How Spotify Shook the Music Industry

It has been quite a decade for the music industry. We have stepped into the information age, the era of technology where we are bombarded, inescapably, by new ideas and development. The invention of the internet in particular played a huge role in turning the music industry on its head. By the time the 90’s came around, the internet had taken off in full swing as a popular new tool with endless possibilities, not least among them the ability to post and listen to music online, for free. Naturally, this posed great problems for the music industry. It was during this time that music streaming was first invented.

napster

Napster’s primitive user interface

The idea of sharing music files through the internet was first solidified by Napster, a
website that launched in 1999 as a rudimentary platform that allowed users to share MP3 files amongst themselves. The site quickly ran into legal trouble for blatantly neglecting copyright and royalty laws and was shut down after only a year, but it managed to spark inspiration across the internet and set in motion a new era of music listening.

In 2008, a new site called Spotify launched in Europe as an answer to music piracy. It was a revolutionary new platform that incorporated the successful elements of its precursors, ultimately providing a platform that gave users access to millions of songs and the option to either pay a monthly subscription or to use a free version at the price of advertisements. Spotify took off at a much higher rate than any other streaming site, and as more people in Europe switched over to Spotify, the piracy rates indeed dropped dramatically. Shortly afterward, Spotify was launched in the United States and the rest of the world, where its popularity has only continued to increase.

spotify desktop.png

Spotify’s desktop format

The advent of Spotify to the world market for music rocked the music industry dramatically. Album sales had been already falling steadily and significantly since the turn of the century, leaving musicians and record labels alike wondering about the fate of the industry. When Spotify joined the game, it changed the rules completely.

In previous decades, record labels controlled the music. It was the record labels who searched for talented artists to market, promote, and manage. In this fashion the labels ultimately decided which artists could be signed, and thus they controlled what music was produced and distributed to the public. Now, this control has largely shifted to music streaming sites, especially Spotify. Spotify provides a platform through which artists can self-release their own music digitally, at a fraction of the cost of going through a label, while retaining complete control over their tunes. By giving artists an easy way to bypass record labels, Spotify has fundamentally changed the way the music industry works. It put the responsibility of releasing music back into the hands of musicians, making it possible for anyone to release anything, as opposed to the very selective methods used by record labels.

This change was not lost on independent musicians like Jordan Wuth, of Boston, Massachusetts. With a degree in audio and media technology, Wuth understands the implications of new streaming media better than some. “It’s definitely caused a decline in the music industry,” he said. “As much as I respect independent artists for doing everything themselves, there’s nothing wrong with signing to a major label and I feel like people forget that. If artists like the Beatles and Hendrix had been independent, they would not have had the impact they had,” he pointed out. “I think it’s great [that] anybody can make music now but that doesn’t mean everybody should. That’s what labels did. They sent out scouts who had good ears to check out a band live and if that act caught their eye, they’d sign them.” Now, Wuth says, the airwaves are cluttered with larger quantities of ill-produced, unoriginal music that never went through a record label. Even so, Wuth continued, “I feel that any musician that doesn’t take advantage of the internet is an idiot.”

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Turnaways‘ Justin White, center

This last sentiment was shared by Justin White, lead singer and guitarist for an up-and-coming Texas band called the Turnaways. Streaming is the future,” White said confidently. “That’s just the way the times are going right now. It’s really hard to make money playing music, even bands on somewhat big labels can tell you that. Everyone’s streaming…it’s crazy.” But as an artist whose music is currently on Spotify, White also vouched for the DIY online presence the site offers. “A huge plus is for the kids wanting to get involved in the scene or wanting to start a band, it’s easy access. Music heals, and sometimes someone needs that escape or their own private underground. [Spotify gives you] easy access to the stream right then and there.” For White and his band, the reach Spotify offers outweighs the competition it invites. “You’re gonna see that no matter where you go.”

