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Summary:

Spotify had a fairy tale beginning as a startup. Like some of its peers, Spotify is changing how we consume media. And that change is putting the service at odds with indie labels and artists who believe that Spotify is going to leave them penniless.

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“There [does] not appear to be an upside,” says Prosthetic co-owner E.J. Johantgen. The only income from the service comes in “fractions of pennies,” even on their biggest titles, he goes on. What’s craziest is that Prosthetic is now the third Los Angeles-area metal label to remove its titles, joining Century Media and Metal Blade. [LA Weekly]

Century Media press release:

While everyone at the label group believes in the ever changing possibilities of new technology and new ways of bringing music to the fans, Century Media is also of the opinion that Spotify in its present shape and form isn’t the way forward. The income streams to the artists are affected massively and therefore that accelerates the downward spiral, which eventually will lead to artists not being able to record music the way it should be recorded. Ultimately, in some cases, it will completely kill a lot of smaller bands that are already struggling to make ends meet.

Bruce Houghton of Hypebot puts it well when he writes:

A few small labels pulling material off Spotify, does not leave significant holes in the music streamers catalog — unless perhaps if you’re a fan of indie LA metal. But it is symptomatic of what appears to be a bigger problem brewing for Spotify within the independent and d.i.y. music community.

This is not hyperbole. A U.K.-based indie band, Uniform Motion, told Gizmodo that they make $0.0041 per song play and 4 cents per album play. This isn’t much, and unfortunately, the situation isn’t all that different on other services too. The reality is we’re living in a whole new world. Spotify is just an embodiment of the big change in our world.

There is no app/service I use more often than Spotify. It has completely revolutionized the way I consume and buy music. I haven’t touched my iTunes account in weeks. I would try to buy about 20 to 25 tracks every month. I am now down to five songs at best. With Spotify enabled on every single device in my apartment — Sonos, iPad and my MacBook Air — I have less of a reason to go elsewhere.

As we start to be connected more often in more places, our expectations of what is media, how we consume it and how we pay for it are changing. (We are going to be talking a lot more about connectivity-driven change at the GigaOM RoadMap Conference on Nov. 10 in San Francisco.)

It is an unfortunate change, and it’s hard to see artists/creators getting squeezed by the change. You can see the strains of this change in this thread on Hypebot. I don’t really have any answers, except I am happy to pay for whatever content I want. I used to buy CDs, then singles and now Spotify. My usage has just adapted to my connectivity. I have 100 Mbps at home. I don’t see any need to own any physical media. And when I buy something, it’s mostly for loading on the iPhone/iPad for my travels or because I absolutely love it.

I am waiting to hear back from Spotify and will update the post accordingly.

Updated: Here is Spotify’s (via email) statement:

“Spotify does not sell streams, but access to music. Users pay for this access either via a subscription fee or with their ear time via the ad-supported service [just like commercial radio] – they do not pay per stream. In other words, Spotify is not a unit based business and it does not make sense to look at revenues from Spotify from a per stream or other music unit-based point of view. Instead, one must look at the overall revenues that Spotify is generating, and how these revenues grow over time.

Spotify is generating serious revenues for rights holders, labels, publishers and the artists that they represent.  We have paid over $100m to rights holders since our launch, and the overwhelming majority of our label partners are thrilled with the revenues we’re returning to them. Spotify is now the second single largest source of digital music revenue for labels in Europe, according to  IFPI.

It is also important to note that Spotify was created as a better, more convenient alternative to piracy. Estimates suggest that around 95% of all music downloads are illegal. Spotify is now monetising an audience the large majority of whom were downloading illegally (and therefore not making a penny for the industry) before Spotify was available.”

Earache Records’ Al Dawson also weighs in on Spotify.

I think it is no coincidence that when Spotify launched here in the USA, we also had our best ever month of sales on iTunes. Spotify is just one of the many new ways that fans can find and listen to new music by our recording artists and should be seen as that and nothing more.” [Metal Insider]

  1. indie musician here. pulled all my music off spotify. total exploitative horror. i’d rather people just pirated it.

