Controversy surrounded popular online music-streaming service Spotify after artist Taylor Swift pulled her entire catalog from it, and other prominent artists like Thom Yorke of Radiohead criticized it. The artists’ main issue with the service seems to be the fact that its revenue model is not artist-friendly, and threatens the music industry.
Currently, Spotify is a major player in the internet radio industry, controlling 6 percent of internet music streaming market, with discrimination in services to free and paid subscribers. The company is estimated to gross $1.2 billion from its 10 million paying subscribers alone, and has been recently valued at $8.3 billion.
However, artists’ perceived lack of compensation in terms of royalties from the internet radio and the negative effect of the service on regular music sales have led to much debate over the threat the streaming service poses to the music industry.
Over the past few years, artists have witnessed stark declines in album sales, allegedly in large part due to streaming services such as Pandora and Spotify. The royalties artists receive from digital streams are, according to them, not sufficient to make up for the fall in revenue from album sales.
The way Spotify works is that the money is divided into the percentage of the total number of streams. Big labels often pull strings and cut lucrative royalty deals. In response to Taylor Swift’s action, Spotify claimed that she would have received 6 million dollars in royalty. At the same time, the sales of her album went on to earn 12 million dollars in the very first week itself.
In its defence, Spotify has responded that since its inception in 2008, royalties have been its largest expense, accounting for 70% of its costs and about $1 billion over a 5 year span. Per-stream-payments, i.e. payment made to artists every time one of their creations is played by listeners, are estimated to be $.006 and $.0084, with royalty payments for premium subscribers streaming being higher.
The question of how streaming affects musicians is not a new one, and has been ruffling feathers within the music industry for a couple of years now, with new artists being alleged to be the hardest hit. Supporters of the service argue that pulling their music from the Spotify library affects new artists and more established artists differently. They argue that the loss in revenue does not come at the cost of the livelihood of the more established artists, as they have an active back catalogue. New artists resort to internet radio services like Spotify to gain the much required exposure. The disadvantage newer artists stand at is attributed to the Spotify model that clumps popular catalogues and new music together. While well-established labels don’t stand to lose much as their popular music is streamed on a larger scale, lesser number of streams means that small artists and labels get paid a pittance in addition to losing potential album sales.
While those in favour of free music streaming argue that music should be free and accessible and that connoisseurs will find a way to support the industry in any manner and sustain the affordability of music and creativity, the counter argument of the Old Media industry is that artists should not suffer in their profits. They thus dissociate their model from the ‘art belongs to no one and should be accessible by everyone’ argument that encourages music reaching out to a wider audience than just people who can afford it, contrarily focusing on the profits made from it.