Article,
A Case Study on Spotify: Exploring Perceptions of the Music Streaming Service
(2013)
DOI: 10.25101/13.10
Abstract
IntroductionMusic streaming services allow users access to millions of tracks from any web-connected computer legally and free of charge. These services are now viewed as a window into the future of the music industry.Spotify is the fastest growing music streaming service in the world, with over 24 million active users worldwide and nearly 6 million paying between US$5 and $10 a month to use the service.1 The company has posted growth at a staggering rate of nearly 8,000 subscriptions per day and is currently valued at $3 billion dollars.2,3 Music streaming was up over 700 percent last year and people are listening to more music than they ever have before.4 Nevertheless, there is also much controversy surrounding this service in the music industry.Throughout this report, I discuss perceptions of the streaming service Spotify from the perspectives of the artist, label, distributor, publisher, and consumer, and how these perceptions are affecting music consumption habits, economics, and ultimately, the future of the industry. I conclude with recommendations on how to improve the service and work towards accommodating the needs of all parties involved.SpotifySpotify was first launched in October 2008 in Europe. Founder Daniel Ek saw an opportunity to utilize new technology to create a product that was better than piracy.5 Once Spotify secured its spot as the second largest digital revenue generator in Europe, it entered the U.S. market in 2011.6Spotify functions much like the popular downloading service iTunes. Wired magazine's Eliot Van Buskirk describes Spotify as, ä magical version of iTunes in which you've already bought every song in the world."7 Music can be browsed using a search tool by track name, artist, or album. Users have the option of registering for a free account, supported by visual and radio-style advertising, or for one of two paid subscription models, which are ad-free and offer a range of additional features, such as higher bit rate streams and offline access to music. In the U.S. there are three types of Spotify accounts: Spotify Free, Spotify Unlimited, and Spotify Premium. The paid subscriptions are entirely free of ads and the listening time is unlimited. An unlimited subscription of $4.99 per month allows for unlimited access to Spotify's catalog on a desktop computer; a premium subscription of $9.99 per month offers unlimited listening and allows users to access Spotify on mobile devices and offline access to playlists."8 By offering a "freemium" option, Spotify hopes to encourage free users to convert to paying users. According to a source, the conversion rate from free to paid is about twenty-five percent.9Spotify distributes back seventy percent in royalties "based on a pro rata share in accordance with the popularity of a piece of music."10 This is paid out to whomever owns the rights to the music. In some cases, the artist owns his or her master recordings. In most cases, a record label or distributor owns these rights. The amount Spotify pays out is a pre-negotiated rate per-play or per-percent of revenue for streams. Although artists receive different royalties depending on deals made with their labels and distributors, on average, this amounts to $0,004 or just under half a cent per stream.Major labels have leverage over streaming services like Spotify because without their enormous catalogues, streaming services could not exist. In January, music publisher Sony/ATV used this leverage to negotiate a twenty-five percent increase in royalties from Pandora. It may only be a matter of time until we see these same types of deals take shape with Spotify. In order to acquire rights to catalogs of music, in some cases, Spotify had to pay very large upfront fees to labels. Many of the major labels took equity in Spotify instead of cash. It is believed that majors received eighteen percent of Spotify shares.11Spotify currently employs over 300 people, is available in 21 countries and has a catalog of over 20,000,000 songs. …