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    1. I don’t understand that concept…why would you rather have music pirated?

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      1. Because he’d rather make $0 than whore himself for $0.004?

        -G.

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    2. As an indie musician, I have to say I think that’s short-sighted. I feel that the benefit is essentially promotional. Make it easy for people to find your music. If people find it easily through Spotify, great. Getting paid is just a bonus. Whether that’s good or bad, it’s simply the way it is, and that will only grow more true in the future.

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      1. exactly what the filesharers / pirates say

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  2. I love Spotify for its convenience, but I want to support small and up-and-coming bands, not to mention the tiny record labels that do such a great job of nurturing talent.

    The only way I can see of doing that is to keep on buying CDs and keep on going to gigs.

    Perhaps the Spotify model works for giant artists who have more power in the relationship. But I can completely understand that indie labels and tiny bands have little choice but to go elsewhere.

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  3. Music people still not getting it, the only time when you get screwed over by spotify is when you dont put your music on it. Compare it to radio not cd sales dolts. CD sales is a thing of the past anyway.

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    1. Yeah sure. It’s all about “promotion” right. The labels, Spotify…everyone gets paid except the artists. Yeah…we don’t get it at all…

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    2. Yeah sure…it’s “promotion” and “exposure” right. While everyone else (ie labels/Spotify) gets paid, why worry about the artists/bands everyone is listening too. After all, I’m sure they can all live off of $0.0041 per play. Yeah…we’re the ones that don’t “get it”.

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  4. No band has ever gotten rich from getting played on radio, and Spotify won’t be any different. If a band (or label) thought that was going to happen, I’m confused. In an industry getting disintermediated by digital faster than any other, why on earth would anyone pull their music and prevent people from discovering it?

    A good percentage of us here at GigaOM are huge music fans, and subscribe to more than one service. Unlike Om, I only use the $5 Spotify service. It’s a try-before-you-buy, and I still use my iTunes account regularly, but that’s mainly because I am subscribed to podcasts like NPR’s World Cafe and Tiny Desk Concerts and KEXP’s Song of the Day. But when it comes to finding out what my friends are listening to and discovering, that’s all Spotify. So if a band’s music isn’t there? I won’t know about it, and they’ll have to hope it pops up on NPR, etc.

    The more services music is on, the more chance there is for listeners to find it and share it with friends via these services and then go and pay for it and go to a show and buy merch, which is where the only real money is now unless you are Lady Gaga anyway. With radio increasingly controlled by conglomerates and satellite, 4 cents an album play on Spotify in hopes of people sharing with friends sounds a lot better than no one hearing it at all.

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  5. It seems to me there is a bigger issue at work here. Comparing the streaming service to Radio for the promotion of a band or its song would make sense to me if people still bought whole albums instead what seems to be the trend today. It seems that there is a large shift in how people access music today.

    If you like a song you buy just that song and not the entire album which is great for the consumer but leads to less money for the artist in the end. They might be getting a larger payout per song but the overall income will be lower due to the much lower total song purchased count. This should be a good thing for the quality of the songs released as making fluff songs to fill out an album are not worth the effort now.

    The biggest challenge to the income of the artist is the accessibility and easy of the streaming services. I have to admit I am one that gets the vast majority of my music from a streaming service that helps me find new songs and avoid those I dislike. The effect of this is that I buy considerably less music than I used to. This is not the case for everyone but between my phone, tablet, laptop and computer and the abundance of hots spots there is very few places that having bought the song instead of access the stream is even needed.

    Someone needs to come up with a model that keeps the artists paid for there work at a level that encourages the creation of music, keeps the ease of access and choices and ease of access technology is providing to the consumer and yet does not discourage the consumption of said music. To be honest I do listen to more music now than I used to as I can get a larger variety of music for less money today from the streams but if asked if I would pay more if it payed the artists better the answer would be yes. Would I go back to the cost of buying all the songs that come across the stream, probably not at the level of listening or songs that I do today. Someone smarter than me will hopefully figure this question out.

