Up A Stream: Why Spotify Is Music’s Latest Whipping Boy

scapegoatWhat’s the old saying? There are lies, damn lies and then statistics? Or how about the other one that is attributed to Mark Twain: a lie can make it around the world while the truth is just putting on its boots.

Based on the biased, one-sided and sloppy piece authored by Scott Timberg on Salon, it’s pretty clear that the lies are winning. The piece trots out the usual tripe of how streaming is ripping off artists and how artists used to make a lot of money and now they make nothing.

As usual, the problem is that streaming is hot right now, especially everyone’s favorite whipping boy, Spotify, and therefore anyone with a pen goes after Daniel Ek’s startup. None moreso than Scott, whose tome seems to completely support his to-be-released book “Culture Crash: The Killing of the Creative Class” at the peril of facts.

The facts and numbers are hand-picked to prove his point. The truth about the numbers remains very different. For example, Scott points to the mid-year numbers from the RIAA that show streaming to be up by 42 percent, but CD sales are down 19.6 percent and digital downloads lost 11.6 percent. All true but also devoid of meaning. What he doesn’t point out is there is revenue associated with streaming. In the first half of 2014, for the three categories associated with streaming: Internet radio services like Pandora, subscription revenue and on-demand advertising services payouts rose 22% over the previous year—up to $886 million. (For the record, subscription revenue is up 42 percent which is just part of the streaming category).

The whole theme of the piece is that streaming is the big boogeyman that’s killing artists. Especially based on this quote in Scott’s story:

“I used to sell CDs of my music,” says Richard Danielpour, a celebrated American composer who has written an opera with Toni Morrison and once had an exclusive recording contract with Sony Classical. “And now we get nothing.”

Okay, fine. But is that all or even mostly streaming’s responsibility?

Look, there’s no doubt that streaming has had an impact on sales. Let’s not kid ourselves. The fan who ends up paying for a full year of a streaming service gets awesome value, as they don’t need to buy tons of CDs. It’s a fixed upper cost of $120 a year. But it’s also a fixed lower cost of $120 a year too. Mobile all-you-can-eat is that price regardless of what kind of customer you were in past life—either on single CD buyer or someone who bought 20 a year. While I have grave misgivings about this pricing model, it isn’t really the reason why artist compensation has tanked.

Remember Stealing Music?

Streaming only really got rolling in the United States when Spotify came to our shores in September of 2011. Before then, piracy was the main perpetrator killing music. In the decade before streaming took hold in the United States, CD sales fell by 443 million units a year, from 669 million in 2002 to 223 million in 2011. That’s nearly 300 percent! And sure digital tracks and albums stemmed some of the bleeding, but the US business overall shrank from $12.6bn to $7.1bn. Certainly there was streaming before Spotify. Pandora had quite a bit of success, as did YouTube and other services. But to make Spotify the villain of this story is asinine.

Spotify is a big deal and bound to get bigger. But it’s not the reason that artists are losing their livelihood. As I have written about in the past, the problem is when one equates a play on Spotify to a loss of a CD sale. Sure there might be some that stopped buying CDs and instead access all their music on the smartphone. But a curious listener is more likely to go listen to the track for free on Spotify, YouTube or an illegal source than they are to rush to the record store or even to buy it on iTunes. That’s just not the way the world works anymore. In other words, Spotify is more like radio than the loss of a digital track or CD sale.

And while Spotify is a Big Deal, its reach pales in comparison to YouTube or Pandora. Spotify claims 50 million users worldwide and 10 million paid subscribers. The company does not break out numbers by country, however the RIAA reports that there were 7.8 million streaming subscribers in the US in the first half of 2014. Those are split between Spotify, Rdio, Google Play All Access, Rhapsody and other assorted services.

Let’s just say that Spotify has the vast majority of subscribers, like five million. And then let’s use the company’s reported 20/80 ratio between paid and free users. That would put the overall reach in the US at 25 million, less than half of Pandora’s audience and a rounding error of YouTube’s billion global active users.

So what exactly is YouTube providing for the industry, with its awesome reach and nearly universal catalog of music? Well, the on-demand ad supported category created $164 million in revenue in 1H of 2014–about the amount vinyl is selling. Nice job, Google.

I have no idea what the amount of revenue YouTube generates per user, but it’s probably infinitesimal to subscription’s $47 per customer for six months service.

I’m not without concerns about streaming’s economic future, which I’ll get into with a post tomorrow. There are some significant issues about pricing, growth and, maybe most of all, throughput of artist compensation. But why authors continue to flog these services with the same old stories about destroying artist’s livelihoods is a mystery to me.

So as a public service, here’s a few suggested topics for writers that address some serious subjects for the music industry.

-Each replacement of previous music products is eating into revenues. First paid downloads replaced CDs and now streaming is replacing downloads. Why is this? And when do we reach a point when this is unsustainable for artist?

-Streaming is just now starting to generate big money. But is the money actually getting to artists?

-Can the music industry survive by investing in startups and expecting a big payday on a sale or an IPO, or do we need new revenue models?

-When will ad supported on-demand services like YouTube start creating real revenue?

-How has streaming changed the behavior of music fans? Are they happier? What are they missing?

Oh sure, some of these are obvious, but it would be better to address topics in a thoughtful and comprehensive way instead of blaming the death of the music business on greedy technologists.

Read On

Salon It’s not just David Byrne and Radiohead: Spotify, Pandora and how streaming music kills jazz and classical

Billboard Is 2014 The Year Digital Takes Over

Quartz An epic battle in streaming music is about to begin, and only a few will survive

JonMaples.com Liars Poker: Why can’t anyone write a fair assessment of streaming music

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