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GOLDSMITHS UNIVERSITY OF LONDON 
WRONG ARGUMENTS 
Spotify and the sustainability of evolution 
(2013-2014) 
Assignment: Dissertation Course 
Code: DR71068A 
Student Name: Xanthi Georgakopoulou Ntavou 
Student Number: 33257090 
Programme: MA Arts Administration and Cultural Policy (ICCE) 
Supervisor: Dr. Gerald Lidstone 
Date: 06/01/2014 
Word Count: 15,330
ACKNOWLEDGEMENTS 
I would like to thank Johnny Hopkins, my lecturer in Music Management, who helped me 
see the music industry in the digital age, and by extension my place in it, in a positive light and 
who contributed in my better understanding of the music world. I would also like to thank the 
founder of Music Darker Talks, Tommy Darker, for growing my confidence in my findings and 
whose knowledge of the current state of the music industry assisted greatly my research. 
I wish to express my gratitude to Dr. Gerald Lidstone for accepting me in this MA, for 
advising me throughout the year and for supporting my decision to delay the handing in of this 
dissertation. This way I could release my debut album Dramatic Theories in November. Also to Dr. 
Paul Clements for his both stimulating and entertaining lectures, inspiring comments and almost 
contagious critical thinking. 
Last but not least, I want to thank my parents and sister whose unconditional love brought 
me all the way here. It is the same love that provided me with passion for what I do and the same 
love that will take me to other places too.
TABLE OF CONTENTS 
Introduction 4 
Chapter 1: The Preexisting Problem 7 
1.1. Gatekeeping 7 
1.2. Piracy 12 
1.3. Royalties & Digital Sales 15 
Chapter 2: The context of Evolution 21 
2.1. Factors 21 
2.3. The 'evolved' players 28 
Chapter 3: Spotify & Future 37 
3.1. Business Model 37 
3.2. Spotify Advantages & Drawbacks 40 
3.3. Future 43 
Epilogue 48 
Bibliography 51
4 
Introduction 
What has always bothered me about the music industry is that I am a part of it. Is this mere 
fact that bothers me? No. It is the more specific fact that this wider fact entails. I am a part of the 
music world as a self-proclaimed artist and the majority of songwriters and musicians -especially 
those involved in the popular genre- are perceived as pursuers of music careers in the so called 
music industry, which in reality cannot equate with the music world, or for that matter, the art 
world. I feel very lucky to be an artist in this new digital era, where these perceptions are being 
reshaped and questioned not only by the artists themselves, but by the larger audience as well. 
What led me to the topic of this paper was my own interest, which this time can find a place 
in the music world, or music industry, as everything is fluid and my saying can be heard and shared 
with a large portion of other musicians. I wanted to comment on the evolution of the music industry 
into what is now the digital age and the new state of things through a highly time-specific research 
that does not go very far in the past, but instead focuses on articles, reports and books published in 
the last three-four years. Without diminishing the value of the music industry as it was for the past 
century as a whole, the intention is to discuss the importance of the current changes determining a 
significantly different model of music creation and distribution for the immediate future. The newly 
published material that will be used, is internet-based in its majority, for the simple reason that this 
method of research allowed me to practically work on this topic the same way that music discovery 
works now. Also, reading the opinions of a fair number of artists and music fans globally gave me 
the opportunity to look at this state of things through the eyes of a new audience, during a period 
where it might be wise to leave the things we took for granted behind. We will always be carriers of 
internalised stereotypes and references perpetuated by the remnants of the traditional music 
industry. However, and even though the comparison with the previous state of things will too be 
inevitable for a more round view in this paper, I aim to look at this evolution mainly as a present 
and future thing.
5 
The research began with a very specific question : whether there was a sustainable model for 
Spotify, and that, since the constant critique against its low royalty payments and other controversial 
features intrigued me. Interestingly, I was convinced, very early through my research, of the 
viability of streaming services and that they will be the dominant music providers in the next years, 
despite the loads of problems majors and companies claim to be dealing with. They showed the 
easy way; the natural evolution in every service provision in the world is to make the product more 
accessible and more convenient. So this paper was subsequently based on this newly-found 
confidence and optimism that would give answers to this question instead: why streaming services 
will indeed have a sustainable growth in the next years and why people still react to it. But why did 
I pick Spotify as my main example? Why am I enclosing this vision into one streaming service 
which is not even the most widespread subscription-based music service in the world? Because 
numbers are not that important. Firstly, Spotify has received so much acclaim and so much negative 
criticism in the past years and is still growing. This shows that it is a big player with a very good 
business strategy, which I will further explain later in the paper. Secondly, because I am a converted 
user of Spotify Premium myself and experiencing its inefficiencies and progress made it easier for 
me to be both objective and subjective. But most importantly, because all the criticism turned 
Spotify into a symbol of the new state. It was through its opponents that I was faced with the 
revelation that all the wrong arguments are being made in the right era, where the change has been 
already made and our arguments will not change the basic thing that now simply is. 
In this paper, I will try to show why the most popular and dominant arguments against the 
new state throughout these crucial and transitional years are misplaced. The arguments will appear 
at various stages in context and in contrast to the conditions that shape the industry and the future of 
Spotify, which will be used as the perfect model of a streaming service at the moment. I aspire to do 
that by exploring not only Spotify and the reality of streaming services but the world around them 
including traditional media, audience, majors, independents and the rising culture of the
6 
musicpreneur – all these under a very 'new' light and the vibe of the last years' happenings and 
developments as I already mentioned. My basic argument against the critiques will be evolution and 
how Spotify and streaming services conform to its demands by showing that evolution by nature is 
not a thing to argue against. In Chapter 1, I will provide a quite simplified description of the 
preexisting problems including gatekeeping and limited distribution and how these find space or 
solution in the era of streaming. In Chapter 2, I will go on to highlight the conditions of the 
evolution, the significance of evolution, and proceed to discuss the practicalities of evolution as in 
technological developments and strategies followed by the 'evolved players' of the industry. In 
Chapter 3, I will focus on Spotify, its position in the market and future and in Chapter 4 I will 
conclude with the findings and limitations of my research taking into account all the things already 
addressed.
7 
Chapter 1: The preexisting problem 
Αμαρτίαι γονέων παιδεύουσι τέκνα (The sins of the fathers are visited upon the children) 
One will be able to tell if the complaints on the state of things in the recent years are fair, if 
they take a look in retrospection at the complaints echoing around the 'bulk' of the music industry 
the decades before. Sure, the profits of labels and artists have been slashed by piracy and surely the 
digital age with the prevalent freemium model, or the streaming services prevents the growth of the 
both physical and digital sales; sure this happened exactly at the moment when the latter had started 
stabilising the economy of the music industry with the development of apps and new propositions 
against unbundling such as 'Complete my album' on iTunes. But it is wiser to emerge into the old 
state of things and assess if any of these problems are not new problems inflicted upon the music 
world with the rise of 3G/4G and streaming, but issues generously passed on from the electric age 
to the digital age. Some of these problems are insidiously transmitted, and others find solution in 
Spotify. 
1.1. Gatekeeping 
(...) the record industry has been contending with the challenge of moving from 
physical to digital formats.(...) if this is the 'moment' to strike for independence and 
for musicians to rid themselves of corporate intermediaries and gatekeepers (as 
Napier-Bell celebrates), then the established music industry 'actors' are indeed 
navigating turbulent waters.1 
Jim Rogers 
According to Jim Rogers and Napier-Bell, the gatekeeping ceases to exist or is hindered by the 
amplitude of information (therefore music too) that defines the digital age. But it is not that simple. 
1 The Death and Life of the Music Industry in the Digital Age. Location 98 (Kindle Version)
8 
Gatekeeping is the most interesting example of a problem in the music industry nowadays. It is true 
that due to a number of facilitations in music discovery, such as the efficiencies of digitisation and 
the vastness of liberties that the internet allows, there is almost no limit to what people can listen 
to2. But, even though piracy and free streaming directly promoted discovery over a wide spectrum 
of tastes, genres,and niche audiences, the Long Tail itself is far from being set free from the chains 
of taste-making. So who are the gatekeepers of digital music distribution? 
1. The same people. Rogers states that there are considerably more new outlets 'both 
traditional and new, through which music can be promoted and exposed than in former 
times'3. And yet he goes on to use John Sheehan's claim that most of the mainstream media, 
especially radio, remain central since 'it is fundamental to the marketing mix'4 and because 
'without it, the others [intermediaries5] don't work'. In fact, digital radio has not been altered 
gatekeeping-wise. Its condition of being more ''cool' and non-linear, especially in the sense 
of being interrogable and interruptible'6 as Andrew Dubber suggests, does not negate the 
reality that all content begins from the curators, DJs and people that might not have any 
association with major interests and the music industry directly, but are nevertheless 
tastemakers. Also, interaction might be the new asset for the current impassive audiences, 
and it might suggest that people look for more than they are offered, but interaction is 
evident in an allocutionary framework such as the BBC in the UK7. A fine example that 
Dubber uses to show that, is Radio 1 and Zane Lowe's show where people can directly 
contact the producers, the radio staff and also suggest music through chat-rooms. 
2 Of course there are very specific and justified exceptions such as the prohibition of streaming for a large number of 
videos in Germany after a dispute between GEMA (performance rights organisation) and Google on the YouTube 
streaming fees. Source: http://www.nytimes.com/2009/04/03/technology/internet/03youtube.html?_r=0 
3 The Death and Life of the Music Industry in the Digital Age. Location 2644 (Kindle Version) 
4 The Death and Life of the Music Industry in the Digital Age. Location 2646 (Kindle Version) 
5 Intermediaries is what Rogers describes earlier as 'such technological developments, which enable the distribution 
and promotion of music online, have revolutionized the industry's core structure by enabling interface between 
artists and consumers like never before.' The Death and Life of the Music Industry in the Digital Age. Location 77 
(Kindle Version) 
6 Radio in the Digital Age p. 39 
7 Radio in the Digital Age p. 45
9 
Even the transition from digital radio to streaming radio does not necessarily affect the 
established limitations, even though initially and on the surface it is presented as a radical 
change in the phenomenon of gatekeeping. Streaming radio services like Pandora, iTunes 
Radio and Spotify radio have mainly worked musicologically so far with automated 
recommendations. Dubber explains how this intelligent curation works here: 
That [musicological stream] is, the song that you like is of a particular 
musical genre, key and tempo, and has been coded with certain 
characteristics such as male or female vocal, instrumentation and other 
characteristics of the arrangements, and so on. So Pandora will play you 
other music that shares those musicological characteristics. That it serves a 
function as an individualised, tailored musical experience is what it shares 
with some other online music services (…) 8 
This, albeit typical of modern streaming radio, is not going to be the only 'method' of 
recommendation for this new radio model. And this is exactly the crossing point where 
traditional media converge with streaming services: human curation. Human curation is the 
trend that will monopolise the attention of all competitors in the next few years. It is set 
forth as a solution to the negative reviews that the restrictive nature of automated intelligent 
recommendations has received from the more engaged part of the music audiences. Efforts 
towards a more expansive discovery approach were first covered by apps integrated in 
streaming services, and more specifically apps on Spotify that enabled the traditional media 
with their 'monitoring' talents to create, suggest and curate playlists e.g. BBC Playlister, 
Pitchfork, Guardian, NME, Rolling Stone Recommends etc. These expert recommendation 
apps give us however, what we already know; they make it easier, but we can still find it on 
the radio and magazines. If Spotify is marketed and promoted as a medium for discovery, 
before anything else, is this the best it can do? No, streaming services are taking the next 
step in human curation and gatekeeping. 
