This superstar is pulling out; this label's staying in. UMG says there's no evidence of Spotify cannibalization; indie distributor STHoldings say they have all the evidence they need. So who's right?
Maybe we just don't know yet.
That doesn't mean Arnold isn't taking a much closer look, it's just that the data is largely inconclusive when it comes to cannibalization. "I wouldn't say for any IODA client, 'you are absolutely not going to be impacted with a new release on CD sales at this point yet.' But overall, it looks like it's additive to us, and it hasn't impacted the aggregate growth of the download stores, and those trends in serious ways."
Furthermore, this is a matter that is being actively studied, by IODA and undoubtedly other digital distributors. "Over the last several months, we have started looking at a bunch of different cases studies... and in some cases we do see that there seems to be some impact, but it's certainly not something that applies across the board. The question is just starting to get answered, it's too early for me and our client base..."
Also chiming in was official.fm cofounder Amaechi Uzoigwe, who outlined the problem in a very plain-form view.
Arnold further stated that the promotional impact for developing and indie artists has been positive, but that's sort of a different question. In the meantime, Spotify faces a big problem if more artists and labels decide to window, withdraw, or otherwise not participate. "It's a bit Catch-22 for the industry and a tough spot for sure for the services," Arnold continued. "If you aren't offering an ubiquitous, comprehensive catalog - the goal is anything you want to listen to, anywhere, anytime. And the model doesn't really work for the industry until it scales to a massive amount."
Report by Paul Resnikoff in San Francisco.
Comments Closed
Steven Finch - RouteNote.com Monday, February 13, 2012
Here at RouteNote we have been heavily studying Spotify/Streaming Services and their impact of sales for over a year. According to our studies we have noticed that Spotify has been increase and so has download sales proportionately.
It seems to be common sense that consumers either use Spotify or download music on iTunes. Per year per consumer more money is made from Spotify then from iTunes. If your a Spotify subscriber there is no point ever paying for music again, thus no downloading from iTunes. Spotify also seems to be pulling a lot of people over from illegal downloading.
There is a distinct line between being a Spotify user (streamer) and being a iTunes user (downloader). There is no way Spotify is cannibalising download sales in any form.
It seems like labels really need to think about the music product lifecycle online (it seems this has been forgotten). Thus, it would be worth release to specific services in stages as this would optimise performance.
p.s. Labels forget that all music available in download stores can be illegally downloaded somewhere online. The aim should be trying to make these millions of illegal downloaders convert over to any service.. and Im sure that wont be iTunes or other download stores!
James Monday, February 13, 2012
Forgive me, Steven, but I'm not really following your argument here. You say, "If your a Spotify subscriber there is no point ever paying for music again, thus no downloading from iTunes" but then say "There is no way Spotify is cannibalising download sales in any form"- isn't this is a contradiction?
If the pirates could be converted to Spotify and the legal downloaders remain legal downloaders, that would be great, but it's the legal downloaders moving to Spotify, and the resulting loss of income from that switch, that artists and labels are concerned about. In fairness to the labels, I think there has been a lot of talk of windowing and product life cycles in recent months. "Labels forget that all music available in download stores can be illegally downloaded somewhere online" - again, to be fair, I'd wager that most have been painfully aware of this for many years now.
steveh Monday, February 13, 2012
You have really hit the nail on the head with this comment sir!
This is the central Spotify contradiction - and the true reason why small labels and artists are unconvinced.
Steven Finch Tuesday, February 14, 2012
I could have explained it a lot better.
The key point is that even if users convert from iTunes to Spotify.. the industry as a whole is making more, because each users on spotify spends $120 per year, which is a lot more (on average) then what they would have spent on iTunes!
steveh Tuesday, February 14, 2012
Yes but this is where the transparency problem kicks in.
We all know that iTunes keeps 30%. So for a 99UScent track download the gross payout to label/artist/aggregator is 70UScents. We ALL know that.
Of the $120 of a full premium subscription how much is paid out to label/artist/aggregator? What is the split? How much goes to SPOTIFY?
You don't know, do you? And neither do we.
And the actual payouts we as artists or small labels see are so tiny that the impression we have is that most of this $120 goes to SPOTIFY.
Do you understand?
And also of course we don't know the proportion of subscribers on $120 compared those on the lower 5$ per month ($60 per year) subscription.
Do you happen to know that?
So there you have it - this is the basis of the "cannibalisation". In general artists and small labels would prefer the substantial and transparent solidity of iTunes sales income to the nebulous and vague "$120 to the industry" that Spotify disingeniously claims. We don't see "$120" - just see fractions of a cent and PATHETICALLY SMALL payments. So if we lose iTunes customers to Spotify it's a seriously sad event. That mythical "$120" sure ain't going to us.....
