It's been a week of intense speculation as to the role and future of Spotify within the music industry. On Wednesday of last week the UK-based distributor STHoldings put out a strongly-worded statement (apparently since withdrawn) announcing its decision to pull the catalogues of 238 record labels from the service, as well as from Napster, Rdio and Simfy. The statement reignited the debate as to the role of Spotify and similar subscription-based services within the music industry, and it's a debate that hinges on what Spotify is, or, more crucially, what it replaces.
Detractors claim that Spotify usurps traditional means of music-purchasing such as CDs and digital downloads. Various artists and independent labels have pointed out that the revenues generated by the service are paltry, and insufficient to make ends meet. With its claim that subscription services "cannibalise the revenues of more traditional digital services", STHoldings has merely added its weight to this growing, if not yet deleterious, body of opinion (though by closing their statement with the words "f*** Spotify", it did so perhaps the most vociferously.)
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A notorious claim dating back to November 2009 had it that in the five months since its launch in Sweden, Spotify racked up one million plays of Lady Gaga's 'Poker Face', and paid the artist just US$167 (GBP100) in royalties. This led Swedish musician Magnus Uggla to state that he would rather his music was pirated, and to withdraw his music from the service. Speculation in the media since has put the actual royalty paid per play between $0.0013 and $0.002, which would mean $1,315 - $1,855 was paid in royalties to Gaga for those million streams. The precise per-play royalty does not appear to have been confirmed by the company.
Royalty-wise we may be quibbling over the size of peanuts, but they are very likely not the only fees paid out to the industry by Spotify. According to the Guardian, who spoke to the head of rival service We7, they will additionally make payments to the labels, of which artists will receive a cut dependent on the deal they have negotiated. How much do the labels receive? Again, no one seems certain, but the amounts are likely dependent on the specific agreements the labels have in place with Spotify. The service generates further revenue for labels and artists by providing direct download links through 7Digital.
In contrast, advocates claim such services provide an alternative means of music discovery that pays more generous royalties than traditional broadcast radio, and from an industry point of view is clearly preferable to illegal piracy, which of course generates nothing directly for artists and labels. On his blog, Steve Lawson calculates that, even if the figure is correct, the $167 paid per million listens by Spotify to Lady Gaga is an order of magnitude greater than that paid by the BBC's popular music station, Radio 1, though the fixed royalties paid by the BBC look bad on a per-listener basis as he has chosen one of their most popular shows. A report for the Swedish music industry recently released a report detailing a drop in piracy of 25 percent since Spotify's 2009 launch, attributed largely to services such as Spotify.
In reality Spotify is a muddy but potent mixture of music discovery tool and music consumption service that blends the traditional roles of both radio and music store. Whether it gains or costs an artist sales likely varies from artist to artist, depending on the size, dedication and demographic of their fan base. Calculating the overall cost or benefit of Spotify to the industry would very likely make a good PhD research project ‚ if all the necessary data could be obtained.
In addition to citing the state of its own accounts, STHoldings mentions an apparently nameless study by market researchers NPD along with NARM (we assume the National Association of Recording Merchandisers rather than the North American Registry of Midwives), though their statement provided only a link to a short, inconclusive post on Digital Music News about the study rather than the study itself. A statement put out by NPD itself about the study strongly implies that it was actually focused on the music-discovery habits of consumers. Thus far Gizmag has been unable to track down a copy of the NPD/NARM report or discover its name, if indeed it has one. It is not clear, then, what insight it gives on the effect of Spotify on artist earnings. We've asked NPD for a copy but so far none has arrived.
STHoldings has since pulled the original statement from its website, though a copy remains online thanks to blogger Michael Schmitt. In its place is a cryptic message that the distributor is now "working with some streaming companies on solutions that work as well for artists as they do consumers". It does not say who, but we spoke briefly to STHolding's Andrew Parkinson who clarified that this definitely does not constitute a change of heart with respect to Spotify.
For the vast majority of Spotify listeners, the move is symbolic and won't affect their regular listening habits. It has been argued that this development will be a knock to Spotify users who revere the completeness of its catalogue. In reality, a service that can live without the music of The Beatles and Pink Floyd can probably live without STHoldings' collection. But Spotify will need to win the argument that the service adds value as a discovery tool, and an alternative to radio and piracy (without eroding too many sales), if it is to keep smaller artists and independent labels on side, and with them dedicated music fans. It's the fans that will ultimately decide upon Spotify's status as either hero or villain.