Is Spotify an enemy or a friend of the music industry?

Spotify CEO Daniel Ecques

Foreign media recently wrote that the streaming music service Spotify has grown in recent years, with a global user capacity of 50 million, with 12.5 million paid subscribers. It has also paid more than 2 billion dollars for record labels and publishers. But is this kind of service really good for musicians? Is Spotify a friend of the music industry or an enemy?

The following are the main contents of the article:

The vision of Spotify's CEO, Daniel Ek, is that Spotify has always been an important force in the music world, allowing people to listen to any record in a Daniel Ecques streaming music service. Spotify does not sell music, it sells its access rights. You don't need to buy songs and records, and to get its services, you can either pay 9.99 dollars a month or use the release of the commercials for free. You can listen to almost any musician's song on it.

When Spotify was on the line in Sweden and several other European countries in October 2008, Ike's dream seemed to be out of reach. Today, Spotify is still a Netflix in the music service. Mark Zuckerberg, Facebook's CEO, said that "Io saw the opportunity for streaming music before others." ”

Spotify was born 9 years later than the pioneer of file-sharing services, Napster. Napster caused the spread of music piracy, the global record industry began to shrink. The industry reached a peak of $72 billion trillion in 1999, but in 2013, the figure shrank to just 15 billion dollars. In 2003, the music industry worked with Apple to create a digital record store, itunes, to sell music as a download, but failed to reverse the industry's downward trend; to be honest, the itunes Store allows people to buy singles, not entire albums, and Apple can say it accelerates the music industry's decline. Legal action against individuals-thousands of people in the United States have been sued for illegally downloading music-will only alienate potential customers.

The situation in Sweden is even worse. Pelle Lidell, a global music publishing group Stockholm Executive Perre Lider, said 2008, "We are almost completely buried, and Spotify has single-handedly reversed the situation." ”

Spotify's rise

Ike was also a pirate practitioner. Prior to the creation of Spotify, he served briefly as CEO of UTorrent. Part of the company's revenue comes from the monetization of pirated music and movies. Years later, Sien Park, the former public Enemy of Napster and the record company, teamed up with Ike to help push Spotify forward. As one record company executive has said, who would have thought "your enemies will become your friends"?

Spotify has now landed in 58 countries worldwide. (Its latest entry into the market, Canada, ushered in the service at the end of September.) To expand, it has financed more than $500 million trillion from investors, including Goldman Sachs. There are also rumours that it will make an IPO (IPOs) and raise more money in the future. Spotify's global user capacity has topped 50 million, with 12.5 million paid subscribers. According to current growth, the figure is expected to reach 40 million by 2020.

So far, it has paid more than 2 billion dollars for record labels, publishers, distributors and copyright musicians. "I'm very optimistic about its development," says Tom Corson, an RCA records President Tom Cossen, "and its self-service access model is beginning to win more and more people's favor." We anticipate that many free users will be converted into paid subscribers in the future and this service will be a very important part of our business. ”

Whether Spotify is good for musicians is a relatively tricky issue. The service is not meant to provide enough remuneration to musicians. In 2013, Radiohead's Tom Jock (Thom Yorke) called Spotify "the last desperate attempt". "I think the value of a record in the present and in the future lies in the devotion of musicians," Taylor Swift said in a column in the Wall Street Journal this July. "In her eyes, streaming media broadcasts are no different from pirated music. "Piracy, file-sharing and streaming media have led to a sharp contraction in pay-record sales, and each musician has handled the attack differently." "she wrote.

In early November, Swift's new Record "1989" released, her record company Big Machine Records not only refused to provide the record in Spotify, but also all her songs out of the service. Is this a gesture of unity among musicians, or "a gimmick to squeeze the last drop of blood out of a dying pattern, a record sale"? The first week of "1989" was stunning, close to 1.3 million, becoming the best-selling album of the year, but still far from the 2.4 million sales recorded in 2000. Sales fell by 69% in the second week of 1989, suggesting that Swift's 71 million Facebook fans did not go shopping because Spotify didn't have her new record. They went to YouTube or other websites to listen, or to Pirate Bay to download. The record is also the most popular on Pirate Bay.

In Spotify, music consumption is "quite seamless". In terms of technology, people go from a scarce world to a world where nothing is missing.

The difference between the Internet radio services, such as Spotify and Pandora, is that Spotify is interactive. You can collect more than one record of many musicians. Spotify currently has about 20 million songs, adding 20,000 new pieces a day. But to sustain rapid growth, Spotify must attract "exploratory" audiences for Pandora. Spotify wants to do this by pushing the song list. It has employees who specialize in creating songs, and users can create them themselves--with over 1 billion songs on their website. The song is quite a stream of media world records. Spotify is also seeking to bring its services to the car, and is discussing cooperation with some car companies, which this week unveiled a partnership. The influence of a single song will only increase.

Copyright issues

In fact, Spotify's foray into the U.S. market is not going well. Ike thought he could fix the copyright problem in 6 weeks, but it ended up spending two years.

