This is what happens when your entire business depends on the licenses of a few companies. Who also happen to own a piece of your company. Because when the major labels pick a fight, Spotify doesn’t have the luxury of disagreement.
Which brings us to a just-released European Commission study on piracy, one that Spotify is now helping to smear. The conclusion of that study is pretty simple: it states that piracy not only has little impact on music purchasing, it may actually be boosting industry revenues across legal formats. And part of the reason is that those stealing music are typically more engaged in music, and therefore more likely to buy it.
The conclusion, if true, does little to resolve moral issues related to illegal downloading (not to mention the sites that serve those downloads). But from a business standpoint, the findings make decisions to completely bury Napster, Grokster, and Limewire (and their users) seem largely misguided. And, given that this is coming from the European Commission, there’s also a strong chance that it will affect piracy-related policies and laws moving forward. All of which the major labels hate.
Predictably, the report has drawn a harsh reaction from recording industry trade group IFPI, who denounced the study as “deeply misleading,” “flawed,” and “disconnected from commercial reality.”
And for reasons that seem more political than empirical, Spotify has decided to step into this pile with a factually-incorrect smear. In fact, this sloppy statement strongly suggests the report was not even read, but is rather a parroting of major label talking points. It was issued Wednesday by Spotify director of economics Will Page, and incorporated into an IFPI-issued attack on the report.
“‘Digital Music Consumption on the Internet: Evidence from Clickstream Data’ is a flawed study. The narrow definition of the market chosen by the authors is both puzzling and deeply misleading. In particular, the omission of streaming services from the study fails to appreciate the diverse make-up of the digital marketplace. As a result, the unfair competition that legal streaming services face from music piracy is not properly acknowledged by the authors – and moreover, the report fails to observe how consumers can migrate from illegal services into legal venues like Spotify.”
And the only problem with this statement? It is largely incorrect. For example…
“…the omission of streaming services from the study…”
Quite the opposite: the report contains 108 mentions of the word ‘streaming’, 40 mentions of ‘legal streaming,’ 21 mentions of ‘legal streaming website,’ and goes through all sorts of inter-relationships between streaming, paid downloads, and illegal downloading.
So Spotify isn’t a ‘website’? Not exactly: Spotify is now both an app and website, and for that matter, has been integrated into web-based experiences though Spotify Play Buttons for about a year.
The study even concludes that legal streaming boosts legal downloading activity. These mentions are sprinkled throughout the 38 page report. In fact, the phrase ‘legal streaming’ is in the second sentence of the first page of the report, all of which sounds like the opposite of a complete omission.
But don’t take our word for it (or Spotify’s). Here’s the study, check it for yourself.
“…the report fails to observe how consumers can migrate from illegal services into legal venues like Spotify…”
If streaming were completely omitted, this would be true. But it isn’t: throughout, the report also makes it very clear that greater engagement from pirates tends to increase activity across both paid download and streaming channels. On page 9, the report authors offer a detailed description of the overlap.
“In terms of music consumption, almost 57% of the individuals have clicked at least once on a legal downloading website. Similarly, 57% of the sample has clicked at least once on a legal streaming website during 2011. Finally, close to 73% of the sample has clicked at least once on an illegal music website during 2011. Note that these different types of music consumers are not mutually exclusive. Figure 1 describes the distribution of music consumer types in the sample and reveals that only 40% of the music consumers belong to a single category. Twenty-six percent of the consumers actually belong to the 3 categories. More than half (60%) belong to at least two categories, and 53% of the sample consumes both legal and illegal digital music. Finally, note that 20% of the individuals in the sample have only clicked on illegal downloading websites.”
“Most interestingly, downloaders are also more active than legals both in terms of legal downloading (10% more clicks) and legal streaming (40% more clicks), as shown by their mean values of clicks.”
Actually, the EC researchers repeatedly state that streaming leads to greater legal purchasing activity. But greater engagement on illegal channels also tends to boost streaming activity as well.
But again: don’t take our word for it. Read the report, something Spotify may have forgotten to do.