So I fully understand stuff like this can be disheartening. But if you are someone that is looking to make a living in this industry, you need to know what is going on. You need to know where sales are. You need to know if music is even a commodity that people are actually willing to pay for in this day and age.
I'm going to clear some things up first. Pandora and iTunes Radio are not Spotify. They make you listen to pre-selected playlists that you have no control over, except to skip like 3 songs per day. You are at the software's mercy as far as what you listen to goes. And this can be a cool thing, especially when it comes to discovering new music. Plus there are ads that generate money for the artists. It's closer to traditional radio than anything else. Sort of a personalized radio station for whatever you want to listen to.
Spotify is an entirely different animal, because it is a 100% free music on demand service. You can choose out of a library of literally 20 million songs what you want to listen to, at any time and any place. Sure if you are using it for free, there are ads. But for what you are getting for free is more than worth it.
On the record, as a music fan I love Spotify. Being able to listen to pretty much any album for free any time I want is incredible. Sure, the bit rate isn't great, and the ads can get annoying, but the truth is that with the existence of music streaming services like Spotify, nobody has a reason to actually buy music anymore.
There's a joke that country music still sells well because high-speed internet hasn't reached a lot of its demographic. Well it's coming and fast. I'm sure I'm not the only one noticing the whatever-latest Luke Bryan song that is always creeping into the Top 20 Most-Listened list on a regular basis. Walmart, Target, Best Buy, ect are losing 20+ percent of their market share. If digital music store sales are gaining market share with decreased sales, and traditional retailer sales are going down, that tells me everything I need to know.
And if there is one thing you can be sure of, it is that where there's iTunes, there's Spotify.
Now, I'm writing this blog before the streaming numbers have been released, but in 2012, Spotify was not profitable. In fact, in the history of the company, nobody has been very profitable. In 2010, Lady Gaga's Poker Face had over 1 million streams, but only made $167! That's insane.
So, I checked out Spotify's business model, and it seemed a little bit weird to me. Artists make on average 0.6 cents per song play. I think that's a fair valuation. No one can't expect to get the kind of revenue that radio and TV royalties generate. Spotify generates that revenue from "paid subscribers"(who pay $9.99 a month so that they don't have to put up with ads) and advertisements for free users, which play after every few songs(I have a theory that Spotify makes their ads as obnoxious as possible so that people will become premium subscribers, but that's another discussion for another day).
The argument for the free membership is that it monetizes a demographic that wouldn't be monetized in the first place. That it attracts the bit-torrent crowd if you will. I would have to disagree with that. Getting music from bit-torrents is easier than ever, and you can get the music at a much higher quality than Spotify will ever offer. No, it seems pretty clear to me that Spotify is canibalizing the digital music buying demographic, who was already spending money on music. And I think that this is going to get worse over 2013. As country music fans get high speed internet, they're going to actually bypass the digital music stores, and go straight to sites like Spotify, if they aren't already. So now you lose physical CD sales, as well as digital music sales.
So Spotify's big bad business plan is that "we drive users to our premium subscription tier, at least doubling the amount that they spend on music, from less than $5 per month (the average spent by download consumers in The US) to $9.99 per month for Spotify." That's directly from the Spotify Artists site. Now I have to ask. What kind of idiot is going to pay $10 a month for something that they've enjoyed for free? You can make your ads as obnoxious as you want. It's never going to happen with me. And I don't think it's going to happen to the vast majority of Spotify's users.
So what's going to happen in the future? Spotify won't be able to exist if it keeps losing money. Sorry folks, but multi-national corporations (or professional musicians) don't just exist to service you. They need to run a profit. They keep saying that they can pay artists the money they deserve, but I just don't see where that money is going to come from. I can't imagine that the ads are going to generate the revenue required. They would have to cost a fortune for companies to run. Plus, it isn't exactly hard to mute your computer over the time that the ads play(thats what I do).
The hard truth is that Spotify needs to remove their "free-tier" and make all users pay 5-10 dollars a month to use their service. I think that's a more than fair price to access 20 million songs at any time, anywhere. Make a spotify phone app so people can carry all 20 million songs on the go, instead of only being able to use spotify radio on the go.
It's gonna piss off a lot of people, and Spotify is going to be labeled as sell outs, but as someone that wants to see people make a living off of music in the future, this needs to be done so that artists can be paid what they deserve for their music. Spotify isn't just a service for people that listen to music. It is just as much a service for the actual artists. And people need to remember that.