The specific licensing agreement between Spotify and mainstream record companies is unclear; In addition to nearly 70% of the revenue from Spotify's subscriptions and advertising sales (similar to Apple's itunes sales), mainstream record companies have bought Spotify as their business partner, which amounts to a 15% per cent stake in Spotify.

Given that Spotify is making a large chunk of its income to record companies, there is little margin for profit, and some analysts are questioning whether its business model is sustainable. The company was in a loss position before 2013. (It insists it focuses on growth and expansion.) Those contracts need to be renewed every two or three years, so in theory, the better the Spotify's business is, the higher the record companies may get in return. That means Spotify is different from the number of Internet companies with fixed operating costs shrinking as the scale expands. For Spotify, the scale of growth does not lead to a reduction in its mandated costs.

When Spotify began seeking to enter the U.S. market, the record company offered to pay for the royalties in advance. These costs do not necessarily have to be transferred to content creators, although it is their efforts to make those songs catalogue valuable. Spotify has to pay the mainstream record company once a month. It is not transparent as to how many of those companies are dividing musicians, because while Spotify has provided the record company with detailed song-playback data, it is their decision as to how the information is fed to their musicians. That's the case with publishers. Artists and composers have no choice but to trust the record companies and publishers.

The deal that Spotify has struck with large record labels has significantly accelerated the popularity of streaming music services on demand. However, although the way consumers get music has changed, the way music creators get paid has not changed.

In addition to Spotify, there are many other streaming media services, such as competing Rhapsody, Rdio and Google Play music, as well as thousands of websites that support streaming music. Record companies, publishers and performers have had to use dozens of different techniques to monitor the playback of songs on various services. Any particular song, which involves a variety of copyrights-the right to perform and the use of machinery-makes the identification work quite difficult.

Liz Penta, New York musician manager, Lize Penta that, in addition to large payments, she often receives a 1-cent cheque from Harry Fox Agency, which manages mechanical use fees for streaming media services such as Spotify. The exponential growth of Spotify suggests that the charging of royalties has only just begun.

Spotify's agreement with mainstream record labels is much more transparent than the fees paid by independent record companies and digital music distributors. Spotify will send them monthly statements providing the total number of players per musician, each broadcast royalties, monthly income and other data. It retains 30% of its revenue and the rest is mtrc by record labels, publishers and distributors. The latter provides remuneration to musicians in accordance with their royalty agreements.

How much is the royalty rate for a single stream? It depends on a number of factors. The more famous you are, the higher your royalty rate will be. The stream in some countries is comparatively valuable. Ad-supported free streaming is worth less than subscriber streaming, as Spotify's advertising revenue is lower than subscription revenue. Spotify's web site shows that the average royalty on its services is between 0.6 cents and 0.8 cents. In other words, about 150 times the value of the stream to 1 times the 99 Cents Download. For many musicians and record company executives, these numbers are hard to accept. On the other hand, it is better to have 0.7 cents in royalties than not.

Some musicians make a lot of money on Spotify. Before withdrawing Spotify, Swift's music revenues on the service amounted to about $500,000 a month. Avicii, David Guetta and other music musicians have been paid millions of dollars a month. Daniel Glass, a veteran music professional and founder of independent record company Glassnote Records, said he was pleased with the royalties that Spotify paid to its musicians.

Portray a better future

During a recent lecture to the music industry in New York, Nashville and Los Angeles, Spotify delegates tried to inject more confidence in managers and musicians, telling them about future royalties based on growth forecasts. For example, now one months to earn 3300 dollars of small-type indie record, When Spotify's paid subscribers reach 4 million, they will be able to earn 17,000 of dollars a month, and now a one-month breakthrough indie record will be able to earn 380,000 dollars a month, and now a one-month-old global hit record will be able to earn 125,000 dollars a month.

As for how likely these predictions are to be achieved, Ike says, "Is there a definitive way of judging?" Of course not. But I am not the only one who believes they will come true. Almost everyone agrees that the streaming media market will continue to grow in the next few years. ”

The FM broadcasts pay the composer by the number of times it is played, and the musicians and the recording party (basically the record company) are not getting one. In the case of digital streaming services such as Spotify, the situation is almost completely reversed: the recording party receives most of the royalties, while the composer only gets a small portion. The less famous composers suffered particularly badly because of the loss of publishing income.

Good for musicians?

Ike's answer is long-winded about whether Spotify favours musicians. "If it's going to benefit the audience-almost everyone likes spotify---then it's certainly good for musicians because it makes the whole cake bigger by getting people to listen more." Many in the music industry share his views. "Streaming services can be very useful, especially for musicians who have good work and have a large touring concert," said Richard Jones, Pixies manager. I'm very supportive of them. ”

Spotify has the opportunity to give an uncovered musician a break. The variety of musicians covered by a single song is much wider than that of a commercial radio song. After the 17-year-old New Zealand singer Lord Lorde's song "Royals" was heard by Sien Park (Sean Parker), her work was often cited by Spotify. Before the popularity of "Royals" in April 2013, Parker added it to his "hipster Analysys" Spotify list, which currently has as many as 790,000 followers. Parker's followers added it to their songs, and so did their followers; users shared each other, and within weeks "Royals" became the second most popular song in Spotify.

