THE BLOG

Spotify - The Good, the Bad and the Future

08/08/2013 14:38 BST | Updated 07/10/2013 10:12 BST

You might remember the concept of 'fifty-quid man' from a few years ago. Your typical middle-aged man (or woman) with a decent income and a love for music, who spends around £50 on CDs every month, on pay day, in his local record shop. The problem for the music industry is that fifty-quid man is mutating into ten quid bloke, as great droves of the music buying public are replacing ownership with streaming in the form of a premium Spotify subscription.

This clearly leaves a rather large income deficit for the music industry to face up to, with Spotify paying 70% of its subscription and advertising revenues to rights holders on a pro-rata basis depending on how popular their music is. And we all know by now for the vast majority of artists this means scrapping for the pennies.

But is this all Spotify's fault, or are they simply moving with the times? Is it even reasonable to compare the music purchasing habits of 10 years ago with those of today? The remarkable advancements of the digital age over the past decade would have made the CD far less relevant today with or without Spotify's existence. Spotify isn't here to replace the CD and it isn't here to make up the shortfall for the dramatic decline in physical sales over the past decade. It's a tech company that understood how the listening habits of 21st century music fans were developing in parallel to the digital boom and the smart phone explosion.

If you are looking for a scapegoat for the death of the 'old music industry' it is safer to blame Apple, firstly for giving birth to iTunes and the digital music revolution, secondly by empowering the customer to cherry pick individual tracks off an album (thus permanently devaluing the concept of the album) and thirdly by bringing the smart phone to market. Seen from the bleakest perspective, new partnerships between smart phone providers and streaming sites are reducing recorded music to disposable pieces of media that exist merely to sell more handsets.

Spotify is part of the new industry and as such cannot be compared with the old industry business model. Complaining about royalties earned from streaming won't make these services go away, especially when the steady growth of streaming sites suggests this is how the public wants to consume music. Unless you are an established artist with a comfortable bank balance and multiple income streams (hi, Thom Yorke), to withhold your content completely is like wishing for a return to the good old days of mass market physical retail, whilst shooting yourself in the foot for good measure.

Whilst Spotify are so far resisting calls to increase royalty payments, it is worth artists and labels trying to readdress the power balance in this relationship by revaluing how they use Spotify. If we consider it primarily as a discovery service that has more in common with radio than retail (Spotify's current focus on improving their curated content suggests this is how they see themselves) then Spotify's payment structure compares favourably. There are many conflicting 'per stream' royalty rates quoted online, but if we go with £0.01 per stream which seems reasonably accurate and then compare it with radio royalties, Spotify wins. Consider a single play on Radio One will earn an artist an average of £60 in royalties, then divide that number by an average of say 2 million listeners to get a 'per listener royalty rate' and you get the infinitesimally small number of £0.00003.

Rights holders should consider uploading only key tracks to Spotify, in the same way a single goes to radio and its video is added to YouTube. The focus should be less about the stream itself and more about how to capitalize on that stream. The real gold mine would be access to Spotify's user data - to know who is streaming and sharing your music and from what location - and to be able to follow up with targeted music, ticket and merchandise buy links in order to properly monetize that stream. This is something that labels have never been able to achieve with radio airplay. If data access proves impossible then how about customized artist pages where embedded buy links sit hand in hand with streaming links.

Whilst the power balance right now is with Spotify, they would do well to remember that without the music their bubble will burst. If improved royalty payments are not an option there are still other areas for negotiation, which will benefit the rights holder and encourage them to maintain a presence on the site. Both sides just need to get their creative juices flowing.