8 Radio in the Digital Age pp 99-100
10 
2. The new people. These new faces will be the gatekeepers of streaming services and for 
now, nobody really knows who they will be, or if they will ever be known to the audience. 
Probably the latter could work so as to diminish their importance to the level of 'employees 
assisting individual discovery'. This would result in the emergence of a more discreet and a 
lot less self-conscious taste-making. The conditions of this task, though, are far from 
enigmatic when the streaming service is an amalgamation of all the major labels. One of 
these cases is Spotify, and the progress so far speaks for itself. The new discovery channel 
curated by Spotify and named Spotlight is advertised as a very promising tool for discovery. 
It is described as “a new home and editorial voice within Spotify for new, exclusive and 
hand-picked content from both new and established acts”9 and at a certain stage aspires to go 
'local' and suggest more specific acts to each country. Considering that Spotify has already 
launched in 28 in the past five years, this is an ambitious project. But this plan is a long way 
from now and the selection of artists suggested as the breaking-stars so far seems like a 
farce. It includes artists with already million hits, such as Haim and Lorde, and as Stuart 
Dredge puts it, 'it makes you wonder if this is for a certain class of emerging artist 
already anointed by the industry as the next big thing'10. To this question, Will Hope, 
Spotify's Director of Label Relations answers that Spotlight is not going to be a 
label/branding partnership but rather a 'data-driven approach' that will allow the team to find 
the artists that are doing well on Spotify at an early stage of their career. 
Spotify, on the other hand, will not restrict its discovery proposal to playlists and promoted 
suggestions. Daniel Ek, who is the company's founder and CEO, believes that music 
recommendations and discovery is a priority in comparison to a huge music collection, and 
according to the Wall Street Journal he had already appointed 200 human curators by 
summer 2013 to organise music for Spotify's next browsing feature11. Spotify is not the 
9 Source: http://musically.com/2013/10/01/spotify-launches-artist-spotlight-feature-with-haim-and-lorde/ 
10 Source: http://musically.com/2013/10/01/spotify-launches-artist-spotlight-feature-with-haim-and-lorde/ 
11 Source: http://online.wsj.com/news/articles/SB10001424127887323420604578652301245297268
11 
innovative mind behind this idea at any rate. They basically come second along Deezer 
which too calls human recommendations their mantra for the immediate future12. The first 
streaming service to suggest human curation was Daisy, Trent Reznor's and Dr Dre's 
streaming service. Although Daisy is yet to be launched, it has based all along its potential 
on human curators which it calls 'connoisseurs'13. The 'depth of personalisation' is the main 
idea that the Daisy founders were counting on for the service to offer a new perspective in 
the market and 'differentiate itself from the many competitors in the space'14. This idea has 
been propagated for so long only for the already established streaming services to endorse it. 
Human recommendations is not a gain for Spotify's discovery pages, for its apps or its users' 
playlists only. Nor will it solely be considered the result of the unification with the social 
media – where you can follow people or see what they're streaming on their social profiles. 
Human curation is also a scheme inspired as a compensation for the automated radio 
suggestions currently used for the radio option of those streaming services. Here, it is worth 
to mention iTunes radio which will be launched in early 2014 and can boast over its over 
250 DJ curated stations. 
What is important to understand is that discovery is different from curation. Gatekeeping 
will always exist and that is not necessarily a big problem as long as it we recognize that it is an 
option rather than the norm. Digital age's main feature is undoubtedly interaction and if interaction 
is so widely facilitated, that means that we are not limited to a small number of people to rely on for 
access to new music. So gatekeeping might be a preexistent problem transferred to the new state of 
things, along with the major interests which undoubtedly remain in the market, but this curation is 
somehow better and can be regarded as a solution to mainstream music dominance. The realisation 
12 BPI. Digital Music Nation. p. 32 
13 Source: http://www.forbes.com/sites/bobbyowsinski/2013/07/10/can-beats-daisy-be-a-player-in-the-new-music-world/ 
14 Source: http://www.theverge.com/2013/10/7/4813776/beats-coo-luke-wood-says-his-streaming-music-service-will-launch- 
this-year
12 
that balances discovery and curation is one: Re-distribution. 
1.2. Piracy 
Distribution, which is directly connected to the majors and the gatekeeping as it existed for 
half a century now, is revisited in new terms. The 'few' established artists who are more than 
wealthy compared to the independent ones or less successful ones will have to deal with the 
emergence of the long tail. Its turn has come and it offers a wide variety15 of artists almost as many 
opportunities to be discovered. The industry that everyone complained about, even the successful 
artists who were totally exploited through 360 degrees contracts, is failing. The major stars and 
creations of the same industry are falling along with it to a certain level where competition is more 
fair. People can now choose; the gatekeeping still exists but there are so many more choices that the 
gates cannot stop the flood. So how did that happen? 
It all started with piracy. Piracy is wrongly considered by many a problem of the digital age. 
It is a symptom of the industry's inability to distribute sufficiently. So even if piracy is a 
phenomenon that spread mostly as a digital disease, it is the digital age and streaming that also 
started its cure. For BPI's Chief Executive, Geoff Taylor, there are two factors that will determine 
the elimination of piracy: first, 'the growing appeal of streaming services, from Vevo to we7, 
Spotify, Deezer and Rdio' and secondly, 'the progress on blocking illegal sites and delisting illegal 
search results'16. Spotify's action speaks in numbers in Sweden and the Netherlands, confirming that 
it justifiably founded its brand on the reality of piracy. Its claiming to be 'a compelling legal 
alternative to piracy' 17 mainly alludes to its free, ad-funded version which also is the most popular 
one. This happens by it luring file-sharers and users of P2P18 networks away from piracy by 
15 With variety I mean artists of different genres, from different places around the globe and artists who appeal to niche 
markets as well. 
16 BPI. Digital Music Nation. p. 3 
17 Source: https://www.spotify.com/uk/about-us/labels/ 
18 Peer to peer networks are de-centralized networks where the users act similarly as in what Dubber calls 'Registration 
and Conversation Tele-Information Services' and where 'the supply of information by a user of the information 
service and not by the service itself' Radio in the Digital Age p. 41
13 
allowing non-subscription access to a vast music catalogue and by developing features that help 
discovery almost like piracy. An even bigger win against piracy is Spotify's achievement of a good 
level of conversion from free users into paying subscribers. Now there's a 20%+ of active users that 
convert to the paid premium service19 instead of just paying half the sum for the ad-free updated 
version. The latter of course does not offer the privileges of offline streaming and synchronization 
with portable devices. It is this conversion on which Spotify relies to combat piracy. Without the 
conversion, the freemium model can start the elimination of piracy but it cannot bring the 
company's wishful thinking to fruition20. The conversion percentage is 'astounding' news for Ek 
himself21 and it can viewed as promising as long as Spotify keeps pursuing licensing deals for all 
the music in the world, hard as it may be. Tommy Darker, the London-based founder of the Darker 
Music Talks, is an artist and a demanding music fan, exactly like the 10%22 of hardcore 'pirates' who 
take over half the content on these P2P networks (52%) and are yet to be sufficiently indulged into 
legal streaming. Their thinking is possibly similar to his : 
I don't mind paying £10 per month for all the music that I want. But for now it 
doesn't exist. There isn't everything that ever existed on Spotify, so for now it's not 
good enough. For them to get better conversions, they need to get all the music. This 
is what they will keep funding, till they get it. This means that probably 70% of that 
money [from investment rounds] will go into deals. (personal interview) 
So, the largest segment of the 'evil file-sharers', the 68%, is not difficult to convert since they only 
occupy a limited position and account for 20%23 of content transfers24 which are easier to find on 
streaming services. The demanding audience is the one that needs to be persuaded and satisfied up 
to a level where 'ownership' as an issue will be overlooked. Satisfaction from digital consumption 
19 IFPI. Digital Music Report 2013: Engine of a digital world. p. 14 
20 All of their users (both free and paying subscribers) spend twice the amount of money on music through 
subscription than the average downloader. Source: https://www.spotify.com/us/about-us/artists/get-paid-from-spotify/ 
21 Source: http://online.wsj.com/news/articles/SB10001424127887323420604578652301245297268 
22 Will Page. Adventures in the Netherlands: Spotify, Piracy and the new Dutch experience. p. 3 
23 Will Page. Adventures in the Netherlands: Spotify, Piracy and the new Dutch experience. p. 13 
24 Will Page. Adventures in the Netherlands: Spotify, Piracy and the new Dutch experience. p. 13
14 
can be a tough call considering that the UK market in 2011 displays a 65% interest in music 
ownership – a number that has increased since 200925. Τhis actually makes sense and obtains more 
gravity when we see that 54% of money spent on music in 2011 was specifically on CDs, not even 
downloads26. 
Bearing in mind that the equation 'free play=exposure=sales' has been appropriated as an 
argument standing for piracy – especially if sales stand for general revenue instead of just physical 
or digital purchase -, Spotify can be viewed as an extra revenue-making mechanism for the industry. 
Since piracy is an indubitable reality in the music distribution, legal streaming services such as 
Spotify are an alternative because of their vision of ampleness in music choices and access to the 
Long Tail. With the blocking of illegal streaming sites and torrents, Spotify is even closer to being 
the alternative they wish to be. Tommy Darker believes that Spotify is a good thing simply because 
the Internet will be everywhere in the next couple of years: 'Google is already preparing balloons 
that will be broadcasting internet, which means all the streaming services will offer music for free 
to anyone...so that means abundance of music'. He also claims that even the freemium, ad-funded 
model can make a huge profit. But this huge profit is yet to happen. Unfortunately, the 
acknowledgement that the conversion of the large mainstream segment is successfully taking place 
comes along the acknowledgement that piracy still wins. More specifically, despite the legal-illegal 
ratio of users being 2 to 127, the illegal users consume more material. For example, in the 
Netherlands the least active 68% of file-sharers take 5 files or less -and it is the 68% that is easier to 
convert to legal users as seen above-, accounting for only 20% of the content, while the most active 
10% take 52% of files28. 
The 2 to 1 ratio and the other findings do not negate Spotify's contribution in the combat 
against piracy both in the Netherlands and the company's home country Sweden, where streaming 
25 BPI. Music Consumption in the UK. p. 10 
26 BPI. Music Consumption in the UK. p. 8 
27 BPI. Digital Music Nation. p. 19 
28 Will Page. Adventures in the Netherlands: Spotify, Piracy and the new Dutch experience. p. 12
15 
and digital sales have been gradually rising since its launch; the streaming revenue in fact rose to 
+79% in the first quarter of 2012 according to Sweden's IFPI body, GLF29. At the same time, there 
is a bigger picture to look at. However optimistic and self-congratulatory Spotify is in its report 
Adventures in the Netherlands where it also refers to the similarities between the progress in both 
countries, the GLF report states that piracy is still a big problem in Sweden even if the situation has 
considerably ameliorated in the past few years. It might be a solution but there is no more proof if it 
is a conditioned success that depended on factors such as the Dutch and Swedish culture and 
population as Dan Reilly puts it, because it is a 'an unfairly narrow sample'30. It is like a slow 
fundraising process where Spotify asks for companies and audiences to give them money promising 
to reward them with value and privileges in return. But you cannot make the same fundraising 
proposal to everyone. 
