I was ten when I pirated my first track.
During one of Pokemon’s commercial breaks my best friend at the time showed me this cool new program that let you download anything you wanted. He asked what I wanted to listen to. I can’t remember what I said but I’m sure I’d be embarrassed by it now. He entered it’s name into the search bar, clicked download and ten minutes later we were listening to it.
This was my introduction to Napster. After Napster came LimeWire. Then it was Warez-BB and finally torrents. I never made it to Usenet.
I was twenty-two when I was introduced to Spotify. In the previous twenty-two years I had spent next to nothing on music. In the two that’ve followed, I’ve spent at least $200. Excluding concert tickets, that’s double what I spent in my entire pre-Spotify life.
For those who don’t know, Spotify offers two tiers. You can sign up for Spotify’s limited free plan and deal with ads or pay $10 a month for the full experience. I started off on the free plan but the lure of having Spotify on my iPhone was too much. Within a few months I’d signed up for the premium package.
Now let’s see what the ruckus is about…
Another Taylor Swift Breakup Headline
Taylor Swift has pulled her music from Spotify, inspired countless song-pun laden headlines and reignited the debate about streaming music services. Her latest album is “1989” was released in October. Like with any breakup there are some unkind words being thrown around.
In an interview with Yahoo Swift explained her issue with Spotify:
If I had streamed the new album, it’s impossible to try to speculate what would have happened. But all I can say is that music is changing so quickly, and the landscape of the music industry itself is changing so quickly, that everything new, like Spotify, all feels to me a bit like a grand experiment. And I’m not willing to contribute my life’s work to an experiment that I don’t feel fairly compensates the writers, producers, artists, and creators of this music. And I just don’t agree with perpetuating the perception that music has no value and should be free.
Swift is one of the most successful musicians in history. She’s the only artist to have three million-selling opening weeks. Her singles consistently reach number one. She has worked hard and deserves every success. She’s just wrong about Spotify.
I believe that in Swift’s instance pulling her music from Spotify may have been a good move but she’s an exception; for 99.999+% of artists what she did would never work. So lets look at why Swift is wrong about Spotify.
Spotify The Experiment
Right out of the gate Swift dismisses Spotify as a “grand experiment”. That’s a low blow.
Earlier this year Spotify announced that they’d reached 40 million users in 56 countries around the world. It’s now up to 50 million.
Spotify’s been growing steadily since it launched in 2008. From 2013 to 2014 the number of paid subscribers almost doubled. In Europe, artists get an average of 13% more from Spotify payouts than they do from iTunes royalties. That’s right, Spotify is bigger than iTunes in Europe.
These aren’t the user numbers of a mere experiment. Spotify shows all the signs of being the future of the music industry.
Spotify, The Music Industry And Fair Compensation
The second issue is more thorny. Swift feels that Spotify doesn’t “fairly compensates the writers, producers, artists, and creators”. One problem here is that Spotify doesn’t directly compensate anyone but the owners and publishers of the music; not the writers or artists but, in most cases, the record company. Spotify could be compensating the record company but, if the artists royalty rate is too low, they won’t think that.
Fair compensation is a concept that has been studied for as long as there have been economists. An intangible product like a song — especially when it is delivered digitally — has no inherent value. At least, you can see a CD as a Frisbee. The only value it has is what we place on it. And unfortunately for Swift and many other artists, the value some people (including me in the past) place on music is zero. Twenty years ago this wasn’t a problem, but today there are both legal and illegal ways to listen to music for free.
Spotify shot back at Swift’s comments with a blog post from Daniel Ek, the CEO. “Taylor Swift is absolutely right: music is art, art has real value, and artists deserve to be paid for it” writes Ek; he continues, “Piracy doesn’t pay artists a penny [while] Spotify has paid more than two billion dollars”.
Two billion dollars? That’s a lot of money, but is it a fair amount of money? To address that we need to look at how that two billion dollars breaks down.
Spotify pays rights holders (read as ‘record companies’) between $0.006 and $0.0084 a stream. That’s between a little over half a cent and just under a cent for each listen; the exact rate depends on a number of factors. The money comes from the ads free subscribers are subjected to and premium member’s subscriptions. On iTunes, Swift’s latest album retails for $12.99 with each of the 13 songs selling for $1.29. Depending on how you dice up the numbers, each song needs between 85 and 150 listens on Spotify to achieve the same revenue.
