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Streaming Will Soon Be More Profitable Than Sales

streaming_main
Swedish superstar, Avicii, makes more money from streaming than download and CD sales combined

“Data reviewed by The Wall Street Journal showed that one major record company makes more per year, on average, from paying customers of streaming services like Spotify or Rdio than it does from the average customer who buys downloads, CDs or both.”

- The Wall Street Journal

The WSJ also states that the average “premium” subscription customer in the US is worth $16 a year to this major label, while the average buyer of digital downloads or physical music is worth about $14 a year.

Ron Pope, a DIY musician who I profiled in How 10 Musicians Who Make Good Livings In Today’s Music Industry, makes well over $100,000 a year and his #2 income source is from Spotify. He has millions upon millions of plays on Spotify and his top song (20 million plays) was released 5 years ago. It’s still his top song.

While there isn’t a set “per stream” royalty rate on Spotify because of factors including premium subscribers vs. free subscribers, Spotify explains that it pays out between $.006 and $.0084 per stream.

Ron’s top 10 songs on Spotify have a combined play count of 46.4 million. By my calculations, 46.4 million plays x $.0072 (Spotify’s average per-song royalty payment) = $334,080 in just a couple years. No label is taking a cut of that either. Hmm.

Sweden’s Music Market Growth

Last year, Sweden’s music market had a 13.8% growth, while the rest of the world has only seen a 0.2% trade revenue growth since 1999. 91% of digital income in Sweden now comes from streaming sales. Some say Sweden, the home of the notorious The Pirate Bay, destroyed the record industry. Well, maybe for a time it put a dent in it, but I’d say Spotify has redeemed the country. Similarly, how the creation of iTunes gave people a cheap and easy way to obtain music instantly and drove music fans away from piracy (sure it still exists, duh), Spotify, Rdio and other streaming services are ushering in the new, revenue driven digital music era.

IFPI-streaming-v-download-chart

“I am 100% sure that this is the future. Streaming services will be the next step for global music consumption,”

- Per Sundin managing director for Universal Music in Sweden.

Avicii, with his massive, worldwide hit of “Wake Me Up” actually makes MORE money from Spotify than iTunes and CDs combined.

Step back for a second and let that sink in.

Streaming is a much better model than sales. Streaming rewards those who create great music – not just those who have the biggest marketing budget. Sure, it might take a few years for a DIYer to reach the same amount of streams a major label pop artist gets in one week, but the great music will last and continue to be played. The shit pop will die. Fast.

The majors are going to need to change their business model very soon. I predict seeing them return to the career building days of yore. Instead of signing the sexiest, auto-tuned shell of a singer, get ready to see a resurgence of great acts being signed and sustained. It may take the majors a few years to understand that this is the way of a profitable future, but they will realize it soon enough.

Above all, if you create great music and respect your fans, you can have a long career and can actually make money on your recordings for years to come. We are in a beautiful time in the history of the music industry.

 

Ari Herstand is a Los Angeles based DIY musician and the creator of Ari’s Take. Follow him on Twitter: @aristake

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Comments (115)
  1. Anonymous

    Yes, it’s awesome for the majors.

    But absolutely worthless for musicians. Which is why we leave…


    Reply
    1. DJ

      How is this worthless for musicians? Did you read the part about Ron Pope? He’s DIY.


      Reply
    2. GGG

      Won’t be worthless for musicians that make good and/or engaging music.

      To bring up my OTHER broken record argument, tiny percentages of fans buy albums, always have, always will. Beyonce sold about a million, got pirated at least a quarter of a million times. Even if we round that up to 5M people getting her album legally or illegally, she’s got 53M likes on Facebook alone. Which in reality probably means there’s like 100M people in the world that enjoy Beyonce. Those other 95M were/are never going to buy her album for numerous reasons. Imagine if streaming was normalized and a big chunk of those people streamed her album. She’d be getting a billion plays on some songs.


      Reply
      1. Anonymous

        “Imagine if streaming was normalized and a big chunk of those people streamed her [Beyoncé's] album. She’d be getting a billion plays on some songs.”

        Yes, and that would be freaking awesome. Again, every monetization avenue should be explored. Including Spotify.

        But the Spotify mantras have always been ‘imagine’ and ‘if’ and ‘next year’ and ‘soon’: Next year, Spotify will make money. Spotify artists will soon begin to make money.

        Meanwhile in the real world, after all these years, Spotify still loses money and artists by the hour — while YouTube numbers continue to go through the roof. 100M views/year were great in 2012. 100M views/month were great in 2013.

        At some point we have to move on. Right now, we have two revenue streams in the real world: iTunes and YouTube.

        Not tomorrow, not next year… now.


        Reply
        1. GGG

          Well that’s where their (Spotify’s) horrible lack of marketing (hopefully Deezer does it better) paired with so much of the industry telling people how bad streaming is for them keeps the numbers down.

          I also still find it funny how much you use YouTUbe as a defense. 90% of the outcry for streaming payouts should be directed at YouTube, a company who could probably pay 50+ times the amount they do and not lose more than one point of stock price. Yet they pay less than company you rail against.


          Reply
          1. Anonymous

            “Well that’s where their (Spotify’s) horrible lack of marketing”

            Bad marketing (and worse press) is only part of the explanation. Take a look at the winner — YouTube — and compare to the loser — Spotify. What’s the main difference?

            Video.

            It’s so simple. And yet, guys like Ari refuse to face reality and think we still live in 2003.

            “I also still find it funny how much you use YouTUbe as a defense”

            Defense? You think I’m under attack? :)

            “90% of the outcry for streaming payouts should be directed at YouTube.”

