption weekly. Thereby for artists, Spotify amplifies their music to the most fresh, sound-hungry generations.

Moreover, the platform, by nature, is designed to go global. The business penetrates the developed and developing world simply because it operates on smartphones and laptops, not record players and car radios. Anyone with access to the internet (in one of the 60 countries Spotify operates in) can listen to music, either for free on an ad-based tier or for a small fee. Spotify promotes American artists to listeners in Japan, Sweden, Brazil… and vice versa. Through the streaming service, American performers can open their tours and merchandise to non-Western peoples and cultures. As their audience base aggregates, publishers will be encouraged to innovate their brands so that they can appeal to a culturally diverse following. The streaming service as of consequence, encourages cultural boundary crossing and inclusive brand marketing.

Ultimately, Spotify is great for marketing and promoting artists of all backgrounds to a global millennial market; however, it should not be considered a direct channel for mass monetization, at least not until the corporation fixes the streaming mechanical royalty rate. The question of whether it is killing or saving the music industry is really contingent on the user’s intentions. For artists specifically, the answer depends on whether they are looking for short-term fiscal gain or long-term brand growth.

All in all, the digital revolution has restructured the way people create, sell, and buy music. Spotify is simply the answer to a changing environment. Whether this transformation is an evolution or regression, or whether creators choose to jump ship or stay aboard, the world can no longer deny the fact that streaming is the future of music.