While 150 listens may sound like a lot, it really isn’t. Getting personal play data out of Spotify is difficult but Walt Hickey managed to do it for FiveThirtyEight. In his eighteen months on the service he listened to his most played song — I Don’t Know How by Best Coast, I won’t judge — 138 times. Even at the lowest royalty rate of $0.006 per listen, that’s $0.82 paid to Best Coast’s label. If he’d bought the song on iTunes the label would have got $0.90 ($1.29 less Apple’s 30%). The rest of his top ten has high play-counts as well.
Now you’d be right to argue that these are only Hickey’s favourite songs. He’s listened to 1735 different songs, many of them will have only one or two plays. These songs though, are not the ones Hickey would have bought. They’re the songs he would have listened to on the radio, watched on YouTube or not even bothered with. Hickey listening to them is not a lost sale. Allowing him to listen to them though, has the potential to make him a fan. Ever heard of Vokab Kompany? I hadn’t until I stumbled across them on Spotify. I’ve listened to them hundreds of times since.
Even the songs that Hickey listened to thirty or forty times — the ones he might have bought — still make money for the record label. Although they would have stood to gain more at first if he’d bought them up front, in the long run they could end up making more from Spotify. I still go back to the same songs I listened to when I was growing up.
As I write this I’m listening to Blink–182. I have listened to every song they’ve ever made. I’ve listened to my favourites thousands of times over the years. Since 2012 I’ve been listening to them exclusively on Spotify — it’s where I’ve built my music collection . I’m not going to stop listening to Blink–182 any time soon. In the next two, five or ten years — so long as Spotify keeps going — I’ll keep revisiting my teenage years and Blink will keep getting money from me. The same is true of the songs I only listen to a couple of times a year. The label might wish I just paid them cash up front, but in twenty years time, they’ll have earned four times what they would have today.
So let’s go back to Taylor Swift. With her legion of fans, she surely stands to make a fortune from all their streams. Spotify reckon she would have made more than $6 million this year and twice that next year.
Why would it make sense for her to pull her music from Spotify?
There’s one reason I can think of and it’s a good one. Swift is a hugely popular artist and one of the few people still selling CDs in massive numbers. She wanted to break records with her latest album. To do that she needs sales up front. She’d sooner someone bought a CD now than paid her twice as much over the next year. Spotify doesn’t make your album go platinum. If even 1% of people who planned to listen to her new album on Spotify bought it instead, she wouldn’t lose any revenue in the short term and would have a huge boost in sales.
Taylor Swift is a massive exception. Most artists aren’t selling many records. Some of the most successful artists in the UK have day jobs. Swift is entirely wrong to dismiss Spotify just because it doesn’t fit her current market strategy. Half-a-cent a play isn’t much but over time it builds into a significant revenue source. Smaller bands with dedicated fans stand to make far more over time from Spotify than they do with upfront album sales, especially if they own the rights to their music.
The question shouldn’t be whether Spotify offers fair compensation to artists, it’s whether the music industry does. In the short term Spotify doesn’t provide the same value as a single album sale, but in the long term it provides far more. That seems fair to me.
Is Spotify Free?
Finally, Swift seems to have a misconception that Spotify is entirely free. That’s news to me seeing as I’m paying $10 a month for it.
Spotify offers a free tier but it’s limited; there are ads which generate revenue that goes to the rights holders. Scratch the surface and it is a giant honeytrap for those who pirate music or listen to it on services that pay artists nothing. Once you’re in the door Spotify starts paying royalties on everything you listen to. The fifth time you hear the same ad you want to hit your computer. The tenth time, you want to hit someone. The fiftieth time, you want to pay Spotify ten dollars to make it stop. I know, I’ve been through it.
Of Spotify’s 50 million users, 12.5 million pay. 80% of them started out on the free tier. Spotify isn’t free. It’s very good at pretending it is and tempting people like me who actually listen to music for free into trying it. Once they’ve got you, the artists start making money and premium begins to look like a better and better deal. Swift shouldn’t be annoyed Spotify is free, she should be delighted that some service is finally making people who listen to music for free pay. Spotify is killing music piracy.
Are They Never Ever Getting Back Together?
I’m optimistic that Taylor Swift and Spotify will reconcile. Once the dust from dropping a record setting album settles, the long term economics of Spotify will once again make sense to Swift. While in her specific case it made sense for her to pull her music, the comments she made about Spotify were wrong.
Spotify is the future of music and dismissing it as an “experiment” that doesn’t “fairly compensate” artists is short-sighted and entirely misses the point. The value of a single sale on iTunes today might bring in more immediate cash but the longterm value of a Spotify subscriber is far higher. I have never spent as much on music as I do on Spotify.
What do you think? Is Taylor Swift right and I’m wrong? Or do you agree that Spotify is the future.