            Couldn’t agree more. YouTube gets 50% for nothing while Apple gets 30% for working like crazy. I still hope Apple will buy YouTube, and preferably Google one fine day. But still, in the real world, YouTube pays artists a lot more than Spotify ever will.


            Reply
          2. cjhoffmn

            I’m not sure they can afford to market. They are building a business that has a huge cost of services and they are operating at a pricing level that presents them with a thin margin (even when they are over their break even points). I don’t know how they will be able to market to get consumers to the pay model – especially since they are offering a free ad supported version.


            Reply
            1. GGG

              The investors giving them money should understand you need marketing to sell a product. I don’t think they don’t have the money, I believe they thought, and still think, the idea/product will sell itself. Maybe over the course of a few more years it will, but it’s silly to hold off like that AND they might be crushed by Deezer by then.


              Reply
              1. cjhoffmn

                Indeed – but I can tell you I’ve seen an incredible number of plans funded with a marketing plan based on that idea that “It will market itself because the consumers will love it!” Although I didn’t see Spotify when it was a plan, I did see other music businesses with that as their entire marketing plan. So you’re right, investors SHOULD know that – but often they can be relatively short sighted about the marketing question in particular. Even in today’s relatively educated environment.


                Reply
    3. With Respect To Billy Bragg

      another “it’s true in sweden, it’ll work anywhere” study… [facepalm]

      hardly…


      Reply
      1. Anonymous

        Wait… you don’t think the US will adapt social democracy in the near future?

        Shocking. :)


        Reply
  2. cjhoffmn

    I saw this WSJ article too and thought it was very interesting. I remember thinking that I couldn’t determine if they were talking profits or revenue and also, it was a very small sample size, not drawn from data across Spotify, so we should be a little cautious about its conclusions.

    It definitely has some promising ideas, but It’s not all good news though: the following is the paragraph *before* the paragraph about Avicii, (A Universal Signed Artist – not exactly a DIY’er – and I’m fairly certain they have a pretty big budget for marketing…) in the article you posted posted from the BBC:

    …[For Daniel Oliver, a successful Icelandic singer living in Sweden who had a number one last year, "the positive thing is you get really good exposure and you can approach your fans really easily".
    "But when it comes to getting the worth of your work, these streaming sites are definitely not good. I have to have a side job in a bar as well to make a living."]…

    Just an interesting counterpoint to a major-label-signed artist, from the same article you sited. Here’s a guy in the streaming capital of the world, who has a #1 hit and is still slinging drinks for a living.

    I’m really curious about Ron Pope’s hit from 5 years ago. Was that recorded and produced when he was signed with his label? If so, it would make an excellent case study to take the same musician and look at the performance of a label produced track vs those that aren’t. I just couldn’t figure out which track it was in his portfolio, so I wasn’t sure if it was a valid comparison or not.

    I think streaming is the future for sure, but I just don’t think they have the model right yet, and I disagree with the article’s conclusion that this leads to more care for the artistry. I wish I could conclude that, but given that there will always be more tracks coming into the worldwide library, most likely, the tail will continue to shrink, not grow.

    -cjh


    Reply
    1. Ari Herstand

      cjhoffman – Ron’s top song on Spotify (you can actually just open Spotify and search his name and you’ll see top 10 rankings) was released independently. Actually all of his top 10 songs were released independently. The label actually only released two singles for him and didn’t put any money into marketing.

      The Daniel Oliver is definitely a good example of how Streaming cannot be 100% of your income. With a #1 hit he could capitalize on merch sales, live concerts, licensing, sponsorships and many other revenue sources. No successful artist ever just counted on one stream of income from one source. Even the artists back in the hey day of the industry counted on ticket sales and merch for the bulk of their income.

      Great counterpoints and thanks for a healthy debate!


      Reply
      1. TuneHunter

        It is a lot of nice pleasant talk. Spotify did not redeemed Sweden – it actually made permanent shrinkage of the Swedish music market by 40% in constant money.
        It is their showpiece farm and in couple years you will not squeeze single penny out of this market.
        Sorry – proper delivery – wrong business model.
        Money is in spontaneous monetization of discovery currently choking any deadbeat with free goods.
        Lenin was less generous! …and he failed.


        Reply
        1. Nina Ulloa

          Please share, how does one monetize the moment of discovery?


          Reply
          1. TuneHunter

            Just change “fair use doctrine” so discovery services will be forced to sale.

            Today each one of them is processing at least 20+ million pieces of someones property, updates it on daily basis and cranks results for FREE to freeloading public.

            They are legal passers of all goods from music “Walmart” into the streets.

            Financial persuasion should do the same but at slower rate and one noncompliant entity will preserve current land of FREE. Music will keep flowing to torrents or YouTube with just one inconsiderate Shazam.

            Just remember that all of those services require constant cash and upkeep and are not easy to duplicate in the basement – they are all mature for constructive and productive to both sides negotiation.


            Reply
            1. GGG

              If you want to force ad revenue to be paid out when someone Shazams a song, that’s one thing. Nobody will pay ten cents every time they want to figure out what song they’re listening to.


              Reply
              1. TuneHunter

                39¢ or take a hike!.

                80% of Shazam(s) users and 80% of piracy will be gone at in the same moment.

                Next morning you can convert 100,000 Radio stations to music stores.
                Google can put 30s snippet as a tune of the day next to the “maps” icon.
                Yahoo or any web page with traffic will have a shot to become music retailer.
                Today we are in the world of free discovery = FREE MUSIC.


                Reply
                1. GGG

                  If you charge 39cents per Shazam, 100% of Shazam users will be gone and piracy will not be affected by this at all.


                  Reply
                  1. TuneHunter

                    Where they will go?
                    To you?
                    Amish folks?
                    The will open Shazam account and will keep clicking!
                    To help them, they can listen 100x to 60s unmarked Shazam sample before they will make a commitment.