1.3. Royalties & digital sales 
These two constitute a concern that comes right after the question about piracy because 
piracy is obviously contiguous to labels and artists' interests. The actual problem culminated around 
2007 and was transferred to the new situation as a new, yet different problem, even though it is a 
mutated inherited thing. Spotify is already blooming to an advantageous, fully licensed service with 
over 20 million songs31 including a huge back catalogue collection from all the majors, and a 
growing collection that is acquiring through licenses with independent publishers, aggregators, and 
artists; it already has over 6 million paying subscribers to the premium service which maximizes the 
29 Grammofonleverantörernas Förening. Press Release. GLF's statistics on music sales in Sweden - first half of 
2012:Music sales are growing strongly. 
30 Source: http://www.spin.com/articles/spotify-piracy-study-festivals-thom-yorke/ 
31 Source: http://news.spotify.com/us/2013/10/07/the-spotify-story-so-far/ For the sake of a rounder perspective, I 
must mention that Deezer, the french streaming service that is available in around 182 countries (IFPI. Digital 
Music Report 2013 p.15) offers access to 'approximately 15m tracks' according to Jim Rogers in The Death and Life 
of the Music Industry in the Digital Age (2013). Same with Grooveshark. Grooveshark was accused of operating 
with insufficient licenses (only one license agreement with EMI (Source: 
http://www.theguardian.com/music/musicblog/2011/sep/09/behind-music-grooveshark) and is now strategically 
moving toward its brand's recovery. Allowing users to share their own files (P2P), it was regarded by many as the 
ideal place to find music. Still it only claims to have around 15m files (Source: http://www.grooveshark.com/press)
16 
revenue for the company. And yet, it looks as if everyone is complaining and suing against the low 
royalties; but not necessarily Spotify... Spotify is paying. It might not be a lot but its part is 
accomplished with transparency since it does not only pay labels but independent artists too through 
aggregators with the provision of extensive reports. Why it looks a little is for a variety of reasons 
starting with the 'function' of the service and its value proposition. First of all, streaming works 
differently to anything we knew until now. Secondly, it is not the alternative to piracy as it 
professes; it is not here to solve the problems that always existed but it is the evolution of the same 
industry, a new model that is tested. It is going through a transitional period. 
Even though digital sales and downloads have been around a bit longer than subscription-based 
streaming services, they too still cause trouble. According to the MU assistant general 
secretary Horace Trubridge "The record label isn't incurring the same kind of costs online as it does 
with physical retail, but labels have been screwed by piracy, so they insist on applying the same 
rules to digital as they do to physical."32 In two lines Trubridge managed to point out the 
preexistence of a problem, avoiding however to mention that artists interests have been screwed 
both by the labels and the phenomenon of illegal distribution combined with copyright 
infringement. David Byrne, who has fierily criticized Spotify, explains this problem that Trubridge 
simplifies, more analytically in his book 'How Music Works': 
(...)the cost of all the services a record company provides, along with their overhead, 
accounts for a big part of the price of a CD. You, the buyer, are paying for all those 
trucks, all those CD-pressing plants, all those warehouses, and all that plastic. Only a 
small percent of the retail price is for the music. Theoretically, a digital distribution 
increases and much of that overhead goes away, those costs should no longer be 
passed along to the consumer – or to the artists.'33 
So it is not a quick assumption to think that the royalties issue is the industry's fault, only boosted 
by the technological developments of our time; equally with streaming, where majors play a 
32 Source: http://www.theguardian.com/media/2013/oct/25/spotify-artists-sue-labels-music-streaming 
33 How Music Works. p. 224
17 
grandiose role, it is not a new problem inflicted by Spotify on the otherwise sustainable career of 
the artist. Swedish Musicians' Union lawyer Per Herrey explains how the royalties that Spotify 
pays are a major cause for dissatisfaction for the artists/performers: 
'Though the Spotify streaming rate fluctuates according to the revenue from 
advertising and subscriptions divided with consumer usage, this means that if the 
service pays an average of 0.5p per stream, these artists make no more than 0.05p 
from it – or, put another way, they make £500 for 1m streams, while the label pockets 
£4,500. Add to that the shares the labels own in Spotify and the money they stand to 
make if it goes public – and the "access fees" that digital services pay major labels in 
order to get access to their catalogues – it no wonder that the labels are hailing 
streaming as the future.' 34 
This proves exactly what Trubridge and David Byrne explained; ironically the latter managed to 
deconstruct the industry in his book and still is a Spotify sceptic35. As a result of the aforementioned 
procedure the majors get paid more, but not the artists, and this is not something very different to 
most deals artists used to get in the CD era, especially the 360 degrees and the standard royalty deal. 
The majors that now are equity investors in Spotify get a percentage of the revenue equal to their 
marketshare. As a pro-Spotify blog Spotidj explains 'Deals with the big labels are not about streams 
[what I would think relevant to single downloads] but about pieces of the pie' 36 and the revenue will 
be equivalent to the share unless the number of streams exceeds that amount. It makes perfect 
sense and it is very similar to what is called 'recoupability of minimum fee'37 in the radio 
broadcasting and webcasting sector. When it comes to radio broadcasting, a blanket license is paid 
per channel per month or year but certain rates are announced for each year that are submitted to 
PROs such as SoundExchange38 once the use of the copyrighted material by the channel exceeds the 
pre-arranged fee. 
34 Source: http://www.theguardian.com/media/2013/oct/25/spotify-artists-sue-labels-music-streaming 
35 Source: http://www.theguardian.com/music/2013/oct/11/david-byrne-internet-content-world 
36 Source: http://www.spotidj.com/spotifyroyalties.htm 
37 Source: http://www.soundexchange.com/service-provider/commercial-webcaster/commercial-webcaster-crb/ 
38 SoundExchange is the independent nonprofit performance rights organization that collects and distributes digital 
performance royalties to featured artists and copyright holders. (Source: http://www.soundexchange.com/about/)
18 
The controversy about Spotify has been clearly set in the distance between various artists' 
arguments rather than the distance between artists arguments and Spotify's defence. On occasions 
such as the Musicians Union's demand for a new royalties deal from Spotify, after established artists 
like Thom Yorke pull albums off the platform39, voices like Billy Bragg's emerge to underline the 
obvious that if the rates were as bad, the majors would not get on board, or stay on board as it is40. 
In point of fact, Spotify pays out almost 70% of all its revenue to right holders41, so how much more 
can the royalties rise? Furthermore, the current disappointment lies on the the ephemerality of these 
circumstances and it is only a current thing as a number of industry people claim. Tommy Darker is 
strict when he's saying that people arguing about Spotify royalties are arguing about the wrong 
thing: 
The royalties are not something to talk about now. It's a very premature thing. 
They're going to evolve. I think Spotify definitely wants to be the major player to 
demonstrate power like Youtube does. No-one complains about Youtube because it 
pays. Spotify in the future is going to be Google of streaming music. Google is the 
giant of information and Spotify will be the giant of streaming music. (personal 
interview) 
Spotify itself officially states that the royalty payouts are growing dramatically each year because of 
their increased popularity42, which means more free users and subsequently more paying subscribers 
as the conversion ratio shows. Music lawyer Donald S. Passman advocates the same belief that 
artists did not earn much either when the CDs were first introduced, but this will change for the 
streaming services once it becomes mainstream and 'those subscriber ranks grow'43. This confirms 
the statement on page 15, that Spotify is a new model to be tested, and not something that is here 
just to be an alternative to piracy or solve the industry problems of the last generation. Artist Dave 
Allen contests in turn this easy and unprocessed disapproval of streaming services by a large 
39 Source: http://www.theguardian.com/technology/2013/jul/20/spotify-radiohead-musicians-union-rights 
40 Source: http://www.theguardian.com/technology/2013/nov/07/billy-bragg-spotify-artist-payouts 
41 Source: https://www.spotify.com/us/about-us/artists/get-paid-from-spotify/ 
42 Source: https://www.spotify.com/us/about-us/artists/get-paid-from-spotify/ 
43 Source: http://www.nytimes.com/2013/01/29/business/media/streaming-shakes-up-music-industrys-model-for-royalties. 
html?_r=1&pagewanted=all&
19 
portion of the industry: 'It is hard for me to understand why intelligent people like David Byrne and 
Thom Yorke do not appear to understand that we are in the midst of new markets being formed.'44 
Here it must also be reminded that it is not Spotify's choice alone to pay these royalties. 
Instead, John Schaefer explains that in 2007 the Copyright Royalty Board that decides the royalty 
rates when needed, was convinced by Pandora -which was also supported by Spotify- to discount 
internet rates until 2015. The IRFA is meant to permanently fix the rate45. Schaefer also points out 
that even a fix 'may be premature' as everything is still open and that 'try[ing] to legislate today for 
something that’s likely to be around in a very different form in a relatively few years is a fool’s 
errand'. Tommy Darker adds to this that royalties in the future might depend on another 
development. If Spotify goes public – something that will be discussed later in the paper –, the rates 
might improve but to Tommy 'this is quite fluid, it's part of the stoke market which means that they 
could go up or down at any time' (personal interview). 
Last but not least, it is an important point to make that even if royalties remained at this low 
percentage for the artists, the idea behind streaming and access instead of ownership is to invest and 
wait for the results that will come in the long run, and which will offer a longer lifespan for an 
artist's income as well. Spotify Account Manager of Label Relations Katie Schlosser says that 'In 
the lifetime of a consumer on Spotify, there's an inflection point where the download of one 
individual track is overtaken by the actual amount of streaming that an individual user does on that 
track over time on a streaming music service.'46 IFPI also presents this different model positively in 
their 2013 report where Robert Litsén, COO of Swedish-based Cosmos Music Group, says that 
“With subscription, you need to look across a longer timeframe to see a return on investment'47 
because the amount you pay every time you stream might be smaller but it can continue 
indefinitely', clearly presenting a partly-established truth that 'transaction is the new purchase' as 
44 Source: http://www.theguardian.com/commentisfree/2013/oct/16/why-david-byrne-wrong-spotify-thom-yorke 
45 Source: http://soundcheck.wnyc.org/story/252469-internet-radio-fairness-act-explained-sort/ 
46 Source: http://www.digitalmusicnews.com/permalink/2013/20130510spotify 
47 IFPI. Digital Music Report 2013: Engine of a digital world. p. 16
20 
Tommy Darker attests (personal interview). Therefore, the question of whether streaming affects 
downloads or not, must be rephrased into 'does streaming relate to downloads?'. Spotify answered 
the question long before by removing the 'download' feature for single tracks from the platform in 
January 2013 in an effort to 'simplify the service' 48. The discrepancy between access and purchase 
ought to be a difference, and it will be even more obvious once the transitional, test period for 
streaming is completed. For now, Spotify, as it is only natural, adopts a collaborative approach to 
digital retail in order to shield its position in the marketplace: 'Spotify represents a new, additive 
revenue stream for our label and artist partners that supports and complements traditional download 
services.49' However, they know well that it is not their responsibility or obligation to relate to a 
value proposition far from their own. 
