I have taken a keen interest in the fairly public row between artists and industry bods regarding Spotify. Is it a business model that can really match up to physical sales and downloads in respect of what should artists earn from the streaming of their tracks? Spotify more than doubled its revenues in 2012 compared to the previous year, grossing an eye-watering €435million. That is an amazing year-on-year growth pattern which other companies in the music sector can only dream of.
However, it's not all good news for the Stockholm based company; alongside these figures was the disconcerting fact that Spotify still posted a loss for 2012 of over €58million. So how and when will Spotify move into profit? That depends very much on whether they can continue to grow the subscription side of the business at the same pace of the last couple of years. If that is possible then Spotify will move into a profit making position in a couple more years.
The question of whether streaming services are good for the music business is a tricky one. Take me for instance, I converted to Spotify Premium a few months ago and I am enjoying the experience. When I say that I converted, I mean that before I started paying £9.99 a month to Spotify I was probably spending somewhere between £20 and £30 a month on iTunes downloads. When I downloaded an album from iTunes that disappointed me I felt guilty and let down, now, with Spotify, I don't, so that's why I'm enjoying the experience. I can try all the new music and bands that I want without feeling that I have to be sure that I am going to like it before I try and that's a big bonus. So I'm happy, but my conversion from iTunes to Spotify Premium has resulted in a loss to the industry of up to £20 a month and that can't be good.
On the other hand, there will be people who maybe only bought two or three albums a year who, in subscribing to Spotify Premium will be putting more money back into the industry. Plus of course there is strong evidence to show that the emergence of streaming services has led to a decrease in the use of illegal sites. A growing number of people prefer to stream than use dodgy file-sharing sites and that can only be good for the industry.
Anyway, back to the row over artist royalties from streaming services. The most interesting thing about the mainstream media reportage on the Spotify artist royalty debate is that in all the coverage I have read there has been hardly any reference to what the main problem is. The main problem is certainly not what Spotify pays the record companies and publishers for the licences to stream the music. After all, more than 70% of what Spotify collects in is paid out to rights owners. The problem here is what the record companies pass on to the artists.
Most labels still pay their artists the same share of royalties on streaming services that they would pay for the sale of a CD. Let's just pause for a moment and consider that; when a label releases a CD they have to press it up, put it in a van and drive it around the country to the shops (such as they are these days). With a streaming service, the label simply has to make the sound files available to the streaming company. The associated costs of these two different methods of taking something to market are massively different yet many record companies pay their artists the same share of the revenue they receive regardless of the associated costs.
Some labels play fair and pass on 50% of the revenue they get from streaming services to their artists and you probably won't hear those artists moaning about Spotify. But until all the labels recognise that licensing a streaming service is precisely that, 'a licence' and not a sale, and pay 50/50 accordingly then the Spotify good or bad debate will undoubtedly rage on.