                    Reply
                    1. GGG

                      They’ll do the same they did for decades before Shazam existed. Ask a human being. Or Google lyrics.


      2. cjhoffmn

        I don’t use Spotify – I hate the UI and dislike the premise of paying for access to music I have no interest in every listening too. So I couldn’t figure out how to find the charts with the song. I saw that he had an album from 2008 on iTunes, so I figured the song came from there.

        I was going to buy two of his albums – but if you’re right and streaming is so great for him – maybe I’ll just go stream them instead. I’m sure the $.000155 he’ll make from that is better than the $7-8 dollars he would have made… ;)


        Reply
      3. cjhoffmn

        All good stuff.

        However, record sales dwarfed tour and merch income in the heyday. Touring income didn’t start to catch recording income until the late ’90s.

        Artists went on tour to promote the album sales, not the other way around like it is today. Here’s a graph that I think is fairly accurate: http://bgr.com/2013/10/08/music-industry-revenues-online-piracy/

        It wasn’t even close.

        I’m not advocating for the position that we should all wish it to be like it was. I am however, hopeful we can use the past to help guide us to a future that’s worth it and profitable!


        Reply
  3. cjhoffmn

    PS – Ron – I like your albums – nice sound.


    Reply
  4. David

    This is a cleverly worded article. The incautious reader might suppose it is saying that a record company makes more from streaming services than it does from selling CDs and downloads. Actually, all it says is that the average streaming paid subscriber (which is only a few million people in the US) pays them more than the average person who buys at least one CD or download in the year. Why not tell us how much the record company actually makes in total from each source? Maybe because the comparison is not so flattering to streaming?


    Reply
    1. GGG

      You are right, the back to back numbers would be very different, but I think the idea was less to deceive and more to point out that, “hey, if we convert a lot more people/pirates to streaming there will be more money coming in because on average, they generate more than actually buying the record.”


      Reply
    2. cjhoffmn

      Yeah, I don’t think it was clever as much as just not thorough.
      Its a very small sample size – not data from the system wide results
      There’s no description of the LTVC calculation.
      There’s no comparison of cost of delivery or customer acquisition as they would both be different.
      The headline isn’t even a conclusion – there’s no trend analysis of the central data to understand if its true.

      It would look great as a headline were I building an investment deck though…


      Reply
  5. Neville Elder

    You’ve just talked about his Spotify income as if it’s free standing that’s misleading. Pope’s got some pretty big sync’s to his credits that’s bound to help Spotify income you’ve got to factor that. He was also briefly with Universal that helps too. Streaming is great for artists who can get their foot in the door somewhere else, but in principle I think you’re right that streaming could revive the record industry, whether that’s a good thing or bad thing I don’t know!


    Reply
  6. john

    if you look it on a purely iTunes vs spotify basis, it has already happened for my two music projects. if you add in bandcamp and physical sales and all other digital sales, downloads still produce more income, thus far. Spotify has grown from nothing to larger than iTunes (for us) in a matter of 2 years, amazing. We have 15 releases though so streaming income will be more than someone with just a few releases.


    Reply
  7. Yves Villeneuve

    Keep in mind, paying subscribers are more likely the result of telecom bundles therefore most of them aren’t active streamers. Another con job by the telecom/streaming industries at the expense of telecom investors/customers and music recording industry.

    Those music industry revenues in countries like Sweden are pretty much an extraordinary illusion since they are mostly achieved from non-active streamers tied to a music/telecom bundle i.e. they tried music streaming once but never returned yet remained subscribed to the service. Also, studies have shown that these music/telecom bundles are not enough to retain customers i.e. increase loyalty to the telecom firm.

    Does Ari want to tackle this properly? How long will this persist? Another TV-like bundling revolt on the way? I am a big believer in only paying for stuff I want, meaning that companies bundling stuff I don’t need costs me money.

    Wall Street is intentionally pushing this sham for IPO profits. They are not going to quit now since they have been building this story for a long time. Not a coincidence they don’t mention streaming company profitability, at least not in the excerpt above. The major label bosses are in it for the prestige of making a large profit from the IPO; hopefully they don’t throw out the baby with the bath water.


    Reply
    1. Ari Herstand

      Tell that to the 40 million Netflix subscribers.

      $9.99 a month for nearly all of the music that’s ever existed, or $9.99 for 10 songs? Tough call.


      Reply
      1. Anonymous

        “$9.99 a month for nearly all of the music that’s ever existed”

        Except, of course, new music. Acts people really want. Like Taylor Swift and Beyoncé.

        Fact is that Spotify is turning into a museum…


        Reply
        1. GGG

          Taylor Swift has been on and two of the new Beyonce tracks are on, so the others will probably go up eventually. Wouldn’t be surprised if they windowed for a few months though since its a video album and more enticing to buy.


          Reply
          1. Anonymous

            “Wouldn’t be surprised if they windowed for a few months”

            Neither would I — and that’s what turns Spotify into a museum. Most people will never pay for a service that fails to provide the most basic aspect of distribution:

            Instant delivery!

            There’s no way fans will wait a few months to hear the new hit from their favorite act. They won’t even wait a week.


            Reply
            1. GGG

              Well, whether it’s Spotify or what, NOT streaming anywhere is leaving money on the table. The big strategy is becoming figuring out how long you can entice fence sitters to buy, and how quickly you lose day/week of release curiosity streamers. It will be very different for every act/genre I think.


              Reply
              1. Anonymous

                “The big strategy is becoming figuring out how long you can entice fence sitters to buy”

                Makes sense. Perhaps it all comes down to the size of the window.

