AUDIENCES: SPOTIFY

SPOTIFY is responsible for the first rise in recorded revenue for the global industry in more than a decade. Josh Glancy (Published in The Sunday Times: 3 March 2013)
 

Daniel Ek, chief executive officer of Spotify Ltd. (Louis Lanzano)

 
Daniel Ek, chief executive officer of Spotify Ltd. (Louis Lanzano)
Champagne corks are popping in recording studios across the globe. After years of seemingly irreversible decline, it appears the music industry may have found salvation from an unlikely source: Sweden. This comes in the form not of an Abba reunion, but of the online music streaming service Spotify, which has been partially responsible for the first rise in recorded revenue for the global industry in more than a decade.
The figures for 2012, which were reported last week by the International Federation of the Phonographic Industry, showed a rise of 0.3%. It may seem a trivial figure, but even a small rise is a big deal in the music business. The global trade in recorded music had shrunk every year from 1999 to 2011, from £18.5bn to £10.9bn, as illegal downloading became widespread.
“It’s a massive relief to see even a negligible rise,” says Tim Ingham, the editor of Music Week. “It will never return to the halcyon days of the CD boom in the 1990s, but there will be an overall feeling of relief.”
There are a number of factors driving this return to growth, not least the global success of British stars such as Adele, whose album 21 sold 8.3m copies last year. But the key factor has been a big jump in digital revenue, which now accounts for 34% of the industry’s overall income from recorded music.
Spotify’s has played a big role in this revival. The service tempts listeners in by giving them limited free access to its vast catalogue of music. It then tries to convert them to its premium, paid-for service, which offers unlimited streaming free of advertisements. Originally launched in Sweden in 2008 and now based in Britain, Spotify has already picked up 5m paying subscribers, a figure that is expected to surge as it rapidly outgrows its European origins. By the end of this year it will have funnelled an estimated £650m back to the record labels.
Perhaps most importantly of all, a large chunk of Spotify’s subscribers are in the 18-24 age bracket, the free-content generation that grew up with access to illegal file-sharing and was never expected to pay its way. In Sweden, a country that has traditionally been a hotbed of internet piracy, an astonishing one-third of the population has signed up to the service. The success of the streaming model has been so marked that technology giants such as Apple and Google are expected to launch similar ventures in the coming years.
“What we are seeing is a consumer awakening as to how good these services are,” says Ingham. “The number of paid subscribers will have to increase tenfold before the industry can feel comfortable with the amount of revenue coming in. But things are looking up.”
There is one section of the music industry that is less enthused: the artists, many of whom have expressed their dissatisfaction with the amount of Spotify’s revenue that is passed on to them. The service pays out 70% of its revenue to the owners of the music, dividing it up proportionally by the number of times songs are listened to. Artists will receive in the region of 0.2p each time a song of theirs is played.
Coldplay initially withheld their lastest album, Mylo Xyloto, from Spotify, and Adele entered into a long wrangle over royalties before eventually signing a deal.
“What the reports leave out is the artist’s perspective,” says Damon Krukowski, who is one half of the American folk-rock duo Damon & Naomi. “For many of us the income we get from recorded music has become negligible.
“The problem is that streaming services and Apple have no motivation to pass on their revenues, and no role in the production of the music that they make their money off,” he says. “Record companies made records, so even if they cheated their artists they had to make sure the bare minimum were satisfied. Once Spotify cut licensing deals with the major labels, everyone else had to fall in line. Even Adele.”
The streaming revolution may not be working directly for independent artists, but it can help them to reach new audiences.
“Sales of recorded music can be a loss leader and a way of building a brand,” says Lisa Verrico, a music journalist.
“You’re always going to have some artists complaining, but what’s important is that streaming is earning money, so that record labels can keep signing acts. Having battled with digital for more than a decade, people finally feel they can see a future.”