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Is Spotify as evil as everyone seems to be making out?

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There is an uprising of hatred for music streaming service Spotify, but rather than feet-stamping and crying about it, maybe we need to sit back and objectively take a look at the facts?

Google revolutionised the internet way back in 1998 by asking a simple question: “What do the users want?”

A number of search engines existed before that to help sift through the seemingly infinite expanse of web pages, but there was a big difference to the Google way. They were instead telling people what they wanted - and often getting it wrong.

The parallels with the music industry’s struggle with the move to online and digital media are stark. For many years the bigger part of the industry tried to control the internet and tell people what they were getting in terms of music.

Long and expensive law suits followed as massive labels tried to fend off everything from burning CDs to ripping MP3s onto digital players.

The consumer, though, ultimately shapes the market. A trio of music fans, including Sean Parker (later of helping Facebook start up fame), got together and created a tool that would forever shape the music market and bring online sharing into the mainstream; Napster was born.

Furious music executives eventually succeeded in shutting down the file sharing service, but the genie was out of the bottle and the way people consume music - and wider media - had changed forever, despite the industry failing yet again with initiatives such as oppressive Digital Rights Management (DRM) software embedded into CDs and audio files.

Another primarily non-music industry company had to jump in to save the day and get the market back on a legal track that was acceptable to consumers. Step forward Apple.

We have to remember that for the first few years of iTunes, its paid (and legal) downloads service was bemoaned and criticised (largely by the music industry, who initially refused to get on board and continued with the dying remnants of the physical media market), but became the de-facto model of how people bought their music. Consumers (of which a vocal minority initially declared that paying for music at all anymore was dead) had, again, shaped the market in the face of big industry telling them this wasn’t how they wanted it done.

But what has this got to do with Spotify? Well, we’re at that impasse stage again. Whereas before it was labels bemoaning the 30% cut Apple took from sales, this time the tiny streaming fees paid out by Spotify are in the spotlight, not least because of a Taylor Swift tantrum and some other artists pulling their music from the platform, and the bandwagon is gathering pace.

Media consumption has continued to change at a fast pace and one-off purchases are all but discouraged by many now in favour of an ongoing subscription model (and the ongoing revenue that produces) in many markets. Look at the relative successes of Netflix, Amazon Prime and more (chances are you have a subscription to a streaming TV/movie service nowadays, right?).

Just like the film industry was slow to adopt to internet usage, the greedy music industry were sticking to archaic practices and it was left to others, acting for consumers (whilst starting up their own commercial entities, of course), to step in and move things forward. Thing is, if music (and film) bosses had done it properly themselves they would have had chance to dictate the terms.

So, we have a world where anyone can instantly and conveniently access upwards of 30million songs on demand for the fee of £9.99 per month. Who isn’t amazed by that fact? Sure, you never own the product and can lose access to single songs, albums, or - possibly one day - the whole service at the whim of any number of reasons, but these are by-products of the digital age we live in.

And consumers (over 15million paying subscribers and 60million active free users in the last month alone) just… LOVE… it.

The problem? Artists are getting minuscule amounts for their product being streamed on the service. Is this an issue? Absolutely. But just as much as it is a worryingly low fee for streams, it is difficult to quantify the real value that an artist should get for their music being played.

I’ve yet to see a decent argument, with actual quantifiable figures, show what an artist should fairly and reasonably get out of their music being streamed on a service that costs the end user just £9.99 per month.

Currently, artists can expect to make around £0.034p per stream after their label takes a cut - these figures are for signed artists rather than unsigned - (although this is an average guesstimate - getting to the bottom of Spotify’s fluctuating payments system is about as transparent as mud). So, three plays now earns you around a penny. Doesn’t seem like a lot, does it?

Spotify’s argument is that it has paid out over $2billion in royalties to artists, labels, publishers and collecting societies since it launched.

Artists will point to the fact that to equal a royalty they would normally earn from a single iTunes sale (after Apple and the record label take their cut - this is for larger labels, obviously, not for self releases), their song will have to have been played around 30 times on Spotify.

But, this is not comparing apples with apples. One option is paying a one-off fee to download and effectively own the file and play it as many times as you want, in perpetuity. The other is a subscription model where a fee is paid per play with no transfer of the actual file, per se.

Of course, if someone buys a download but only plays that file a couple of times then you are majorly profiting in comparison to the streaming revenues, but if someone likes your song so much they play it hundreds of times on Spotify then you make much more than you would if they’d have bought it from iTunes and just played it over and over.

I guess the question then is how many times does someone, on average, play a song on each of the platforms? It would make an interesting study (somebody?).

However, its not as black and white as that - what about people, like me, who do BOTH? I’ve bought more songs than I care to admit through iTunes AND I have a Spotify subscription because it is convenient and a great way to discover music (which I might or might not buy later depending on how much I like it). Perhaps I’m not indicative of everyone, or maybe even the majority, but I am surely the ideal music fan - one who double dips and artists benefit all ways?

Note: Comparisons with radio play royalties also don't work either. The average PPL payout per track on XFM (as an example) is around 92p (before cuts taken out from record labels, etc), so not too far removed from a digital download. However, that is potentially broadcast to over 400,000 listeners, so when you take into account the royalty on a per user basis the end result is miniscule.

It might seem like I am advocating for Spotify here, and in some ways I am - but I do think, on the simple face of it, that it seems they could pay more to artists. I just don’t know what that figure would be - do you?

I do know this though: Google got it right in 1998 by asking what the people wanted and delivering it. In this case it seems that Spotify are delivering what consumers want and that is something that the music industry as a whole, including those stamping their feet about this issue, should take note of too.

Footnote: Another even more interesting fact to me is that this argument doesn’t seem to be extending to YouTube (owned by Google!), which is arguably the most accessed music streaming service in the world (albeit via video rather than audio) and whose payments to artists since its launch are allegedly half of what Spotify has paid out since their much later launch. But, that’s an article for another time…

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