48 Source: http://www.telegraph.co.uk/technology/news/9780904/Spotify-removes-music-download-feature.html 
49 Source: https://www.spotify.com/us/about-us/artists/get-paid-from-spotify/
21 
Chapter 2: The context of evolution 
'To improve is to change; to be perfect is to change often.' Winston Churchill 
As mentioned before, streaming is something new; it is not something entirely new since it 
is the evolved model of the music industry and it has common features with the previous models. 
Nevertheless, it still has to be liberated from expectations and cultivate its full potential which is yet 
unknown and that is why we cannot restrict it within pre-established moulds. Technology shapes 
our social existence in ways we would not have imagined decades before. Music is social and will 
be shaped accordingly. Hence, it is very important to realise that streaming might be something 
new, but the evolution of the music industry is not. Tommy Darker describes the way structures 
supersede one another concluding that 'what people see is music becoming more and more abundant 
and easy to access which means that every industry is killing in brackets the previous industry, but it 
is not doing it; it is just changing' (personal interview) (see Technology section p.21). Reaction to 
change must be a self-preservation mechanism and Tommy Darker's realistic interpretation is that 
the people reacting simply 'want to keep making money the way they already know'. But why the 
evolution to streaming now, especially when another evolution took place two decades ago with the 
CD-boom? Why now, when the most recent one took place when iTunes launched the iTunes Music 
Store in 2003? The quick answer is 'because technology develops pretty fast'. Well, once again, it is 
not just that. 
2.1. Factors 
Social (R)evolution 
It is not about technology; it's about systems and societal shifts. It's also about music 
business bubbles. 50Dave Randall 
The prerequisite for the industry's evolution to take place rapidly might have been 
50 Source: http://www.theguardian.com/commentisfree/2013/oct/16/why-david-byrne-wrong-spotify-thom-yorke
22 
technological development but the evolution itself was precipitated mainly by social factors. 
Technology followed the shift in society and the demands that this shift urged. Social shaping 
theorists view 'technological innovations and evolutions as the products of struggles and conflicts 
and struggles between different interest groups in society, many of which are removed from any 
predominantly technological logic or trajectory'51. And this is true about the music industry 
evolution, or in this case...revolution. It is inevitably linked to a highly consumerist society where 
demand keeps increasing (also with the help of technological developments). The alternative name 
for the streaming services like Spotify is 'on-demand', and this is because users have the privilege to 
have access to anything they want, the moment they want it, simply because they demand it. 
Consumers throughout history have been made to believe that 'they are always right' but 
when it comes to the market in general, there's a different space for different consumers. Society has 
long time now left behind the elitist practices of music through a gradual evolution of formats. The 
reason why this evolution to digital and streaming services is occurring is the need of more people 
to listen to more music, especially because more artists have the opportunity to go public and 
demand attention. The latter is not simply because technology allowed the DIY approach to music 
creation and publishing, or the rise of the Long Tail, but because modern society allows the thought 
of creativity to flourish in individuals more than ever before. The more the social and cultural 
boundaries expand, the more the human rights ideal is rooted in the heart of civilization, the more 
the empowerment, the confidence and the need for self-expression. So once again this is social. 
Dubber makes extensive use of sociologist Manuel Castell's sayings to point out that 'we do not 
simply inhabit but also, importantly, constitute the media environment within which we find 
ourselves'52. Castells according to Dubber makes clear that the underlying prerequisite for the 
existence of social unevenness is ironically the collectivity of human beings. This collectivity 
constitutes the media environment and the digital tools that facilitate their communication are the 
51 Jim Rogers. The Death and Life of the Music Industry in the Digital Age. Location 384 (Kindle Version) 
52 Andrew Dubber. Radio in the Digital Age p. 33
23 
points of connection and separation53. On these opinions we can base the argument against the fault 
of streaming services and against the allegations that they decrease the digital sales or change the 
economy for the worst54. The people are the ones that lead the way in consonance with their needs. 
Within the specific conditions of (1) abundant distribution and (2) global economic crisis, people 
cannot afford to pursue more than a limited amount of songs, and those songs would naturally be 
the ones from their favourite artists. If those artists are their favourite indeed, they would be able to 
listen to them in a year maybe -it depends- 140 times. The popular point for the Spotify supporters 
is that for a 99c sale of a track on iTunes an indie artist gets 70c and you need 140 Spotify streams 
to make the same 70c55. On subscription based streaming services music fans listen to more music 
that they normally would, because they listen to music they would not necessarily buy and at the 
same time produce revenue for those artists that are not on their priority shopping-list. Daniel Ek 
explains that 'Sure, you're going to stream that Rihanna song five or 10 times, but you're also going 
to listen to David Bowie's entire back catalogue, which you might not have gone out and purchased' 
adding that 'Those are two very, very different behaviors56'. Those behaviours are both permitted 
and promoted by Spotify. So the reality call is that people who stream music, do it simply because 
they can and because until recently they did not have as many options. This will in turn create a 
more balanced industry income. Now consumers can browse more easily, try more artists and while 
doing so, promote (through Spotify's social features) those songs to other listeners. This will be 
beneficiary for most artists, eventually. 
The 'democratisation' of music is two-sided; it is for the audience and the artists. Katie 
Schlosser says that streaming is all about the Long Tail value proposition of each individual user57 
and this is were music egalitarianism appears. Streaming services actually offer a chance for 
53 Andrew Dubber. Radio in the Digital Age pp 33-34 
54 In reality, these accusations have not been sufficiently proven and Spotify responsibly claims that 'In every territory 
where Spotify has launched, digital download revenues have sustained their growth, and in some cases have even 
accelerated.' Source: https://www.spotify.com/us/about-us/artists/get-paid-from-spotify/ 
55 Source: http://www.spotidj.com/spotifyroyalties.htm 
56 Source: http://online.wsj.com/news/articles/SB10001424127887323420604578652301245297268 
57 Source: http://www.digitalmusicnews.com/permalink/2013/20130510spotify
24 
equality and balance, more justice for artists that are unable to get a contract with a major but 
they're really good. It extends to a social circumstance where also consumers for the first time are 
within an even territory. Ironic as it is now that no-one’s is sufficiently paid yet, it is at least 
comforting to see that we have reached the level of music egalitarianism, where everyone gets a 
chance to around the same amount of money and attention. Naive and idealist as this may sound, an 
independent artist might not be backed by a major with intensive marketing strategies and sold-out 
concert opportunities but an independent songwriter who is also the performer in their own songs 
will get a lot more from the distribution of their music on different streaming services, and 
depending on the aggregator a small front fee might be their only expense58. Of course independent 
artists cannot compete with the likes of the industry's commercial giants such as Taylor Swift, but 
when it comes to a single streaming of their song, they will get a bigger percentage in royalties! As 
Chris Anderson remarked early in the rise of the digital age 'the emerging digital entertainment 
economy is going to be radically different from today's mass market. If the 20th- century 
entertainment industry was about hits, the 21st will be equally about misses.'59 
A last point to be made in this section is the one that is sometimes taken for granted and 
which is that music is along the people the reason of the evolution. The needs of the people concern 
music, because as Spotify declares on its website 'Music is Social'60. It is a social phenomenon that 
helps in the evolution of society and the success of technological developments. Both Plácido 
Domingo and Frances Moore, the Chairman and Chief Executive of IFPI respectively, affirm that 
music is behind all innovation and that it is 'an engine of the digital ecosystem'61. 
Technology 
To be fair, the evolution is influenced bilaterally. It might have been the capitalist, 
58 e.g. Tunecore http://www.tunecore.com 
59 Source: http://www.wired.com/wired/archive/12.10/tail.html?pg=1&topic=tail&topic_set= 
60 Source: https://www.spotify.com/uk/about-us/artists/what-is-spotify/ 
61 IFPI. Digital Music Report 2013: Engine of a digital world. pp 4-5
25 
consumer-centred economy that led to demand but as we saw, this demand rose higher with the use 
of the internet and the emergence of the Long Tail that was entirely buried underground for niche 
audiences to enjoy. Anderson blames the poor supply-and-demand matching for the quick 
assumptions about popular taste, calling it 'a market response to inefficient distribution'62. So the 
mass never knew what they were missing out, just like Plato's Allegory of the Cave63 suggests. So 
technology is a major factor in the development of the streaming services. 
The sequence of the technological developments that helped the music industry monopolise 
all significant profit in the music world goes like this. Music has also existed as an elitist 
commodity confined within the concert halls' walls when sheet music circulated and it started being 
played in people's living rooms. And then the gramophone record arrived and they thought it was 
killing the sheet music. Afterwards the compact cassette was introduced and later on the compact 
disc followed. The latter proved to be 'a real boom technology for the record industry' and opened a 
decade of super-profits driving global revenues to a record high of US$38.7 billion in 199964. More 
specifically, due to the technological evolution the record industry's value rose from $109 million to 
£38.7 billion between 1940 and 199965. The subsequent decline and loss in profit that the digital and 
internet age caused are only a side effect of technology, and the inevitable repercussions of 
transition. But it is only for the music industry and not the music world as we must keep in mind. 
The gigantic steps forward that the tech world is making everyday are generally observed from an 
independent perspective. This happens because nowadays society is so widely tech-dominated that 
the majority fails to see the connection between the sociopolitical environment and the 
technological development. Technology is advancing very fast and at this stage the one discovery is 
outmoded by the next in a chain reaction process. For example, the transition from the first wireless 
62 Source: http://www.wired.com/wired/archive/12.10/tail.html?pg=1&topic=tail&topic_set= 
63 In this allegory, Plato describes a number of people being chained under the earth facing a wall. Behind their back 
there's a fire and when things pass in front of the fire they see the shadows of those things, but never the things 
themselves. These shadows are their reality. Only when someone breaks away from the chains (the philosopher) and 
sees, they can free themselves of the illusion and that, only if the philosopher comes back to share the truth with 
them. 
64 (IFPI, 2000) The Death and Life of the Music Industry in the Digital Age. Location 308-309 
65 (IFPI, 2000) The Death and Life of the Music Industry in the Digital Age. Location 308-309
26 
products to 3G and 4G smartphones did not take long and these quick changes were the ones to 
precipitate the ripening of streaming services. 
Since this is more of a theoretical chapter, specific technological developments that confirm 
their participation in the evolution of the industry are mentioned in 2.2. 'The evolved players' pp 27- 
31, and 3.3. 'Future' pp 41-44. 
Other 
Other factors which are inevitably social but transcend the theoretical approach I took in the 
first section, have also contributed largely in the early domination of the digital market and 
streaming. They have to do more with the practical evolution, the one incited by financial interests 
and capital and the one which incited in turn the social 'revolution' described above. Most of those 
factors mentioned laconically below are one way or another associated once again with insufficient 
distribution. 
• Physical Limitations: According to Chris Anderson, the limitations of the physical world 
was the basic problem that caused insufficient distribution and by extension digitisation and 
the rise of the long tail (which is central in the evolution of the streaming services as seen 
before). The need to find large local audiences and not niche ones made the retailers 'carry 
only content that [could] generate sufficient demand to earn its keep'66. Moreover, 'physics 
itself' enhanced these restrictions since 'broadcast technologies (…) profligate users of 
limited resources'67. 
• Majors: If we are to support the theory that technology did not cause the change out of no 
where, but followed the symptoms of a certain failure in the industry, we must turn to 
another factor, the capital that controls the entire modern society; it gradually devoured the 
music industry and turned it into any other industry driven by a small number of majors. 