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  7. As a consumer, Spotify has single handedly changed the way I consume music, it has modernised my methodology. It’s interface has enabled, nay empowered me the opportunity to listen to infinitely more music than ever before. The change is that it’s on my terms, I can try anything and everything that is on the service.

    In the last 12 months, since having a Spotify account I have spent more money than ever, even more than when I was buying DJing vinyl on a weekly basis. It’s because of this that I think the removal of such services would be naive, it’s not just promotion to likes of myself, it monetises against the grain of free downloads… This should not be sniffed at.

    It’s important to state that two things have slowed me recently, inflation (less disposable income) and the infuriating monthly 10 hour limit to my account… Test me through increased advertising, not restriction.

    A very interesting question can be raised from another fact dropped within this article. How did Spotify climb to be the second biggest digital revenue generator in the market so quickly? The answer, serious lack of competition. iTunes have an 85% market share, therefore becoming second largest was easy… This is before they even launched their US service. iTunes are a good service to the consumer (I know, I am one), iTunes are (on most occasions) a good customer to their suppliers (I know, I am one)… However, 85% of a market in the hands of one outlet is unhealthy.

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  8. Spotify doesn’t have enough ‘back-catalog’ music for my tastes. That might change if the service was attractive to smaller labels or a money-maker for larger ones, but from reading this article it looks like it’s headed in the opposite direction.

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  9. Couple of things. First, the Spotify UI is really, really weak.

    There is a LOT of really good music on Spotify but 90% of it will never see the light of day because the UI does not show you anything you haven’t already been deliberately seeking. This is mostly because the UI really only allows you to search, and the downside of well-executed search features (and Spotify’s is indeed very well-executed) is that people typically only listen to the song they searched for and rarely go any deeper into the library beyond their search result. It’s a question of the “task completion” use case vs. the “browse & discover” use case (a very, very important distinction in digital content-land), and users who belong to the former group are rarely profitable.

    If I were to guess, the top 100 or so artists probably account for 90%+ of all listening because most listening is prompted by searches for the most popular, most recent songs. If they are carefully analyzing their listening data without understanding the broader UX context here, they will conclude, perhaps incorrectly, that users are only interested in major label content and so Spotify may therefore decide to not renew with indie labels or otherwise give them short shrift.

    Regrettably, Spotify seems to assume that discovery will take place through the user’s connected social graph, which is quite a leap of faith. It would probably be both cheaper and more effective to showcase a moderately deep editorially-curated iTunes-like microsite within the app to promote songs and artists, particularly from indie artists who few Spotify users are aware of.

    Absent a better UI, I suspect that most listening will correlate very closely with offline because search volume (whether in Google or site search) tends to directly reflect what’s popular offline.

    As an aggregator of content, they don’t really have a sustainable competitive advantage because
    1) the business is at the even greater mercy of the inherent popularity and shelf life of the content that the labels have given them and
    2) the primary value proposition for users is the deep *library* alone–which, again, Spotify doesn’t own–and not the product (whereas Pandora’s product is central to its value proposition)
    3) More hypothetically, the labels could simply license exactly the same content to a competing property with a better UX on the same terms, and siphon away Spotify’s user base.

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    1. In markets where Spotify has had a presence for years, there have popped up a number of independent playlist based social music discovery sites for Spotify. Some good, some bad. Expect more and better in the future. Do not assume the people at Spotify are unaware of this.

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  10. Reminds me of the How much do artists earn online infographic from spring http://www.informationisbeautiful.net/2010/how-much-do-music-artists-earn-online/ and we even heard of an indie band who makes more with Flattr than on iTunes http://blog.flattr.net/2011/09/indie-bands-can-earn-more-with-flattr-than-with-itunes/

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