                I think anything under a week is suicide. But 40 years, as in the case of Led Zeppelin, may be pushing it…

                Then again… imagine people suddenly start to vine this old song and you have it on Spotify… :(


                Reply
                1. Nina Ulloa

                  if the old song from vine is not streaming most people aren’t going to care enough to go buy it


                  Reply
                2. GGG

                  For established acts and ones that are heavily buzzed, I now think windowing a week or so is a good idea because there’s brand recognition. But, for example, one of my new acts will have a record out within the next 6 months. If our single isn’t a smash and we don’t become some overly hyped blog darling, we’ll have a fairly standard amount of buzz for a smaller band. So the question I’ve been mulling over and over is do I keep it off Spotify for a bit hoping the allure of a new band will entice people to buy, or are we wasting monetizing people’s curiosity from the press we get. Also, nobody will really know who we are so first week sales mean jack shit to me. So windowing only a week might be worthless, so it’d have to be longer. But again, the longer we hold out, the less random people might check us out through streaming.


                  Reply
                  1. cjhoffmn

                    I think windowing makes a lot of sense GGG. There needs to be some time spend and experiments to suss out how long and in what channels etc. Again video has done a better job at this – although they are starting to give in a little too. the PPV and home delivery is now getting closer and closer to theater play. But they might serve as a model…


                    Reply
      2. Yves Villeneuve

        Subscribing to a music streaming service is a lifetime commitment.

        $10 per month X 12 months X 80 years = $9,600.

        Tough call?


        Reply
        1. GGG

          People do it for cable.


          Reply
          1. Yves Villeneuve

            As I said just below, for the average person there is a much greater demand for TV and movies. Also, free radio is clearly 10 times more in demand than on-demand streaming. The demand for interactive music listening is simply very minor league compared to TV, movies and radio.

            You do realize that Spotify’s ad-.supported subscription pays the music industry at least 50% less than iTunes Radio?


            Reply
            1. GGG

              Well, of course, it’s a new thing. MP3 players were out for years before Apple blew them up. Maybe Deezer or someone else will do that for streaming.


              Reply
      3. Yves Villeneuve

        As for Netflix, the average person are much more interested in TV and movies then they are in music. Ask the average person what they do after a long day.


        Reply
        1. Nick

          I like your comparison to Netflix and radio as it relates to music subscriptions.

          Another thing to consider is that 80% of music consumption is radio, and the other 20% is music people own (according to Tim Westergren). Why would people pay $10 a month for on-demand music if it only represents 20% of their total music consumption, and the other 80% of their consumption is free?


          Reply
      4. cjhoffmn

        I have no interest in all the music that ever existed. Why on earth would I want to give my money to a bunch of artists I couldn’t care about in the slightest? I’d rather give more of my money to the artists I like.

        I care about the music of those I want, and I don’t care about the music of those I don’t.

        You’re right – its not a tough call at all.


        Reply
  8. TuneHunter

    Streaming as a delivery method YES!
    Streaming with all discovery – WRONG BUSINESS MODEL! One level above Marxist communism!

    Current course if continued will deliver just 40B by 2025 which will equal 50% of inflation adjusted 1999.

    In the meantime we do have 100B dollars of music around us and all the tools to get it.
    Labels and RIAA must wake up!
    No interest? Then Google should take over and leapfrog into new discovery based 100B landscape.


    Reply
    1. TuneHunter

      Also those charts – IFPI should not represent musicians – they have been hijacked long before Universal.


      Reply
    2. cjhoffmn

      This makes sense to me


      Reply
  9. Maugarz

    If streaming pigs like spotify didn’t exist Ron Pope would make 4 millions instead the $334,080 dlls. he made. He is being robed. That’s what no body its saying here. Streaming its booming because companies like spotify give music almost for free and they profit really good from it. Take streaming out of the equation and this would be a whole different story.


    Reply
    1. Ari Herstand

      That’s like saying if iTunes didn’t exist artists who sold a million singles would have sold a million ALBUMS (10 million singles) for $15.99 versus $.99 making them way more money. Times are a-changing. Innovate or die. Streaming is inevitable. How about we get more people to sign up for paying subscription services then there will be much more money paid out. Spotify pays out 70% of its gross revenue to rights holders – the exact same amount iTunes pays out.


      Reply
      1. TuneHunter

        Ari, there is no innovation in Spotify model – it is total ass kissing full pleasure for no particular reason.

        Sorry there might be IPO reason – at your expense!


        Reply
        1. GGG

          Plenty of reason. Make money off people who won’t buy music.


          Reply
          1. TuneHunter

            You can force them to buy – just monetize at the discovery moment!


            Reply
      2. Yves Villeneuve

        Ari, what percentage of your music recordings earnings are from streaming? Are you stroking streaming subscribers to get more listeners? I admit mine are nearly 100% from music recording sales and have no other sources of income such as merch and live performance… To be clear, streaming services are not needed to “innovate or die”.


        Reply
        1. GGG

          With the amount of people that undoubtedly have googled your name/music after seeing some of the things you’ve said on here, you probably would have made 4 figures from Spotify by now.


          Reply
          1. Yves Villeneuve

            Regardless, if Spotify wants to spot me .012 per stream, free and paid tiers, I’ll gladly supply my music to them. Otherwise I am not interested in unsubstantiated promises and pipe dreams.


            Reply
            1. GGG

              Suit yourself. I’m the $100 you’ve made from selling your music will tide you over for a while.


              Reply
              1. Yves Villeneuve

                Yeah, whatever. Good luck in your speculation. Could care less if you think I only sold 1 copy, the one I bought for myself.


                Reply
                1. GGG

                  As always, feel free to post your numbers, just like you yell at everyone else to post any facts and figures when they bring them up.


                  Reply
                  1. Yves Villeneuve

                    I know when people are fishing. By the way, I don’t ask for their sales totals unless they are anonymous.


