by Daniel Brouse
I’ve been seeing a lot of misleading posts about Spotify, so I wrote a little research paper on the topic. Mind you, as one of the inventors of streaming and downloadable music in 1994, I never supported Spotify nor YouTube, etc. I don’t like artists having to share their publishing; however, Spotify isn’t the one sharing your revenues — the company that you use to publish on Spotify is. In any event, here is the paper:
Introduction
I tried revolutionizing the music business back in the 1990s when I was one of the first to put my record company on the web. We pioneered pay-per-download and subscription streaming services, effectively dismantling the criminal syndicate of traditional music distribution. Now, with AI individual musicians can record and produce their music at a fraction of the cost and distribute it freely online. This process, which used to cost a minimum of $200,000 for an artist, was often fronted by a record company. However, most artists never managed to repay these advances, and under restrictive contracts, they couldn’t record or perform their music again. It was a disheartening industry to be part of, but today, it feels like a dream come true.
Spotify Misconceptions
Daniel Ek, CEO of Spotify, has not accumulated his wealth directly from artists, but rather through the success and growth of the Spotify platform. It’s important to understand the broader context of Spotify’s financial journey and its impact on the music industry.
Financial Context and Profitability
- Spotify’s Financial Journey: Spotify, founded in 2006 by Daniel Ek and Martin Lorentzon, initially struggled to turn a profit. It wasn’t until recent years that Spotify started to see profitability. As of 2021, Spotify reported its first annual operating profit, demonstrating the company’s progress in managing its costs and increasing its revenue streams【source】.
Impact on Artists
- Payment to Artists: Spotify provides a platform where artists, especially those without major label backing, can distribute their music to a global audience. While the payment per stream has been a point of contention, it has enabled many independent artists to gain visibility and earn from their music. Without platforms like Spotify, many of these artists might not have had the opportunity to reach such a wide audience【source】.
Criticism and Misconceptions
- Vilification of Spotify: Criticizing Spotify for its payment model overlooks the benefits it has brought to the music industry. The platform has democratized music distribution, giving artists from all backgrounds a chance to be heard. This is a significant shift from the traditional model where only artists signed to major labels had a realistic chance of reaching a large audience【source】.
- Oversupply of Music: The Spotify payout system is influenced by the enormous supply of music available. If millions of artists reduced the frequency of their uploads and avoided tactics like putting their tracks on repeat overnight, the payouts could potentially reflect a more balanced and fair distribution of revenue. To be fair, artists should avoid listening to their own music on Spotify.
Alternative Perspective
- User Choice: If consumers disagree with Spotify’s model, they have the freedom to choose other platforms. However, it’s important to recognize the role Spotify has played in transforming the music industry and providing new opportunities for artists.
PART II
The music industry has seen a dramatic shift in the supply and demand curves. This change started in the 1990’s. In 1994, we introduced the first subscription streaming/download service in the world. By 1995, we had introduced the first pay-per-download service. At that time we were the first company to accept credit card payments after dealing directly with FirstData (Mastercard/Visa). By 1997, we determined it was more economical to give the music away for free. By 2000, we had over 40,000 songs in our catalog that are free to download/stream. BMI, ASCAP, and the RIAA all tried to stop us. They failed. It was during this time that Napster and other peer-to-peer services also made free music available. Spotify was the music industry’s answer.
Here is a summary of the economics:
The music industry has experienced a dramatic shift in its supply and demand curves since the 1990s. This transformation began in 1994 with the introduction of the first subscription streaming and download service, followed by the first pay-per-download service in 1995. These services were pioneering in their acceptance of credit card payments, facilitated through direct dealings with FirstData (Mastercard/Visa).
By 1997, it became evident that offering music for free was more economical, leading to a catalog of over 40,000 songs available for free download and streaming by 2000. Despite efforts from BMI, ASCAP, and the RIAA to halt these operations, they were unsuccessful. Concurrently, peer-to-peer services like Napster emerged, making free music widely accessible. Spotify later became the music industry’s response to this disruption.
The underlying economics of the music business shifted significantly, driven mainly by changes in the supply curve rather than demand. While demand for music has remained relatively stable, the advent of digital distribution allowed millions of new artists to release their music, dramatically increasing the supply. This surge in supply caused the price of music to plummet to near zero. Consequently, the reduction in music prices is not the fault of Spotify or any other platform, but rather a result of the vastly increased supply of music available online.
Conclusion
Vilifying Spotify for its business model can be seen as naive and a mistake, considering the platform’s contributions to the music industry. It has enabled countless artists to distribute their music widely and earn revenue, something that would have been much harder to achieve through traditional means. The Spotify payout is influenced by the vast supply of music. If millions of artists reduced the amount of music they upload and stopped using tactics like putting their tracks on repeat overnight, the payouts could be higher, reflecting a fairer distribution of revenue.