66 Source: http://www.wired.com/wired/archive/12.10/tail.html?pg=1&topic=tail&topic_set 
67 Source: http://www.wired.com/wired/archive/12.10/tail.html?pg=1&topic=tail&topic_set
27 
Music turned into a tangible commodity and competition was no longer just a matter of 
audience's choices. Jim Rogers elucidates this history of greed in the major record labels that 
climaxed through actions of price-fixing in a crystal clear manifestation of negligence 
towards the interest of their own audiences. Rogers also uses an observation by Longhurst 
where 'a House of Commons Committee monopoly enquiry into the overpricing of CDs in 
Britain in the 1990s ]which] concluded that copyright restrictions artificially inflated CD 
prices by restricting the import of cheaper recordings'68. 
• Supermarkets: Overpricing, ironically enough, joins powers with the seemingly 
contradictory Walt-Mart model, which might be reducing the price of the product in an 
effort to sell more but which is 'extraordinarily elitist'69 nevertheless. When supermarkets 
chains such as Walmart in the U.S. And Tesco in the U.K were admitted into 'the arena of 
music retailing in the 1990s' Walmart in the United Sates and Tesco things were bound to 
change. By 2008, such chains represented 65% of all physical record sales in the United 
States70. This is when 'the negotiating power of giant supermarket chains and their in-store 
pricing structures' trimmed retail prices of recordings and as a result drove overall sales 
revenues downward.71 
This happened because as Chris Anderson made clear, the physical limitations are also set 
audience-wise and supermarkets, as physical stores, promote 'a limited selection of 
discounted releases to bring in customers'72. Because of the supermarkets the problem of 
physical sales low revenue was caused even before the digital era. The realisation that the 
'death' of the physical album preceded the era of internet and digital retail is one of extreme 
importance. However, it is also important to open a parenthesis at this point and note that 
68 The Death and Life of the Music Industry in the Digital Age. Location 330. 
69 Source: http://www.wired.com/wired/archive/12.10/tail.html?pg=1&topic=tail&topic_set 
70 Cited by Nielssen Soundscan in The New York Times, 1 January 2009. The Death and Life of the Music Industry in 
the Digital Age. Location 1082 (Kindle Version) 
71 Jim Rogers. The Death and Life of the Music Industry in the Digital Age. Location 1100 
72 Source: http://www.theguardian.com/music/2013/nov/02/is-music-album-dead-us-worst-ever-sales-figures
28 
physical still accounts for the majority of industry revenue73. Also, the word death is an 
overwhelming, over-the-top choice and actually alludes to the continuously reducing 
demand for physical in contrast to the increasing demand for digital. This demand led to the 
digital music switch over in Q1 2012 when 'digital income accounted for over half of all 
recorded music income for the first time'74. 
Now, in the digital age, physical stores continue the effort to be leading forces in the digital 
music retail industry and thus have widely contributed in the switch over, not over in the 
switch over to digital retail, but in the quick expansion of subscription streaming services. 
Streaming now (2013) accounts for 16%75 of the music industry revenue and is backing 
digital services. Streaming services have also been partnering with tele-communication 
companies, car companies etc. in order to establish themselves in the everyday life of the 
music consumers (see Chapter 3: Future pp 41-42), so it is no wonder how major stores have 
joined the parade when numbers speak of a highly profitable future for these services. Some 
examples are Media Saturn, which actively promotes its own subscription music service 
JUKE to traditional music buyers76 and Tesco which in summer 2012 acquired the We7 
music streaming service.77 
2.2. The evolved 'players' 
The reasons behind the evolution to streaming are as important as the recognition of this 
evolution as a reality to which the industry and the music world must comply. Music has been 
turned from a product that could be purchased to a service; the first official streaming chart was 
launched in 2012 in the UK78 and right now 4 out of 5 people are aware of streaming services as an 
73 IFPI. Digital Music Report 2013: Engine of a digital world. p. 9 
74 BPI. Digital Music Nation. p. 17 
75 Source: http://www.theguardian.com/music/2013/nov/02/is-music-album-dead-us-worst-ever-sales-figures 
76 IFPI. Digital Music Report 2013: Engine of a digital world. p. 15 
77 Jim Rogers. The Death and Life of the Music Industry in the Digital Age. Location 1084 (Kindle Version) 
78 BPI. Digital Music Nation. p. 7
29 
option for music consumption79. The actions taken by the old and new members of the music 
industry in order to adapt and benefit from these new conditions and prospects are at times slow and 
steady and at times extreme. 
Record Labels - Majors 
The BPI reports that the digital income of all record labels consists of revenue from various 
sources such as digital retail with the 'a la carte download system' (iTunes, Amazon MP3 etc.), 
games, ringtones, subscription downloads, ad-supported music and video streaming (Vevo, 
YouTube, Spotify, Muzu, We7), subscription streaming (Spotify, Deezer, Rdio). According to this 
report, ad-supported streaming accounts for 10% of the total revenue80 but if we take into 
consideration the above mentioned percentage of total streaming revenues which reaches 16%81, 
subscriptions are doing fairly well. 
Streaming services offer a huge opportunity for independent artists to share their music. 
Viewed by some as the last most perfected 'tool' for online DIY promotion, they have inevitably 
contributed to 'diminishing the power of major music companies in acting as intermediaries in 
artist-consumer relationships'82. In reality this threat was mostly immediate at the early rise of the 
internet and digital age, because the industry and the majors were really slow at acclimating to the 
changes. This is not the case now; the record labels are doing better than they were thought to for 
three important reasons. 
• Firstly, because physical distribution still accounts for the majority of the industry revenue83, 
and despite the switch over to digital which is yet to be considered a stable fact, the gifting 
market during the last months of the year is characterised by a cd and vinyl-driven 
demand84-not to mention that the gift market in general constitutes 30% of the total music 
79 BPI. Digital Music Nation. p. 19 
80 BPI. Digital Music Nation. p. 17 
81 Source: http://www.theguardian.com/music/2013/nov/02/is-music-album-dead-us-worst-ever-sales-figures 
82 Jim Rogers. The Death and Life of the Music Industry in the Digital Age. Location 77 (Kindle Version) 
83 IFPI. Digital Music Report 2013: Engine of a digital world. p. 9 
84 BPI. Digital Music Nation. p. 17
30 
spend!85. Of course that does not refute the fact that the CD is gradually dying and that 'the 
digital is the driving format and, most importantly, a growing format'86. For example, in 
2011 paid streaming was already higher on the preference list of consumers, above both CDs 
and free copies and a bit less preferred than paid downloads87. 
• Nevertheless, the fact that the CD is slowly dying does lead to the second reason why the 
labels can be optimistic. Until CDs become the outnumbered option, the time will have been 
given to the record labels to find new mechanisms to engage both the artists and their 
audiences. This effort has already been successful for some of the major labels. All in all, 
majors are still making money and their extinction might be a possibility, but not one to be 
seen in the near future. 
• Lastly, major companies are still the big players because no matter the democratised 
environment of participation and publication of music through aggregators and registration 
services such as YouTube, they still have more facilities to build the applications and create 
the highest quality bundles available in the market to indulge the music lovers. In addition to 
this, established producers, songwriters and popular bands still need them to supervise and 
regulate this 'immediate contact' with the consumers even in the occasions where the artists 
themselves choose to take up new roles and assist the marketing through the social media 
(e.g. Lady Gaga). 
Therefore, the record labels are evolving by changing parts of the industry and by creating a 
space inside their companies for creative innovation. When Rogers chooses to name a whole sub-chapter 
in his book 'Job cuts at the major labels'88 he fails to mention that more jobs have appeared 
in the market too. It is part of the same evolution. Positions in the music industry have been 
85 BPI. Music Consumption in the UK. p. 8 
86 BPI. Digital Music Nation. p. 17 
87 BPI. Music Consumption in the UK. p. 3 
88 The Death and Life of the Music Industry in the Digital Age. Location 762 (Kindle Version)
31 
replaced by job opportunities dealing with streaming and app design among others. A good example 
is the huge demand for developers at services like Deezer89 and at the majors due to the exact same 
exigency. EMI introduced the Open EMI initiative in 2011. According to Cosmo Lush, the SVP 
Digital Business Development at EMI Music, this initiative aims to reinforce innovation in digital 
music: 
(...)at the heart of Open EMI is the concept of sandboxes. We’ve joined up with a 
technical partner called The Echo Nest to create secure environments on the internet 
where developers can play with EMI’s rich music repertoire and experiment with 
products or services that they may be developing. They can very quickly and easily 
publish those products in the most suitable digital environment or channel for their 
creation.90 
Partnerships like the one above are undeniably a big part of the new era. Digital age is defined 
through interaction and ease in communication and this is reflected in the process before the result 
that reached the audience with the same ease. The majors need the knowledge and experience of 
companies that will allow them to broaden their revenue streams. This is directly connected to their 
relation with streaming services which in order to secure a sufficient income they need to acquire a 
larger audience from free users to paying subscribers. The desired outcome can be attained faster 
through integration. 
Integration refers to streaming services in association with car and living room integration as 
well as in association with 4G integration on mobile devices. This is something that mostly relies on 
the streaming services and not on the record labels, but, the latter can surely affect the engagement 
of audiences within the streaming services via their own developments. One of these developments 
is the new bundling that follows the unbundling that came early with digitisation. Unbundling is the 
choice of 'consumers [to] purchase single tracks at digital music stores such as iTunes for 99cents 
per song, rather than buying entire 'bundled' albums or collections' 91. In truth, this depicts a massive 
89 http://developers.deezer.com 
90 BPI. Digital Music Nation. p. 15 
91 Jim Rogers. The Death and Life of the Music Industry in the Digital Age. Location 916 (Kindle Version)
32 
choice that despite its existence before the internet era (with the sales of CD singles) is a digital 
symptom in its entirety. The sales of singles reached 189,000,000 in 2012, 99.6% of which were 
digital92. This comes against the labels' interests since the download or streaming of one song 
generates little income in comparison to the purchase or streaming of an album. What is more, in 
some of these cases it is only the song that catches the attention of a large audience, but not the 
artist. And this is slightly if not a lot different from the artist being recognised; when the latter 
happens, the artist can eventually bring more revenue in through concerts, advertisement and 
merchandise besides streaming or downloads. Certainly, this also depends on the contract and how 
much these options contribute to the label's income as well. One way or another, there is a new 
kind of bundling in an effort to push complete works of artists (albums) in a digital format and this 
bundling has an extremely social character; it is the album as an app. One of the early examples was 
in 2011 when Bjork released Biophilia. Through the app, her fans could download the audio tracks 
and a 'whole host of multimedia content (…) stunning graphics and scrolling lyrics on their mobile 
phones or tablets , as well as special features such as games, essays, bespoke animations and even 
an introduction narrated by Sir David Attenborough'93. The most recent and auspicious release was 
when the Columbia marketing team purposefully neglected the advance marketing prerogative and 
directly launched Beyoncé's fifth self-titled album on iTunes in December 2013. It almost looked as 
a direct gift from Beyoncé to her fans94. Neither was a streaming option included nor did it allow 
single downloads. The new bundling option here is that the album was infused with 17 music 
videos, downloaded along the album -the album is called the visual album- in the regular price of 
£12.99. Still, this is only a part of the distribution innovation that labels come up with, and it can be 
seen as a herald for new developments that will prevail in the music industry with even more 
content and possibilities. Labels want to transform the simple auditory experience to a fully visual 
92 BPI. Digital Music Nation. p. 4 
93 BPI. Digital Music Nation. p. 11 
94 Source: http://www.npr.org/blogs/therecord/2013/12/13/250737809/beyonces-new-album-is-entertainments-october-surprise
33 
and social one because the new digital environment allows so much experimentation and liberty in 
audience satisfaction that the future potential is infinite. Paul Smernicki, director of Digital at 
Universal Music UK exclaims that his focus will always be 'on the experience as opposed to the 
digital product'95. Ole Obermann, SVP International Digital Business for Sony Music Entertainment 
also agrees that the album experience should be interactive96. It is no coincidence that Spotify has 
already started launching similar apps for the streaming of music, via partnerships with the labels. 