"There is no traditional business model for Spotify, no radio announcers, no traditional marketing--some are just songs," said Will Page, Will Pecs's economics head. But it seems to be becoming a radio station. Here you will witness the viral nature of the growth that prompted the musician to become America's hottest musician before Christmas. "Of course, there are big record companies and huge marketing budgets behind him," he said. Jeson Flon (Jason Flom) 's record company, Lava label, had a note of her before Parker added the Lord's song to his list a few months earlier. Furlong said, "Royals" can not be stopped. Still, he points out, "spotify--, especially Parker, did give Lord a lot of help and gave her a platform to compete with the most popular musicians." ”

Record companies are starting to think about how to make the most of Spotify's potential, sometimes by manipulating the timing of their hair. "Open Window" release mode-first only itunes, two weeks after the sale to enter spotify--is quite popular among some record companies.

However, there is another category of musicians that Ike hasn't helped. For them, Spotify has further eroded their CDs and downloads, and its streaming services are far from being able to compensate for their losses. Ike admits that for some musicians, switching from a sales model to a streaming media model can be difficult.

"In Sweden, this transition has been a difficult year and people's rhetoric has changed," he said. "In larger markets, that will happen," he said. Our goal is to expand the entire music library, and any other problem is part of the paradigm shift. "This is the biggest shift since record music was born, so it's not surprising that it takes time to educate the future of the musician industry," he added. ”

The respected jazz guitarist Mark Ribot (Marc Ribot) and the Grammy Rozing Kash (Rosanne Cash) are the two musicians in the transition. Both are in the middle of their careers and are an important part of the New York Music Circle. They all work with big record companies. (Ribot currently publishes music independently.) ）

As for their earnings at Spotify, Ribot said, over the past 18 months, his band's 68,000 broadcasts from the latest album were only 187 dollars. The album is aimed at Spotify's European and American users. Cash has made only 104 dollars from 600,000 broadcasts. The data are not consistent with Spotify's benchmark, but they are the result of a pay-splitting mechanism for their record companies and publishers.

As for both Ike and Parker's efforts to help musicians, Ribot responded, "Our so-called friends in the online distribution field are helping to bring musicians from a 14 billion-dollar domestic record market to a market that is only 7 billion dollars in size, and now Spotify wants to further compress that figure." ”

"It's a simple fact that no one wants to say," he added. Spotify says it gives copyright owners a 70% split. Well, that's good. But if the cost of my shoes is 100 dollars and the retailer sells for 10 dollars, it doesn't matter whether it offers 70% or 100%, because I'm going to go bankrupt anyway. ”

"I don't think anyone would want the streaming service to go away," said Cash. We just want to get a fair reward. ”

He added, "The music industry will suffer if the work of musicians is not paid well." It is no good for Spotify to take our interests into full consideration. ”

Will they be crushed by giants?

Perhaps Spotify itself will be wiped out. Apple, Amazon and Google have recently begun to enter the streaming media market. Ekdian says the advantage of Spotify is its ability to analyze data and information. "We've been doing this for years," he said, "and we've built the largest dataset from the most active music users." I think it will be very difficult for the new industry to surpass us. Maybe some companies can reduce the price of streaming media services, so that we cannot survive. But am I worried that other people will make better products? No, because they can't. ”

James McQuivey, a Forrester analyst at James Macqueville, is less sanguine about the prospects for Spotify. "Spotify has proven the value of streaming services," he said, "which means someone might put that value into the chess game." Companies like Apple and Google have realised that music is a valuable tool for attracting users, and they may offer similar services for free. In that case, Spotify will be overthrown in a trice. He added, "Let me bet if Spotify will be as strong as it is 5 years from now, my answer is no." ”

Earlier this year, Apple bought Beats Electronics, a streaming media service Beats Music. It's not clear what Apple will do with Beats. It is likely to promote beats services more widely. On the other hand, Apple also faces the dilemma of traditional innovators. The introduction of streaming music services will weaken Apple's original itunes download business. But if streaming is the future of music, Apple must enter the market as soon as possible. itunes's music revenues have fallen by nearly 14% this year.

If Apple pre-installed its own streaming music service in the next generation of iphones, it would pose a huge threat to Spotify by incorporating subscription prices into contract prices. Apple's services will easily outpace Spotify by hundreds of millions of of subscribers. In addition, Apple makes money mainly from hardware sales, so it can definitely suppress Spotify at subscription prices. Of course, Apple has to get the record company's support first. To point out, several mainstream record companies are Spotify's business partners and shareholders. In any case, downward pressure on prices caused by increased competition is likely to reduce the share of copyright owners.

Even if Spotify survives the impact of Apple, it will take years for the music business model to shift to streaming media. Meanwhile, record sales will continue to fall. As profit margins shrink, record companies may try to get more out of Spotify and constrain its future growth. They may even be holding their Spotify holdings. That is to say, your enemies may indeed become your friends, and in turn your friends may become your enemies.

Translator: Lebang

(Responsible editor: Mengyishan)