Don't be so swift to criticise streaming

The big news in the entertainment world this week is that Taylor Swift was never (ever, ever) really that much of a fan of Spotify, and as her album 1989 takes worldwide charts by storm, she’s taken her entire back catalogue off the music streaming service. She explains :

...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.

If Spotify is a ‘grand experiment’, it’s one with everyone’s attention. Its ‘freemium’ model yields 50m active users and 12.5m paid up subscribers, and Spotify royalties have recently overtaken iTunes download earnings in Europe. Other companies want in, too. Apple have recently acquired Beats in an move to host a streaming service of their own, whilst both SoundCloud and YouTube have announced plans for a premium subscription service. Streaming accounts for an ever-increasing proportion of music revenue, with consumers increasingly choosing access to a wide range of music over the ownership of specific albums or tracks.

The CEO of Spotify Daniel Ek has responded to Taylor’s commercial-cum-ethical decision, taking pains to cast Spotify as the enemy of piracy and champion of artists. It’s well worth a read, but what's interesting is the blame he levels at the wider music industry in response to Taylor’s claim that streaming fails to fairly compensate artists:

The music industry is changing – and we’re proud of our part in that change – but lots of problems that have plagued the industry since its inception continue to exist. As I said, we’ve already paid more than $2 billion in royalties to the music industry and if that money is not flowing to the creative community in a timely and transparent way, that’s a big problem.

Around 70% of Spotify’s revenue goes straight to the rights holders of the music they stream in the form of royalties, and these rights are invariably held by an artist’s record company. On average, record labels keep 46% of CD sale revenue, and 68% of download revenue. Creators receive around 9% and 8% of this revenue respectively. (Gowers Review, p.51)

At major labels at least, artists seem to receive a similar proportion of streaming royalties (and are allegedly victim to a few dirty legal tricks along the way). In addition to royalties, many labels demand advance minimum payments which can vastly exceed the actual royalties actually generated by plays, with no guarantee that artists will see any of this surplus. So whilst Spotify might pay out three to four thousand dollars for 500,000 streams, an artist might see less than 10% of that.

Of course, money isn’t really the issue for Taylor Swift, who can easily afford to take her music off of the streaming service; whilst her entire catalogue was on track to generate $6m in royalties this year, 1989 made around $12m in sales in its first week. For large artists, removing music from sites before a release or holding off streaming for a couple of months could make fantastic business sense.

But money is an issue for the majority of artists, and it's reasonable to critique what income they receive from streaming. Though some like Swift, David Byrne and Thom Yorke attack streaming for what they consider meagre payouts per play, they'd be better off focusing their attention not on the upstart ‘disrupter’, but the entrenched music industry which Spotify claims it is actively trying to save.

Spotify certainly has a challenge there. The size of the streaming industry is currently nowhere near big enough to compensate for the long-term decline in physical (and now digital) sales. And whilst it is growing rapidly, Spotify is yet to turn a profit in its 6 year history. This is largely a problem of scale, as the more users and the more plays the company attracts, the more it must pay out in royalties. Some analysts think it just needs more users to pay up. Others worry that the high proportion of their revenue forked over to rights holders makes them intrinsically unprofitable. In this scenario, streaming services might simply become loss leaders for larger companies like Apple and Google, or get taken over by the music labels themselves. In which case, perhaps Thom Yorke is right that streaming is the “last desperate fart of a dying corpse” after all.

But what part of the music industry is dying, and is it really worth saving? The entrenched record labels and collecting societies have long warned that technological advances, piracy and copyright infringement are destroying the livelihoods of creators. They expend significant time and resources lobbying for government protections like DRM and copyright extensions, multinational treaties like ACTA, and forcing ISPs to police their users' activities. Yet if you look past these vocal and influential legacy organisations, the music industry is actually flourishing. A study by Mike Masnick points out that the global value of the broader music industry has grown from $132bn to $168bn between 2005 and 2010. The number of new albums produced each year is rising rapidly, concert sales tripled over the past decade in the US and entertainment spending as a function of income has risen by 15%.

The music scene is evolving, and with the low costs of digital production and distribution becoming more competitive. There’s going to be some who lose out and see their old business models change. Certainly,  Spotify alone cannot revive label's revenue to the heyday of CD sales, and nor is it their responsibility to. But it is shortsighted to suggest à la Taylor Swift that to stream music is to consider it valueless. And if artists are concerned by the lack of revenue reaching them, the best place to start complaining is to their own labels. The growth of the music ecosystem in non-traditional areas shows that they're already lagging behind the times despite all their billions in intellectual property, and it would be such a shame to see them have their breadwinners turn against them, too. I for one wouldn’t want to feel Taylor’s wrath.