                    Reply
    2. TuneHunter

      100% correct


      Reply
      1. GGG

        No, not 100% correct. The fact that some people on this site think streams to DLs is a 1 to 1 ratio is absolutely ridiculous.


        Reply
        1. Anonymous

          “The fact that some people on this site think streams to DLs is a 1 to 1 ratio is absolutely ridiculous.”

          Completely agree, it ruins the discussion. But what do you think the real, average ratio is?

          I, for one, wouldn’t be surprised if it were 1-10 or 1-15.

          Your guess is obviously as good as mine, but don’t forget it’s the right business decision to boycott Spotify even if the ratio is 1-139. Which, I think you’ll agree, it isn’t.


          Reply
          1. GGG

            There’s two things at play here. For one, I think it’s far too hard to tell the ratio now because there’s too many factors, but you are correct, at this point I do not think it’s 1-139. Though I think it’s higher than 15 if you are a remotely talked about band, and will get far far higher as numbers go up.

            But the second, and to me, bigger point of bringing up a ratio isn’t to try and say people don’t lose money each time 1 person decides to stream instead of buy. Obviously that’s just a mathematical fact. My argument is that you are indirectly opening up the wallets of far more people that wouldn’t have bought your record to begin with, as I stated in my first post about Beyonce up top. Not only do you have the fans that never buy music monetized, you have people finding out about you for the first time, you have curious people, you have playlist adds, you have listening because they saw a review, etc etc. It’s not really replacing sales at this point, it’s opening up those people to be monetized.

            So that’s the ratio question to me, and why I changed my stance somewhat on windowing for established and heavily buzzed artists. But based on album sales to any fairly arbitrary indication of fan base, sales still seem to hit a tiny percent of fans. So not only will payouts presumably go up, I don’t think it’s wrong to assume that ratio could pretty easily be hit, whether it’s across your whole album, or a single or two make up those numbers, or what.


            Reply
            1. Anonymous

              “Not only do you have the fans that never buy music monetized, you have people finding out about you for the first time, you have curious people, you have playlist adds, you have listening because they saw a review, etc etc. It’s not really replacing sales at this point, it’s opening up those people to be monetized.”

              In other words, DISCOVERY MOMENT MONETIZING, hehe. :) And we all know where people go to discover music. It’s just so easy to send a YouTube link.

              Anyway, it could be interesting to know that ratio. I think it would result in a very different view on streaming…


              Reply
              1. GGG

                Right, I don’t dismiss YouTube’s power and importance, but the market for listening to music without having to see a video is not going to go away. Talk to the hundreds of people I see a week on the subway listening to an iPod or phone without looking at it. Or me, when I listen to music all day at work. Or the millions of other people who listen to the radio at work all day.


                Reply
                1. JTVDigital

                  …you don’t need to watch your screen when listening to music on YouTube :-)


                  Reply
                  1. GGG

                    True, but the functionality of finding and queueing up a bunch of songs to listen to is sort of a pain in the ass comparative to your iTunes or a streaming service, not to mention it drains your battery more. Maybe YouTube Music will fix all that and make it much easier. In which case, we should all be getting on YouTube’s ass now to raise their payouts instead of later when they can just continue to use the “look how many views we get!” defense.


                    Reply
  10. Maugarz

    Besides this post its obvious and stupid. Its like if I put a restaurant and give away my next door neighbor burgers almost for free something like for 10 bucks a month you can eat all hamburgers you want the whole month. It would be a success too. Except my neighbor its gonna be very mad after a few months. It can’t not sustain for longer. Of course everybody is happy with spotify because they want free music, all you can eat music buffet for 10 bucks a month. But to get one song ready for people to listen to cost so much time and money. In the past Record labels were responsible not just for distributing selling and collecting money the were responsible for developing new artists. They invested big money developing new artists. Who is investing in developing new acts now? Spotify? They got rich giving away music they dont own for free. This is an ecosystem you cant give away for free all this music forever and expect that artists can keep feeding these companies so they can get richer while keeping them poorer.


    Reply
    1. GGG

      Yea…because every band that was ever signed got rich and famous and made monumental records…

      You can distribute on the same platforms as any superstar for cheap. No label needed. You can sell and collect your money yourself for cheap. No label needed. Yes, there is a problem with development, but to act like it was some fucking Shangri-La of making money on music at any point in history is irresponsible.

      Anyway, your burger analogy is also silly because people don’t eat a burger ever 3 minutes for hours a day.


      Reply
      1. Maugarz

        I know its just an analogy many of you guys focus on the wrong part of the big picture. What im trying to say here is that development its a big issue for new bands every body is too busy making opinions about streaming and new technologies and forget that music needs investors to push new acts to the scene. That whole do it your self shit works pretty good on paper but in real world new bands can get a very hard time trying to figure out how to breakthrough in the big market. At the end of the day analogy all its saying its that music its a product that actually costs like any other given product. The industry its suffering this much because there are no big brains leading the way, just a bunch of old fashioned former artists from a different era playing executives that don’t know what is the way to go. They may be great at finding talent but they don’t have the money any more to develop new acts so they stick with the same old boring acts and keep doing what they can to survive. True being said, people don’t buy music that much now because the don’t need to, they can have it for free. Take that away and people will start buying music again. This idiots wanted to make a netflix model for music but netflix its a total different story.


        Reply
        1. Nina Ulloa

          why is netflix a different story?”they got rich giving away movies they dont own for (almost) free”


          Reply
          1. Cjhoffmn

            Because Netflix doesn’t have a library of current titles and hits. In spite of the success of netflix, a very robust pauper view market exists. Video content at large did a better job of managing this problem. I have a netflix subscription and still DL lots of pay per view content. It did not replace current movies – but rather supplemented. That’s different than what music is facing.