Artist apps are driving fan engagement according to the BPI, and a great example of this is the 
PLAY GUETTA app that was created by EMI and has been available globally on Spotify since 
November 2012. The app blends the immediacy of traditional broadcasting with the ease of digital 
interaction as it offers 'a real-time global communal listening experience for fans'97 and a deeper 
connection with David Guetta who can talk to fans within the Spotify app. This app is a strong 
model for labels to engage audience within the streaming services. Further proof is that David 
Guetta was announced the most popular artist on Spotify almost a year after the launch of the app98. 
All in all, when it comes to labels and streaming services, in the very end, it is not just about 
licensing music as it was with VEVO on YouTube, but also about taking advantage of other 
opportunities for engagement. 
Independent artists 
Jim Rogers describes the structural change in artist-intermediary-consumer relationships that 
so defines the new streaming services as 'a net gain for the artist' and a 'new music order'99. The 
ability of independent artists to upload their music on these streaming services enables them to 
reach people more easily than ever, especially due to the discovery apps such as those on Spotify 
that integrate the old-school intermediators and the traditional media (magazines and radio) as well 
95 BPI. Digital Music Nation. p. 22 
96 BPI. Digital Music Nation. p. 28 
97 Source: http://www.emimusic.com/blog/2012/david-guetta-launches-play-guetta-spotify-artist-app/ 
98 Source: http://news.spotify.com/us/2013/10/07/the-spotify-story-so-far/ 
99 The Death and Life of the Music Industry in the Digital Age. Locations 79-81 (Kindle Version)
34 
as the social media for personal recommendations. Of course, most of these streaming services like 
Spotify and Deezer allow the unsigned creators to be featured through aggregators which is still a 
great opportunity but makes it impossible for them to be in total control of their profiles in contrast 
to how they are with their YouTube channel or Facebook pages and personal websites. Still, AIM 
CEO Alison Wenham says that streaming services 'provide value as additional bandwidth providers 
to indies that can't afford to stream [music content] directly from their own sites'100. This is really 
important as the digital age brags over this confidence that independence inspires to creatives from 
all domains. In the music territory alike, the rise of the musicpreneur is an undeniable actuality. 
Entrepreneurs are independents that want to build something colossal around them; usually 
it is a community or a whole business. But the new artist-businessman, can create a community 
without the help of other experts but by using the knowledge that belongs to him/her alone. Tommy 
Darker is one of the first people in the music industry to promote so actively the word 
'musicpreneur'. According to his own entry in the urban dictionary online 'Musicpreneur is an 
independent, polymath musician who takes care of both their artistic and entrepreneurial aspect of 
their music career.'101 In his small essay 'The Rise of the Musicpreneur'102 which consists of three 
parts, Tommy Darker gives advice about the business side of music like marketing, finance and 
touring. The artist is one of the primary parts of this music evolution and their assets and abilities 
are at this moment advanced enough so as to gain complete control of their own music, image and 
revenue. The artists, especially the singers/songwriters have always been on the spotlight, but now 
they're also the protagonists behind the scenes. And indeed, it is them that determine the outcome, 
so for the first time the content has lost some of its original value and the attention has once again 
turned to the creator. It is their knowledge that shapes their future. In Jamie Leger's 'The 
Musicpreneur Manifesto' this 'new economy is delineated definitively: 
100 Personal interview with Jim Rogers. The Death and Life of the Music Industry in the Digital Age. Location 1541-3 
(Kindle Version) 
101 Source: http://www.urbandictionary.com/define.php?term=Musicpreneur 
102 http://www.musicthinktank.com/blog/the-rise-of-the-musicpreneur-part-13.html 
http://www.musicthinktank.com/blog/the-rise-of-the-musicpreneur-part-23.html 
http://www.musicthinktank.com/blog/the-rise-of-the-musicpreneur-part-33.htm l
35 
(...)the intangible assets have become the most valuable form of currency because 
attention is one of the most limited resources, thus obscurity has become the 
elephant in the room. But it is why for the first time in history creators, are not 
only the leaders, but the farmers, manufacturers and distributors of value. In the 
NEW economy it’s not “CONTENT is king...” It’s the Content CREATORS who 
are king!103 
Social media started this deconstruction of the status-quo and now the cliché of the musician that 
needs a record contract or a publishing deal is history. At a time where an album's existence in the 
physical market is not mandatory and does not prove an artist's credibility, distribution is a digital 
and internet thing at large. To be able however, to manage this without the music business 
professionals, artists need to reach for the knowledge themselves. 
Today's musician is not only an artist but a business-like radar that needs to identify 
opportunities. Streaming services count on this radar for greater expansion. Grooveshark for 
example, after having been sued by majors and artists as not sufficiently licensed, is trying to 
rebrand and reposition itself in the music industry and one of the ways to do it is to give the chance 
to artists to claim their profiles and be in charge104, something that Spotify has not done. Something 
similar is also Deezer's D4A105. But Spotify in general does not need to do that; their main claim is 
that indie artists will get exposure anyway because the company spends a great deal of its income 
on development of discovery apps and tools, so it feels as if they're counting on this alone to 
convince artists to join. Spotify is also specifically tailored to provide information to the individual 
artist and how their participation in the platform will be beneficiary. And yet, the realisation that it 
has been somewhat affected by the negative critiques against their royalty rates, led Spotify to a 
recent announcement about new plans to further help its artists sell merchandise and concert tickets 
103 pp 9-10 at http://www.jamieleger.com/wp-content/uploads/2013/04/The-MusicPreneur-Manifesto.pdf 
104 Source: http://www.musicweek.com/news/read/grooveshark-re-launches-features-tip-jar-to-encourage-artist-royalty- 
payments/052207 
105 Deezer For Artists is a Deezer initiative that offers more exposure to artists on their platform. 
http://www.theguardian.com/technology/appsblog/2013/mar/25/deezer-end-of-downloads
36 
through its website and apps106. 
The world has obviously turned its focus on independents and even if the new services are 
still some stages away from offering the artists a sufficient income, their mere 'exposure' advantage 
does not allude to a drawback for the company. It actually confirms the need for the rise of the 
polymath musician who will act before they dream: 
If you're on Spotify, is the same with being on Amazon, the song is not going to buy 
itself. If you're on Spotify don't expect big changes. But it does work for the artists 
that want to be on every platform and get exposure as well as say 'I'm credible'... 
Tommy Darker (personal interview) 
The negative criticism proves even more the necessity of the musicpreneur. Artists need to know, 
judge or speculate in advance and make choices with full responsibility when it comes to the 
sustainability of their career. The fact that they put their songs on Spotify before checking the 
royalty rates and then proceed to sue or write articles about it is a very naïve move. Research so far 
has shown that the rates will naturally increase, but until then, indie musicians have the ability to 
refrain from uploading their songs on streaming services. The interesting thing is that they prefer to 
demand rise in the rates instead. This proves again one thing, that they realise that Spotify is the 
future. They want the future but they want it now. 
106 Source: http://www.ft.com/cms/s/0/57b60d40-5c09-11e3-931e-00144feabdc0.html#slide0
37 
Chapter 3: Spotify & Future 
Ουδέν κακόν αμιγές καλού (ancient greek saying: in every cloud there's a silver lining) 
Before we discuss the potential and future of Spotify as possibly the best model for 
streaming services globally, we have to look at its present state and these conditions that will 
determine the next steps towards its full bloom. The positive characteristics and the faults that now 
put the company at risk (some of which were discussed earlier in the paper), especially within this 
very competitive and innovative environment, are the ones that need to be looked at, even if 
concisely. However, all these primarily rely on Spotify's business model which will be reviewed 
first. In a nutshell, the present features and conditions are part of a pre-arranged and planned step on 
the way to this company's future development and success. 
3.1. Business Model 
No one really knows Spotify's business model but it is speculated with much confidence by the 
industry professionals and the public itself. What is crucial in Spotify's future is its value which 
has risen to $5.27bn in 2013107 from $1bn in 2011108 (and $3bn in 2012109). And this time while the 
new financial rounds are closing, Daniel Ek and chairman Martin Lorentzon are reportedly 
'reluctant to give up more of the company to investors'110 with the new money coming in being more 
of a loan rather than an equity investment. Especially after the credibility issues that their 
relationship with labels have caused them so far, even more shares can be tricky and further 
undermine their integrity. This idea of allowing more equity investment is not far from the idea of 
107 Source: http://techcrunch.com/2013/09/06/let-the-music-play-spotify-is-raising-money-again-at-a-5-3b-valuation-says- 
swedish-paper/ 
108 Source: http://www.telegraph.co.uk/finance/newsbysector/mediatechnologyandtelecoms/8583247/Spotify-valued-at- 
1bn-after-fundraising.html 
109 Source: http://techcrunch.com/2013/09/06/let-the-music-play-spotify-is-raising-money-again-at-a-5-3b-valuation-says- 
swedish-paper/ 
110 Source: http://techcrunch.com/2013/09/06/let-the-music-play-spotify-is-raising-money-again-at-a-5-3b-valuation-says- 
swedish-paper/
38 
selling the company which Ek does not wish, but which at the same time does not feel strongly 
against if it is for the better.111 The other question that is directly connected to these prestigious 
investors and the new rounds and which puts Spotify in the centre of attention is whether they 
intend to go public in the future. Ek answers: 
We have investors, and obviously, at some point in time, they want to get their money 
back…If we think that that goal is better aligned by going public, sure we'll 
contemplate it, but it's not something that I spend any waking time thinking about. 112 
So far, therefore, the answers are slightly negative while the attitude and tactics that Spotify follows 
when it comes to the new fundraising rounds seem to hint against such an option to the untrained 
mind. But, it is very probable that this is only part of the script. The rise of money from investors 
will play its part in the larger strategy for expansion and in the long run contribute in the rise of 
subscriptions and number of partnerships. Concomitantly the portion that goes to the right-holders 
(70%) will gradually follow the rise. Tommy Darker insists that this is the one viable business 
model for Spotify and that it does not entail any premature confession of their goal to go public in 
the near or distant future: 
They will keep getting value for the company till it's worth billions. So this is the 
business model. There's only one business model. And up to that point, maybe the 
royalties for the artists will get better. But this is quite fluid, it's part of the stoke 
market which means that they could go up or down at any time. If people don't trust 
the company for any reason, the value of the company will go down. It's all about 
how they're going to handle the company. (personal interview) 
This is where the idea that David Kusek from Berklee University has been propagating can find a 
place. If Spotify manages to go public that means that most people will soon be paying for access in 
the same way they pay for other services and goods. More specifically, Kusek makes the 
revolutionary statement that 'the industry ought to establish a “music utility” approach to the 
111 Source: http://online.wsj.com/news/articles/SB10001424127887323420604578652301245297268 
112 Source: http://online.wsj.com/news/articles/SB10001424127887323420604578652301245297268
39 
distribution and marketing of interactive digital music, modelled after the water, gas and electricity 
utility systems'113. 
