9 Predictions For Dance Music, DJ-ing & Audio Production in 2012 (#2: Spotify Vs Indie Artists)

Spotify: Fans Love It, Indie Artists & Labels Hate It

Spotify achieved a major milestone in 2011 by opening up its services to the U.S., after years of negotiation with several major record labels. Spotify’s streaming initially sounds appealing: millions of songs available to listen to on demand, a low-priced payment structure that tops at $10/month for the Premium version, and the ability to use it with many different mobile devices. With millions of subscribers world-wide, one would think all is well, right?

Well, maybe for the listener. It’s an entirely different story for the musicians, particularly independent ones. 

In early 2011, Information is Beautiful published an infographic shining a not-so-bright light on Spotify’s revenue structure compared to other online music distributors, like Cdbaby and iTunes. Let’s sum it up like this: it takes thousands of streams on Spotify to earn an artist ONE whopping dollar. On iTunes, if one fan of the same artist pays the full price to download his album, he will see that same $1 of revenue. Money aside, Spotify also gives more stake in the company to the major labels, and less to the indies. So when the profits are split up, that money you thought was going to that local musician you wanted to support actually goes to Lady Gaga, Lil Wayne, or someone else at the top of the totem pole.

And even if the major labels are only earning a fraction of a penny on a single stream, the PR that an artist on a major gets from every 15-year-old posting their Justin Bieber playlists to Facebook (now a requirement if you want to use Spotify) more than compensates for this. Reduced advertising and marketing costs on their end. A far different scenario brews with an indepenent artist struggling with a minute fanbase. Some argue that smaller artists need Spotify’s exposure the MOST, especially because it’s social media-driven engine. This is very well and true from a promotions aspect. But because Spotify presents listeners with a new option to access high quality music, sales become impacted in a way the major labels CAN justify, and the indies CANNOT.

A few months ago, ST Holdings, one of the biggest distributors for independent dance music (particularly drum & bass, breaks, and dubstep), removed all of the content from the back catalogues of almost 250 different labels they manage. Their main issue is the few people left who would have paid for this music now rely on subscribing to Spotify to get their content. Ultimately this translates to lost revenue for the artists, labels, and distributors. Spotify is replacing sales, as opposed to a service like iTunes that supplement sales alongside CD’s and vinyl. Even though you can easily purchase the MP3 on Spotify, most won’t see any need to download it outright when they can just stream it whenever they please. The metrics of several independent labels, including ST Holdings, can be read on David Touve’s blog. Either way, I wouldn’t be surprised to see the majority of content on Spotify being from only major labels by the end of 2012, with indies removing their support in droves.

Several respectable blogs (including Techdirt) have published valid arguments against the actions these independent labels are taking, suggesting they are “behind the times”. But at the end of the day, it can be an insult to the profession of a hard-working musician (most of whom are doing this full-time with no other source of income) to be earning far less than minimum wage. Some talented artists could subsequently be pushed out of the industry altogether. Fans obviously need an easy way to access music; the convenience is something many are still willing to affix a price tag to. But I don’t think spotify is a sustainable business model for struggling and non-established musicians. It WILL have a future, but will be one that will be dominated by the musicians at the top. And like it or not, those are the artists who the vast majority want to listen to anyhow.

Aside from the revenue structure, there are a few good things Spotify has going for it. The biggest is the fact it is open source, so developers have the ability to manufacture new apps that not only enhance the listening experience, but also create new avenues for creating renevue for the musicians. For example, an app could theoretically be built that uses geo-tagging to figure out where your current location is, tell you what concerts are happening in your area, build playlists from Spotify’s database for those artists you can listen to on the fly, and purchase tickets, merchandise, or MP3’s on the fly. In-app purchases have blossomed this past year; again, the reason is because they are convenient to the average person. 

Spotify will continue to remain one of the major players of music streaming in 2012, however I don’t think many independent labels will be showing up to the ball game. With the vast majority of dance-based labels falling into this category, don’t hold your breath finding content on Spotify that has anywhere near the breadth and depth that iTunes or Beatport have.

Sources:
http://www.cultofmac.com/38097/infographic-most-artists-earn-more-revenue-through-itunes-than-at-retail/
http://davidtouve.com/2011/12/08/itunes-downloads-versus-spotify-streams-a-comparison-continued/
http://en.wikipedia.org/wiki/Spotify