            Reply
            1. GGG

              I have a Spotify subscription and still buy music. So I also now give money to artists who for the most part otherwise wouldn’t have gotten any from me.

              There’s also still no data that shows it’s replacing DLs. Especially if DL sales have gone up this year. It also supplements sales by monetizing the huge percentage of fans of artists, and random people, that would have never bought the music.


              Reply
              1. cjhoffmn

                Yeah, that makes sense to me – but there is a big difference between netfilx which has very publicly had trouble getting their library built – because the studios wouldn’t give them access to the good stuff. So the video industry controlled this better and get more value out of consumers for the product in limited supply.

                There are uses for both models – I’m not against streaming at large, I’m against the current form of it. If you look at some of the successes of Netflix – they have delivered content that didn’t have an alternative. It’s also generally content that already was monetized before it got there.


                Reply
    2. cjhoffmn

      Agree – the example I use is this:

      I’ll show up at one of your concerts. I’ll scan one of your Tshirts and start silk screening new ones with a corporate logo on the back and get the corporation to pay for some of the shirt cost. Then I’ll sell those shirts for $0.10 next to your concert venue and put them in Big Lots for a $0.10 and maybe in Intl locations. Even better yet – Ii’ll start a “Concert T Shirt Club” and get people to pay $.25 a month to get any artists’ T-Shirts for Free!!

      Your T Shirt sales will go to ZERO. But there’s good news – as long as I get enough T Shirt Club Members – its all good – I’ll pay you out (Your Shirt Sales)/ (Total Shirt Sales) * .70 of my revenue – which will be great for you, because well, you never would have had access to markets like Big Lots and international venues and think of the exposure! Oh AND – I’ll have a free service available because the good corporations that are getting advertising reach paid enough of my cost that I have no real skin in the game. As long as I get them their CPM – then I’ll share some of the Adv revenue with you too.

      That’s what Spotify’s model is. The only reason as a consumer I’d belong to the club is because I’m getting the T Shirts I WANT for LESS than I would have paid otherwise. If you replicate that out across consumers – that’s why they all would want to join – because they are getting more of what they WANT for LESS. All the original T Shirt manufacturers lose against what they could have had if the model didn’t change. Consumers will still “discover” stuff for free through the same old sources – or you will have to market to them to get them to discover with you further lowering your margin – and competing with the free and trusted ways they do it now.

      So if I can raise enough capital to give this a try – then awesome – I’ll go do it – and kill most of (I partnered with some of them of course) the current manufacturers until I run out of money, or I succeed. I don’t think it will induce significant new sales in the system – the entire system will experience lower sales because consumers were given what they want for less. Not because of a new cost savings, not because of an efficiency. Just because they original producers of the content were powerless to stop me from copying their original work.

      Oh and the copyright problem – I can’t just copy that artwork – bear in mind that I went and partnered with a few of the TShirt manufacturers – that have the license for your shirt. You can’t stop them from letting me do this… Or, well, enough people were doing it illegally anyway, that well, why try to stop them?


      Reply
      1. GGG

        I think people should really stop trying to make analogies since they always fail and just talk about the issue.

        First of all, it’s not like we were living in a healthy music industry and Spotify came along and drove everyone out of business. That shit was already happening because there was NOTHING in between buying a CD for $18 or getting it off Napster or eventually $10 on iTunes and pirating it. The problem is people want to consume more music than ever before and instead of trying to shame everyone into buying 100 albums a year, why not find something that will actually work. The fundamental idea of streaming can work, it just obviously needs to be fine tuned.


        Reply
        1. cjhoffmn

          You and I are 100% on this point. The analogy doesn’t fail however – it simply frames the discussion to highlight issues that aren’t apparent.

          I completely agree that streaming is here, and its here to stay and as a consumer of music, like you, I do consume some music via streaming. But, I think new ways of doing it need to be developed. For example, I think Drip.FM may be onto an interesting version of the streaming model – although I think they are failing at the sampling / discovery part of the music process (and the pricing seems out of line). I also think personal lockers like murfie.com have an interesting possibility, although I think the upfront cost is a real hindrance for them. I’d much rather spend our time innovating solutions like that than promoting Spotify.

          But this conversation and post is built around the idea that Spotify is here and we should support it and cater to it, and Ari is clearly advocating that its the right model. I don’t believe that’s true and I think it does deserves some time to focus on promoting the idea that there are alternatives that should be pursued because this one leads to a lower result for everyone. If you are a new artist and never saw anything else – its easy to go along with the status quo. If you are an older artist stuck in contracts, then argue against them!


          Reply
  11. Erik P

    LOL…keep dreaming.


    Reply
  12. x1

    USA Streaming Revenue 2012: $1,032.8 million USD (up 59%)
    USA Singles Download Revenue 2012: $1,623.6 million USD (up 6.7%)

    it’s very possible that streaming revenue has surpassed singles download revenue in 2013.


    Reply
    1. Yves Villeneuve

      Why would you exclude album download revenue? Ah, I see. You’re trying to deflect from the truth and the entire picture.


      Reply
      1. Nina Ulloa

        if a person really wants an album and are emotionally invested in it they’re going to buy it regardless of spotify


        Reply
        1. Yves Villeneuve

          Let’s assume 50% of those emotionally invested in an album will actually buy if they are streaming subscribers.


          Reply
          1. GGG

            What is this 50% based on? Oh right, nothing.


            Reply
            1. Yves Villeneuve

              Are you saying it is closer to zero or 100%?

              There are 123mm music buyers in the USA 13+. See NPD Research.