All this confidence and talk about the future might seem misplaced considering that Spotify 
is actually dealing with a remarkable loss despite its perpetual expansion and it has yet to turn a 
profit114. Yet, this is a calculated transitional stage in this business model. Spotify's last financial 
reports show net losses of €58.7m ($78m) in 2012, an obvious increase from €45.4m ($59m) in 
2011115. Although it is noted as a huge increase, taken into perspective this loss is actually reduced 
as Spotify's revenues rose 128% year on year in 2012116 from $250 million (2011) to $577 million 
(2012)117. The distance between revenues and expenses will scale down and eventually start turning 
a profit. Just like with the royalties, the argument about the loss condemns Spotify to oblivion quite 
unnecessarily. Instead, there are many productive processes and investments behind the obvious 
loss that almost guarantee the turnabout in the future which will also mark the end of the 
transitional period and the official change of the industry as we know it now. There are quite a few 
reasons why the company is still losing money, some of which are competition, development, and 
of course the negative criticism that reflects the industry's intransigence towards evolution. When it 
comes to competition, Spotify is in a battle against the Apple colossus with iTunes, iTunes Match 
and iTunesRadio, against Pandora (which also undergoes financial difficulties), Rdio, Google 
Music, Daisy, Deezer and others. All of them are developing features, creating exclusive deals 
through prestigious partnerships but as Tommy Darker points out, Spotify are better businessmen: 
People have the same idea, but when it comes to making it global and public Spotify 
are doing it. They're getting there. Their value proposition is streaming music.It just 
streams. Itunes' value proposition is 'Buy the songs so we can sell iPhones', nothing to 
113 Source: http://www.forbes.com/forbes/2005/0131/042.html 
114 Source: http://www.nytimes.com/2013/08/01/business/media/spotify-losses-grow-despite-successful-expansion. 
html?_r=0 
115 Source: http://www.theguardian.com/technology/2013/aug/01/spotify-pandora-streaming-music-profits 
116 Source:http://www.theguardian.com/technology/2013/aug/01/spotify-pandora-streaming-music-profits 
117 Source: http://techcrunch.com/2013/09/06/let-the-music-play-spotify-is-raising-money-again-at-a-5-3b-valuation-says- 
swedish-paper/
40 
do with music. Nobody goes to iTunes to stream music, they're going to Youtube 
now. Then it's most probably going to be Spotify. (personal interview) 
The high cost of licensing and development that is also responsible for the net loss is directly linked 
to this competitive environment. Spotify is spending a great amount on new features and the new 
technologies that will allow them ubiquity and the smooth switchover from CDs to streaming. 
When streaming is a dominant reality, the vast majority will not afford to subscribe and pay more 
than one services for access to music. Spotify's future downright depends on its efficient 
technological development that will offer convenience and entertainment to all the users, but with 
even more appealing offers for the premium users so that the ratio of conversion grows even higher. 
3.2. Spotify Advantages & Drawbacks 
Spotify has managed from the day of their launch in 2008 to acquire over 24 million active 
free users and over 6 million paying subscribers among which president Barack Obama and UK 
prime minister David Cameron. Their constantly updated site claims to have paid the rights holders 
a revenue of $500 million until 2012 and another $500 million in 2013118 which makes it $1billion 
with a massively culminating revenue. Also, the fact that Spotify has achieved this through a limited 
launch in 28 countries globally (and still growing) in contrast to other streaming services like 
Deezer which has launched in 182 countries, supported by ISP partnerships in 20 territories and has 
an equivalent of three million paying subscribers119, is enough evidence to show that Spotify is 
doing remarkably well. 
The undeniable positives of Spotify are the anti-piracy effect, the social media integration 
via Soundrop120 and the discovery and community features which seem to be the leading force 
behind Spotify's brand for the past two years121. The two last ones are innovative features that have 
118 Source: http://www.spotifyartists.com/spotify-explained/ 
119 IFPI. Digital Music Report 2013: Engine of a digital world. p. 15 
120 Source: http://soundrop.fm 
121 In the beginning it was more about it offering an alternative to piracy.
41 
been possible through Spotify's priority to invest on advanced apps and partnerships with other 
media, labels (their technological developments are usually related to their relationship with 
Spotify) and companies, something that reflects on its business model. Many of its 'advantages' let's 
say, have been mentioned throughout the paper but they're not the only ones to be considered 
accountable for the service's successful course so far. Some other privileges that Spotify users enjoy 
are the convenience it offers from a space/storage point of view. The app allows its users to save 
data on their phone, laptop and other devices but what is even more convenient from an economical 
perspective, is that it allows offline streaming for premium users. Consequently, streaming of 
downloaded playlists is possible without extra data charges and even with the phone's data being 
turned off. Another one is included in the communal feeling that Spotify emanates and is its radio 
service. It actually manages to combine its primary value proposition that is streaming with an 
already tested and popular radio experience by emulating Pandora's model. Pandora is an internet 
radio service that works with automated musicological recommendations. Their possible 
favourableness is enhanced by the choice that the service gives to their users to either like or dislike 
the songs that are played as a suggested sequence to a genre or band initially picked as a radio 
'station'. This way Pandora and now Spotify can improve these stations. Taking into account that 
Pandora is the best-known internet radio service globally, even though only US-based so far, with 
with 66 million active listeners and accounting for 8 per cent of all radio listening according to 
IFPI122, there are many reasons to believe Spotify radio is one of the service's greatest assets. At the 
same time Pandora's is exclusively a radio service that has endorsed the image of radio promoting 
sales via an option that the users have to directly purchase songs from the platform. But as we saw 
earlier, sales will probably soon be an argument of the past. Furthermore, Spotify also promotes 
traditional radio through apps such as BBC Playlister where DJs and presenters from different BBC 
radio channels and shows add the songs of their choice or the ones that play on air on their own 
playlists. So, if traditional radio promotes sales, then Spotify indirectly assists by sharing the 
122 IFPI. Digital Music Report 2013: Engine of a digital world. p. 17
42 
intention – at least for now. 
The deficiencies, or some Spotify characteristics which have been critiqued as such, e.g. 
royalties, have also been examined but there are also some other practical difficulties in the use of 
the service which are worth to be considered for future improvements. One huge drawback for some 
users is the lack of ownership whose perception as a defect can be ascribed to the general resistance 
to the change of the industry. Some blogs describe this access instead of purchase as 'the ghost of 
digital reality, […]the double extinction of the physical connection to the music.'123 As it seems, 
according to the YouGov SixthSense Music 2012 report, the majority of fans (54%) still want to 
own downloaded music with only 9% saying they prefer access over ownership124. The importance 
of ownership extends to more traditional formats that reflect the users' need to have this physical 
relationship with their favourite music. For some devout music fans vinyls are the only worthy 
tangible purchase as CDs are actually digital as well. Therefore the return to vinyl, as the Director 
of Digital at Universal Music, Paul Smernicki, observes : 
There are bits of our business that might surprise people: we have a vinyl box-set 
store τthat does really well and we have a direct-to-consumer store where we reissue 
great albums from our catalogue on vinyl'125 
Last but not least, and also due to the lack of ownership, the Spotify subscriber is condemned to 
'live' within the architecture of the platform. Smernicki thinks that 'a music service without a front 
end where you subscribe to the architecture that delivers the music' is a thing of the future that he 
would very much like to see.126' So, to him, this architecture means a lot more than just user 
restrictions; it shows a restricted environment by the labels and the interests behind the streaming 
services that have launched so far. Those interests still create impediments to the back-end users 
-because in the end, users are both the artists and the audiences-, and this is also widely believed to 
123 Source: http://www.digitaltrends.com/mobile/why-i-have-to-quit-spotify/ 
124 BPI. Digital Music Nation. p. 22 
125 BPI. Digital Music Nation. p. 23 
126 BPI. Digital Music Nation. p. 23
43 
be the same reason why Spotify is yet to be trusted by a portion of artists and music fans. Because 
labels are equity investors and because it was founded on a dependency of premium content (Sony, 
EMI, Warner, Universal), this architecture with its limits and boundaries is not only an independent 
assignment to a developer; it is a more than a digital space or a platform. 
3.3. Future 
As we saw, partnering-up is an indispensable part for a promising future. Spotify has a 
decent number of commercial partnerships, among which a multifaceted strategic partnership with 
Coca Cola which 'Combines Music Expertise, Innovative Technology and Massive Global Reach to 
Share Music With the World'127. Such dynamic partners are as crucial to the brand as Spotify's 
distinguished users such as the US President and UK Prime Minister, and its popular investors such 
as Ashton Kutcher and Justin Bieber.128 Especially relationships of these likes with artists that are 
also featured on the platform add considerable value and industry credibility to the company at a 
global scale. Still, the most valuable partnerships that will accelerate awareness of streaming 
services is the ones with ISPs and mobile operators. Their significance has been already certified 
and 'the access model and evolution of bundled subscription services within mobile operator plans' 
will be equally imperative in the future according to Leanne Sharman, VP and MD at Digital 
Strategy and Business Development at Warner Music Int129. As a matter of fact, those deals 'allow 
telecoms companies to sell higher-value packages to their users, reduce customer churn and 
associate their brands with music while subscription services benefit from the marketing power, 
billing relationship and user reach enjoyed by telecoms companies'130. It works with the cost of 
accessing the music service being included into the monthly payments to the ISP or mobile 
127 Source: http://press.spotify.com/nl/2012/04/18/spotify-and-coca-cola-partner/ 
128 Source: http://www.forbes.com/forbes/2012/0504/celebrity-100-12-just-bieber-investments-music-venture-capitalist. 
html 
129 BPI. Digital Music Nation. p. 29 
130 IFPI. Digital Music Report 2013: Engine of a digital world. p. 15
44 
provider131. Deezer has partnered with EE after Orange132, Daisy has allegedly agreed to a 
collaboration with a AT&T133, even before its launch and Spotify has a partnership with both Virgin 
Media and Vodafone134. 
Of course, these collaborations and schemes are viable only due to the rise of 4G. In fact, 
Spotify has a 4G partnership with Vodafone; 4G will allow users to stream with unprecedented 
speed without any buffering. Forecast data from Futuresource Consulting shows the scale of uptake 
where there will be 44m 4G subscribers in the UK by the end of 2016 – almost 70% of the 
population135. 
