Music Streaming: The Pain of Change

Music streaming, like many new industries, has faced many challenges.

Let us not forget, the American public had doubts about switching from radio to television. According to a history of television written by The Guardian, “The images were extremely poor quality, the equipment was dauntingly expensive and reception vanishingly limited. In short, it didn’t look like the future.”  

As the revenue of digital downloads continues to decrease, the number of users continues to increase for streaming services like Spotify (a clear front runner in streaming services). At 75 million active users, with only 20 million paid, people are still clearly adopting the new technology.

spotify user graph

Graphic from: http://www.spotifyartists.com/spotify-explained/

Another positive trend we are seeing, is the amount of royalty payouts increase for Spotify. Some would say, “not fast enough”. The glass-half-full approach might be “it’s a good start”.

Cumulative-Royalties--1024x611

Graphic from: http://www.spotifyartists.com/spotify-explained/

Spotify claims to pay out about 70% of revenue to rights holders. This is a similar model to iTunes (ex. $0.99 song, artist gets $0.70). Though the numbers seem similar, we’re talking about two different business models. There needs to be a discussion about how different these industries are, and how “fair payment” should be defined.

It is evident that the music streaming industry is experiencing growing pains.

Apple Music has fallen short out of the gate, and we can only hope they redo their user interface and open up potential for on demand-streaming without access to Wifi.

Meanwhile, Pandora continues taking metaphorical punches for attempting to reduce their financial burden. Surely Pharrell wasn’t singing when he saw his check for less than $3,000 for over 43 million plays on Pandora.  If paying artists royalties becomes a burden for a company running itself as a radio station, they may need to re-evaluate their business model.

In 2013,  wrote on Pandora’s blog, “Each spin on Pandora reaches a single person, compared to a “play” on FM radio that reaches potentially millions of people. In other words, a million spins on Pandora might be equivalent to a single play on a large FM station.”

Perhaps this offers some insight into the source of the growing pains of the industry. Technology changes how we live, but also how we define things. Without going into details about “per play” payouts, mechanical royalties, and performance royalties, the bottom line is this:

The industry needs to communicate and work together to seek innovation alongside this new technology because streaming has potential.

A positive focus for now. Increased music streaming has led to lower piracy, can contribute to higher ticket sales for touring artists, and has helped artists to build an audience. Artists who embrace music streaming will be the first to thrive using it.

By David Kleinebreil

Featured photo by Antonis Spiridakis
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