              Assuming population 65+ is 8% based on worldwide figures found online, if evenly distributed the USA population between 13 and 65 is

              315mm X 92% X 80% = 232mm

              In my opinion, it would be mostly foolish to say streaming increases purchases since it decreases piracy.


              Reply
      2. x1

        just showing that streaming revenue is the FAST growing segment in music.

        $1.5 billion in revenue in the year 2013 in the USA is not a small number.

        Obviously, download (singles + albums) is more than double the revenue of streaming in the USA.


        Reply
        1. Yves Villeneuve

          Well, if you exclude SoundExchange (Internet radio) revenues, streaming ad and subscription revenues are only $570mm. Total download revenues are minimum $2.8 billion.


          Reply
  13. Romina Jones

    Would really like to hear your take on these other internet radio stations like Jango and Earbits, where artist’s are asked to pay for airplay. Exposure equals payola, what are your thoughts.


    Reply
    1. Maugarz

      Radio is still number one Hit maker today! All this other streaming services are just that apps where you can find the music you want to hear for free or for cheap. Payola its another subject. Still though big Exposure costs its not cheap and that’s the big difference between mainstream artist and indie unknown artist they’re both can have the same artistry level or talent but one have the big budget and the other one don’t have shit.


      Reply
    2. GGG

      Years ago in my naive days, I tried Jango for a band and it was pretty worthless. You get fans and people like your music and all that shit, but I didn’t see any indication it lead to actual sales. Maybe a couple here or there, who knows, but nothing remotely noticeable.


      Reply
    3. cjhoffmn

      Yeah, I love earbits as a consumer – but for the artists that I’m helping – it hasn’t done anything for sales. It has generated some social interaction, but not noticeable sales yet. We didn’t put music up on Jango because it just didn’t seem to be as high quality as Earbits – Earbits actually cared about the technical quality of the music they would accept – which we found interesting.


      Reply
  14. Anonymous

    These guys are thieves.


    Reply
  15. JTVDigital

    Hi there,

    Interesting article, but maybe there is a bit of naive optimism here.

    Fact is, yes Spotify represents the 2nd digital revenue stream for labels (big or small) and digital distribution companies.

    But this needs to be put in perspective in terms of market share and effective revenue.

    When it comes to my (still young) digital distribution company, Spotify is n°2, but overall it only represents something like 20% of the revenue gathered from iTunes, so we’re not there yet!

    Happy New Year,

    Jeremie Varengo – CEO
    JTV Digital
    http://www.jtvdigital.com


    Reply
  16. FarePlay

    “Streaming Will Soon Be More Profitable Than Sales” Profitable for who? Talk about a self-fulfilling prophecy.

    IF Spotify can continue to find the funding to stay afloat by convincing investors there’s a business there, this will happen. And the business goal of Spotify is simply getting to the point where they float an IPO and make their equity owners a significant amount of money. No question, this is the core conversation that takes place at board meetings. Let’s cash out first and then see if we can figure this out.

    IF this happens, it will enable Spotify to soldier on and continue to hobble an already fragile and severely under-compensated work force.

    Spotify is not alone. This is how business is done on Wall Street.


    Reply
  17. River Waters

    As I understand it, and please correct me if I am wrong, is that the per track price of streaming rests upon the legal fiction that a stream is not a copy because it is a temporary caching. The law here is so antiquated, deriving as it did from pre-software forms media, and, in light of the relative inaction by lawmakers, has become the hole that the streaming services are exploiting.

    What I still fail to understand, and which I’ve never seen discussed on these pages, is the legal basis for Spotify’s OFFLINE caching. Isn’t this a copy — as permanently fixed in a tangible medium as any xerox copy — how does Spotify get away with it at anything less than US$0.091 per track under 5 minutes?


    Reply
    1. cjhoffmn

      I agree – I’ve never understood that either.


      Reply
    2. Anonymous

      Actually the DMCA addresses caching. It is explicitly clarifies that caching content is not considered a copy under copyright law.


      Reply
      1. River Waters

        Would you perhaps happen to know the cite?


        Reply
        1. Anonymous

          17 USC § 512


          Reply
          1. cjhoffmn

            Hmm – Unless I read that incorrectly, that doesn’t apply. It refers to “system caching” and explicitly allows a service provider to make a cached copy. Not an end user. The two concepts are not the same, and I don’t believe 512 can be used as a safer harbor for user caching.

            I didn’t find anything that addressed users, but here’s the relevant bits for service providers:

            Opening: “a) Transitory Digital Network Communications.— A service provider shall not be liable for monetary relief, or, except as provided in subsection…”

            Specific exemption:
            “(b) System Caching.—
            (1) Limitation on liability.— A service provider shall not be liable for monetary relief, or, except as provided in subsection (j), for injunctive or other equitable relief, for infringement of copyright by reason of the intermediate and temporary storage of material on a system or network controlled or operated by or for the service provider in a case in which—
            (A) the material is made available online by a person other than the service provider;
            (B) the material is transmitted from the person described in subparagraph (A) through the system or network to a person other than the person described in subparagraph (A) at the direction of that other person; and
            (C) the storage is carried out through an automatic technical process for the purpose of making the material available to users of the system or network who, after the material is transmitted as described in subparagraph (B), request access to the material from the person described in subparagraph (A),”

            A service provider is described as:
            “(k) Definitions.—
            (1) Service provider.—
            (A) As used in subsection (a), the term “service provider” means an entity offering the transmission, routing, or providing of connections for digital online communications, between or among points specified by a user, of material of the user’s choosing, without modification to the content of the material as sent or received.
            (B) As used in this section, other than subsection (a), the term “service provider” means a provider of online services or network access, or the operator of facilities therefor, and includes an entity described in subparagraph (A).”