In addition to changing how music was released, Spotify also revolutionized the way music makes money. The biggest benefit labels gleaned from controlling music releases was that it also allowed them to control music revenue. It was simple: the label essentially owned the band. That meant that when the band produced music, the label marketed it, took in all the revenue the album earned in physical sales and royalties, and then redistributed that money back to the artists (partially) and back to the label and execs (mostly). When free music first started being available online, the industry initially took a hit due to piracy. With music freely available, the demand for both paid physical albums and digital downloads dropped sharply as people learned to download the free MP3s illegally, leaving the industry struggling.

When Spotify entered the picture, these piracy rates slowed dramatically as people opted instead for Spotify’s free or paid versions. But at first, this money did not go directly back into the industry, whose problems were far from over. Instead, it caused a further decline in album sales and digital downloads. Much of the money made went to back Spotify, and in its early years Spotify faced fierce allegations that it was not paying adequate royalties to their artists. Artists such as Taylor Swift went so far as to publicly remove their music from Spotify on the basis they were not getting the compensation they deserved. The rift that existed between the artists, the labels, and Spotify only made things more complicated as Spotify began to surpass all other means of music consumption.

Fast-forward a few years, and Spotify is officially the most popular music streaming application in the world. With over 35 million paying subscribers and 70 million free users in the United States alone, Spotify has in fact become popular enough to start turning a profit for the music industry itself (Hassan, Charlotte). In 2015, the music industry saw a growth in revenue for the first time since its peak in 1998, a trend that has increased in 2016. When Sony, one of the biggest audio media conglomerates in the world, released their recorded music income statistics for 2016, the results were shocking. This year, streaming media was Sony’s biggest source of revenue, just barely surpassing physical sales by 1% (Van Der Doelen, Jaap). For the first time, Spotify is helping the industry earn a profit rather than hurting it.

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Trends in industry revenue as reported by Macquarie

This is fantastic news for the music industry. After a decade of declining sales, even a minor upturn like this is cause for excitement. It seems that Spotify has finally found a workable balance that generates enough income to turn a personal profit and pay artists and labels fairly enough to keep them on board. In its latest report, Spotify revealed that it had paid out over $1 billion of its earnings back to record labels in the last period, meaning any payment discrepancies with artists are the responsibility of the labels in question (Owsinsky, Robert). This $1 billion is undoubtedly a big contributor to the industry’s recent growth. Most importantly, Spotify has enough paying customers (or advertisers) generating enough revenue to offset the deficit caused by free listening and music piracy.

So the music industry is no longer in the red, but there is more good news. As streaming sales rose 57% last year, global music sales rose a reported 3.2%, with the United States enjoying a retail revenue gain of 8% (Wong, Jacky). These numbers may seem small, but they represent big changes to come. Analysts at Macquarie, a global investment banking and financial services group, have predicted that global recorded music revenues will double over the next 10 years (McAlone, Nathan). Spotify and its competitors will continue to lead the way in this revolution of music consumption, and record labels will likely have no choice but to join forces more completely.

During its lifetime, Spotify has come full circle, evolving from the enemy of the music industry to its saving grace. Online music streaming has changed the game completely for artists and labels alike, redefining the industry on all fronts. The way we experience music has been altered, from the point of release to the point of purchase, and this trend will only continue. It’s hard to say what the next move for the industry will be and where online streaming will take us, but the coming decades will surely bring new developments to how we enjoy our tunes.

(Sources: Hassan, Charlotte. “A Closer Look at Spotify’s Latest Moves.” Digital Music News, 13 June 2016. Web. 8 November 2016 / McAlone, Nathan. “Why the Music Industry is Poised for Explosive Growth.” Business Insider, 3 November 2016. Web. 8 November 2016. / Owsinsky, Robert. “Spotify Paid Out Over A Billion to Labels this Year.” Hypebot, 12 October 2016. Web. 8 November 2016. / Van Der Doelen, Jaap. “The Numbers Are In: The Music Industry Is Finally Rising Out Of That Rut.” Mass Appeal Online, 02 November 2016. Web. 8 November. 2016. / Wong, Jacky. “Music Labels Finally Hear the Sweet Sound of Success.” Wall Street Journal, 20 October 2016. Web. 8 November 2016.)
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