The lack of transparency in Spotify what is going to kill it.
Steven Finch Tuesday, February 14, 2012
Obviously payment details are shown in all contracts.. so yes.. all labels, aggregators, etc. know what rates they are receiving from Spotify.
steveh Tuesday, February 14, 2012
We have aggregator contracts with Orchard and with IODA. I am intimately aware of their content.
In absolutely no place do these agreements have any mention of the overall breakdown of the $120 or $60 subscription fees for Spotify and what percentage of this is retained by Spotify to fund their operation. In fact nobody outside of the Spotify politburo knows this information.
You don't know what you are talking about.
Actually I ASKED YOU what is this split as it was YOU who confidently proclaimed that the "$120" was a "net gain" for the "industry" compared to "average iTune customer spend".
You don't know do you?
So why do you make these arrogant proclamations?
What kool aid you drinking?
Food For Thought Monday, February 13, 2012
Artists/Indies: don't make the mistake in 2012 that "labels" (the majors mostly) have been skewered for since not licensing the original Napster.
A full repertoire, on-demand streaming model that is interactive and socially adaptable is coming and is what fans want. Here you have a compliment of competitive, smaller sized companies that are responsive to partners and only offering licensed content. If we decide to beat these guys up because they aren't offering Apple-like money out of the gate we're all going to be sorry for the next decade plus when these guys go belly up and giants like Google or Amazon roll into the space dictating terms rather than negotiating.
Be flexible. Try Spotify, Rdio, Mog and don't forget Rhapsody and let them grow for 12-18 months and then see where they get to and re-evaluate. I promise, the alternative to them succeeding won't be a return to everyone downloading. It will only be on-demand streaming offered by less responsive "partners".
Food For Thought Monday, February 13, 2012
I meant to say, the alternative to them NOT succeeding won't be everyone returning to paid downloads...
steve Monday, February 13, 2012
"giants like Google or Amazon roll into the space dictating terms rather than negotiating"
But you really don't get it!! It is SPOTIFY that is dictating terms rather than negotiating.
That is the whole basis of the "lack of transaparency" critcism of Spotify.
The foul bullying and megalomaniac behaviour of Spotify and their asinine founder Daniel Ek is the main driver of the "Spotify problem".
If they didn't behave like that then small labels and artists would cut them the kind of slack you are pleading for.
James Monday, February 13, 2012
Firstly, it's far too early to say that streaming, as opposed to ownership, is 'what fans want'. Certainly some (very vocal) fans want it, and I'm sure that it will remain a part of the digital music economy going forward, but as yet globally it accounts for just a small fraction of music consumption, and many fans will likely continue to be opposed to it, either because they prefer the idea of ownership, or simply that they currently spend less than £10 a month on music and so it's not a good deal for them. So we won't know for some time what the majority of fans really want.
Secondly, it would be incredibly naive for any artist who doesn't like the current terms to jump onboard in the faint hope that the deal will improve down the line. If you find the deal unfavourable now, while the service is still trying to woo artists to join the cause, after that service has gained power, perhaps even a monopoly, what do think the deal will look like for artists then? Better? Or worse?
Food For Thought Tuesday, February 14, 2012
I actually agree with you both about the right to be concerned and to negotiate for fair rates. I've been impressed by what I've seen from Spotify in terms of European royalties (from opting into the Merlin deal) and I suspect that U.S. royalties will take similar paths upwards.
Picking up on Steve's comment above that I believe music fans who pay $10/month will begin to purchase less downloads/cds and opt in to these streaming offerers, I do believe that these offerings are what a lot of music fans want (will want) and I don't believe a "win" against Spotify, et al in the short term will be a win for my business in the long term (because I suspect much worse treatment by the likes who will follow them into the business). I don't begrude Spotify the non-public nature of their deals because they had to sign NDA's with each partner - so blame Spotify's lack of muscle to dictate identical terms for each label (a la what Apple did when they launched the iTunes store).
Mostly, I just want for us to all think about what our end game play is here. It's easy in 2012 to say that the music industry screwed up with Napster but the facts on the ground back then - and what the labels were fighting for then - are the same types of arguments you're raising about Spotify, et al today.
Visitor Tuesday, February 14, 2012
If you are a label you can simply release music onto Spotify later than iTunes. Allow iTunes to sell for 1 -6 weeks and then only when sales dry up should you upload to the streaming sites. Yes sure you might need an additional bit of marketing push to inform users that the audio is now available on Spotify but you are not at risk of eating into your iTunes sales.
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