            There are a few carve outs and specific limitations on the scope of the applicability of this, but I don’t see how 512 can conceivably apply to an end user caching music on their playback device, unless there’s a cite or reference to it used in another section.

            I’m sure its negotiated in the license agreements with the labels – and they are negotiating that with the songwriters and performers, who still don’t know to change it, or are not strong enough to do so unless they become aware of the problem and actively try to change it.


            Reply
    3. Adam

      The law has nothing to do with it. Spotify negotiates directly with right holders who agree to the price as well as how their content is used (ie. can it be cached offline).


      Reply
      1. River Waters

        But in the case of tracks recorded by independent, unrepresented performers, there is no such agreement.

        So then, what is the basis of the price paid if not the law?

        I know why I am paid $0.091 for a “copy.” The law specifies it. It is a form of price regulation. But why is it that I am paid $0.0013 (or whatever it may be) for a stream of the same content? Who or what sets that price?

        And why am I, as the indie artist/vendor, unable to affect or specify the price of what I’m selling to the stream? When I provided tracks to Spotify, I never discussed pricing of streams. It was not even an option. Who or what has designated stream pricing, if not the law, or the buyer unilaterally?


        Reply
        1. Adam

          You’re delivering your tracks via an aggregator then I assume? No artist delivers directly to Spotify. You can’t upload to them.

          In that case it’s the aggregator who’s made a deal with Spotify regarding price and artists opt-in to being included.


          Reply
          1. Anonymous

            People don’t read these agreements with the aggregators do they? These agreements tend to be hugely broad. Much like a record contract, they allow the aggregator to full rights to exploit your work. The saving grace is that don’t completely own the copyright, and you can always pull out of them at any time and then the aggregators loses their rights to exploit your work.

            But while you have your music on an aggregators, they have basically have full rights over exploiting your work in any and all ways possible under copyright law. Go ahead and read your agreements you AGREED to next time folks.


            Reply
            1. cjhoffmn

              Perhaps one of the biggest problems in the industry! Here here! Everyone needs to read this stuff to understand where their rights are being transferred!!


              Reply
              1. River Waters

                The aggregator has? Not that I recall. In my case, CDBaby. I read every last word of the agreement between the CDBaby and me — while I may have forgotten, I do not recall that payouts were not specified. As I quickly look at the CDBaby website, I find this cryptic phrase (after saying a stream will pay less than a penny): “Because of contractual obligations we can’t post actual payout amounts, but you will be able to see payments in your account.” Isn’t the problem then with the relative negotiating strength of the distributor, which must for some reason, be far less influential than the streaming services? If they could make more money, they definitely would. Why is it that way?


                Reply
                1. River Waters

                  Sorry, I meant “I don’t recall that payouts were specified.”


                  Reply
        2. Anonymous

          I know why I am paid $0.091 for a “copy.” The law specifies it.

          You are confusing compulsory licensing here. Compulsory licenses are licenses that you CAN NOT opt of, it’s a license that is always available for any copyrighted work, regardless of the original copyright holders desires.

          Compulsory licenses have prices and terms fixed by the government (well a court appointment by the government). Not everything has compulsory licenses, actually they are pretty unique to music. Mechanical licensing and performance licensing are usually compulsory licenses. But they don’t have to be. Any copyright holder can decide to distribute his/her works for less then royalties or no royalties at all. If there is a agreement between a songwriter and a distributor that changes the royalty to $0.00 it supersedes the compulsory license. A copyright holder can always go above and beyond the compulsory license, and offer more rights for less royalty.

          So back to Spotify, they tend to license music directly from the copyright holders. The terms and royalties in this case are mutually agreed on by both parties. I When it is agreed by both parties, in that case, the terms can be anything, and the royalties can be anything.


          Reply
          1. Anonymous

            In other words, a compulsory license is a agreement between the a licensee and the government. Copyright laws gives the government the authority to license entire categories of rights, and the terms and royalties are decided by a complex set of laws.

            But as a copyright holder, can also enter into license agreement with a licensee yourself. In that case, the terms and royalties are part of the license YOU, as copyright holder, agree to. As a copyright holder you can also transfer your copyright to another entity in a completely non-revokable manner. Much like you can sell your house. All it takes is a contract. And contract don’t need to be physically signed. Simply pressing “I Agree” on a website works all the same.


            Reply
          2. River Waters

            Yes, thank you for the clarification. I do understand that — my fundamental misunderstanding is the basis for Spotify offline caching, either legal or extralegal. I’d like to see a discussion of the bases upon which pricing is determined.


            Reply
  18. Lisa

    I’m a complete and utter Noob when it comes to the topic of streaming but I’ll tell ya one thing – this whole discussion is HELLS enlightening and interesting. I’m loving the analogies – I get to see the perspective from which someone is approaching this topic from, helping me to understand how THEY are wrapping their minds around it.

    Most of the points are fascinating and there are so many facts and figures to filter from the emotional noise it’s doing my head in a little – I’m probs gonna need to read everything again then go and do some due diligence :)
    It would definitely be amazing if someone could come up with a model that pays the creator fairly – our blood, sweat and tears deserve that at least. Until then, it’s totally up to us to find out what works for us.

    On that note, here’s MY analogy muahahaha:
    Music is like food: Sustenance AND pleasure.
    A bunch of us are ‘chefs’ and if you’ve created your menu and signature dish right, there’s something about it that your consumers can’t get enough of and are hooked on. From here on out it’s about awareness and distribution (and repeating the process).

    Big luvs and hugs and New Year Awesomeness to everyone sharing the journey! ♥
    http://www.merrinaised.com. Also, shout outs to Fareplay (Will) and CJHoffman :)


    Reply
    1. cjhoffmn

      ;) Here’s to a Happy New Year for us all!


      Reply

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