The next very important development that is yet to take fully place is the complete in-car 
and living room integration of streaming and is fundamental for the ubiquity of the 'format'. Paul 
Smernicki of Universal confirms that 'neither have been nailed'136. The intention to 'nail' them as 
Smenicki calls it, is the intention to multiply the revenue through the continuous streaming of music 
everywhere, anywhere by anyone. Spotify started the effort in March 2013 with the Parrot 
partnership. The Parrot ASTEROID Smart, Mini and Tablet allow the download of the Spotify app 
bundled with driving assistance applications – such as points of interest, information, applications, 
access to the Internet and navigation137. A month later Spotify announced the partnership with Ford 
with the new Spotify app for Ford SYNC AppLink via which a premium Spotify user and Ford 
owner can use voice command to dash-control access to their favourite music and playlists138. This 
way the user can easily find music suitable for their road trips depending on destination, length of 
trip and other aspects. Spotify also took a step towards living-room streaming around the same time 
131 Mark Foster, Managing Director at Deezer. BPI. Digital Music Nation. p. 32 
132 Mark Foster, Managing Director at Deezer. BPI. Digital Music Nation. p. 32 
133 Source: http://www.hypebot.com/hypebot/2013/07/late-to-the-party-iovine-in-talks-to-launch-beats-daisy-music-service- 
with-att.html 
134 BPI. Digital Music Nation. p. 33 & http://blog.vodafone.co.uk/2013/10/10/making-the-most-of-4gmusic-how-to-activate- 
and-get-the-most-out-of-you/ 
135 BPI. Digital Music Nation. p. 31 
136 BPI. Digital Music Nation. p. 23 
137 Source: http://news.spotify.com/us/2013/03/01/parrot-device/ 
138 Source: http://news.spotify.com/us/2013/04/02/spmarket-13say-hello-to-spotify-in-your-carspmarket/ & 
http://support.ford.com/sync-technology/spotify-for-sync-applink-sync
45 
in 2013 via an alliance with Samsung Smart TV while also offering a 30-days free trial for anyone 
interested139. 
Since Spotify's value proposition is very clear with a focus on streaming and a side radio 
service, it is very doubtful that a Spotify TV service will be launched anytime soon if ever. 
However, in some countries such as the UK, TV viewing figures increase140 and YouTube channels 
such as Transmitter are launching as a new equivalent of the now declined MTV with a very 
ambitious plan. In cases like this, it might be worthwhile for Spotify to consider collaborations for 
the generation of creative content as part of the new fan experience that they are seeking to offer 
music lovers. Chiefly because their local-oriented aspirations could be assisted by efforts like that 
of Transmitter. Will Hope, Spotify’s director of label relations, explains that Spotlight is part of the 
idea they want to promote: that Spotify might be streaming only, but it is not just streaming: 
'Creating original content is a really good way to drive that, whether it’s live sessions, documentary 
series like Landmark, or the magazine-style interviews rolling out for Haim and Lorde.'141 Start ups 
such as Transmitter with the goal to create the same unique content in order to drive consumption 
and celebrate music creativity in the UK, would very well suit Spotify's vision. On the other hand, 
the idea of Transmitter extends to a more obscure and ambiguous effort to appoint new gatekeepers, 
something that Spotify must resist if they want to lure the sceptics in. 
All these new steps forward will be largely determined by the music audiences. As already 
put in Chapter 2, one of the factors for the evolution to streaming services and the most determining 
one is the social factor. People make up the media and their needs comprise the technology sector. 
The music fans are a very demanding type of consumer that will further lead the way to the new 
discoveries in music consumption in the following years. Ole Obermann, SVP International Digital 
Business for Sony Music Entertainment, believes that digital interactive radio services are 'a huge 
139 Source: http://news.spotify.com/us/2013/03/20/samsung-smart-tv/ 
140 Source: http://metro.co.uk/2013/03/18/tv-viewing-figures-increase-in-uk-despite-decline-in-number-of-television-sets- 
3547742/ 
141 Source: http://musically.com/20 13/10/01/spotify-launches-artist-spotlight-feature-with-haim-and-lorde/
Spotify and the Sustainability of Evolution
Spotify and the Sustainability of Evolution
Spotify and the Sustainability of Evolution
Spotify and the Sustainability of Evolution
Spotify and the Sustainability of Evolution
Spotify and the Sustainability of Evolution
Spotify and the Sustainability of Evolution
Spotify and the Sustainability of Evolution
Spotify and the Sustainability of Evolution
Spotify and the Sustainability of Evolution
Spotify and the Sustainability of Evolution
Spotify and the Sustainability of Evolution

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Spotify and the Sustainability of Evolution

  • 1. GOLDSMITHS UNIVERSITY OF LONDON WRONG ARGUMENTS Spotify and the sustainability of evolution (2013-2014) Assignment: Dissertation Course Code: DR71068A Student Name: Xanthi Georgakopoulou Ntavou Student Number: 33257090 Programme: MA Arts Administration and Cultural Policy (ICCE) Supervisor: Dr. Gerald Lidstone Date: 06/01/2014 Word Count: 15,330
  • 2. ACKNOWLEDGEMENTS I would like to thank Johnny Hopkins, my lecturer in Music Management, who helped me see the music industry in the digital age, and by extension my place in it, in a positive light and who contributed in my better understanding of the music world. I would also like to thank the founder of Music Darker Talks, Tommy Darker, for growing my confidence in my findings and whose knowledge of the current state of the music industry assisted greatly my research. I wish to express my gratitude to Dr. Gerald Lidstone for accepting me in this MA, for advising me throughout the year and for supporting my decision to delay the handing in of this dissertation. This way I could release my debut album Dramatic Theories in November. Also to Dr. Paul Clements for his both stimulating and entertaining lectures, inspiring comments and almost contagious critical thinking. Last but not least, I want to thank my parents and sister whose unconditional love brought me all the way here. It is the same love that provided me with passion for what I do and the same love that will take me to other places too.
  • 3. TABLE OF CONTENTS Introduction 4 Chapter 1: The Preexisting Problem 7 1.1. Gatekeeping 7 1.2. Piracy 12 1.3. Royalties & Digital Sales 15 Chapter 2: The context of Evolution 21 2.1. Factors 21 2.3. The 'evolved' players 28 Chapter 3: Spotify & Future 37 3.1. Business Model 37 3.2. Spotify Advantages & Drawbacks 40 3.3. Future 43 Epilogue 48 Bibliography 51
  • 4. 4 Introduction What has always bothered me about the music industry is that I am a part of it. Is this mere fact that bothers me? No. It is the more specific fact that this wider fact entails. I am a part of the music world as a self-proclaimed artist and the majority of songwriters and musicians -especially those involved in the popular genre- are perceived as pursuers of music careers in the so called music industry, which in reality cannot equate with the music world, or for that matter, the art world. I feel very lucky to be an artist in this new digital era, where these perceptions are being reshaped and questioned not only by the artists themselves, but by the larger audience as well. What led me to the topic of this paper was my own interest, which this time can find a place in the music world, or music industry, as everything is fluid and my saying can be heard and shared with a large portion of other musicians. I wanted to comment on the evolution of the music industry into what is now the digital age and the new state of things through a highly time-specific research that does not go very far in the past, but instead focuses on articles, reports and books published in the last three-four years. Without diminishing the value of the music industry as it was for the past century as a whole, the intention is to discuss the importance of the current changes determining a significantly different model of music creation and distribution for the immediate future. The newly published material that will be used, is internet-based in its majority, for the simple reason that this method of research allowed me to practically work on this topic the same way that music discovery works now. Also, reading the opinions of a fair number of artists and music fans globally gave me the opportunity to look at this state of things through the eyes of a new audience, during a period where it might be wise to leave the things we took for granted behind. We will always be carriers of internalised stereotypes and references perpetuated by the remnants of the traditional music industry. However, and even though the comparison with the previous state of things will too be inevitable for a more round view in this paper, I aim to look at this evolution mainly as a present and future thing.
  • 5. 5 The research began with a very specific question : whether there was a sustainable model for Spotify, and that, since the constant critique against its low royalty payments and other controversial features intrigued me. Interestingly, I was convinced, very early through my research, of the viability of streaming services and that they will be the dominant music providers in the next years, despite the loads of problems majors and companies claim to be dealing with. They showed the easy way; the natural evolution in every service provision in the world is to make the product more accessible and more convenient. So this paper was subsequently based on this newly-found confidence and optimism that would give answers to this question instead: why streaming services will indeed have a sustainable growth in the next years and why people still react to it. But why did I pick Spotify as my main example? Why am I enclosing this vision into one streaming service which is not even the most widespread subscription-based music service in the world? Because numbers are not that important. Firstly, Spotify has received so much acclaim and so much negative criticism in the past years and is still growing. This shows that it is a big player with a very good business strategy, which I will further explain later in the paper. Secondly, because I am a converted user of Spotify Premium myself and experiencing its inefficiencies and progress made it easier for me to be both objective and subjective. But most importantly, because all the criticism turned Spotify into a symbol of the new state. It was through its opponents that I was faced with the revelation that all the wrong arguments are being made in the right era, where the change has been already made and our arguments will not change the basic thing that now simply is. In this paper, I will try to show why the most popular and dominant arguments against the new state throughout these crucial and transitional years are misplaced. The arguments will appear at various stages in context and in contrast to the conditions that shape the industry and the future of Spotify, which will be used as the perfect model of a streaming service at the moment. I aspire to do that by exploring not only Spotify and the reality of streaming services but the world around them including traditional media, audience, majors, independents and the rising culture of the
  • 6. 6 musicpreneur – all these under a very 'new' light and the vibe of the last years' happenings and developments as I already mentioned. My basic argument against the critiques will be evolution and how Spotify and streaming services conform to its demands by showing that evolution by nature is not a thing to argue against. In Chapter 1, I will provide a quite simplified description of the preexisting problems including gatekeeping and limited distribution and how these find space or solution in the era of streaming. In Chapter 2, I will go on to highlight the conditions of the evolution, the significance of evolution, and proceed to discuss the practicalities of evolution as in technological developments and strategies followed by the 'evolved players' of the industry. In Chapter 3, I will focus on Spotify, its position in the market and future and in Chapter 4 I will conclude with the findings and limitations of my research taking into account all the things already addressed.
  • 7. 7 Chapter 1: The preexisting problem Αμαρτίαι γονέων παιδεύουσι τέκνα (The sins of the fathers are visited upon the children) One will be able to tell if the complaints on the state of things in the recent years are fair, if they take a look in retrospection at the complaints echoing around the 'bulk' of the music industry the decades before. Sure, the profits of labels and artists have been slashed by piracy and surely the digital age with the prevalent freemium model, or the streaming services prevents the growth of the both physical and digital sales; sure this happened exactly at the moment when the latter had started stabilising the economy of the music industry with the development of apps and new propositions against unbundling such as 'Complete my album' on iTunes. But it is wiser to emerge into the old state of things and assess if any of these problems are not new problems inflicted upon the music world with the rise of 3G/4G and streaming, but issues generously passed on from the electric age to the digital age. Some of these problems are insidiously transmitted, and others find solution in Spotify. 1.1. Gatekeeping (...) the record industry has been contending with the challenge of moving from physical to digital formats.(...) if this is the 'moment' to strike for independence and for musicians to rid themselves of corporate intermediaries and gatekeepers (as Napier-Bell celebrates), then the established music industry 'actors' are indeed navigating turbulent waters.1 Jim Rogers According to Jim Rogers and Napier-Bell, the gatekeeping ceases to exist or is hindered by the amplitude of information (therefore music too) that defines the digital age. But it is not that simple. 1 The Death and Life of the Music Industry in the Digital Age. Location 98 (Kindle Version)
  • 8. 8 Gatekeeping is the most interesting example of a problem in the music industry nowadays. It is true that due to a number of facilitations in music discovery, such as the efficiencies of digitisation and the vastness of liberties that the internet allows, there is almost no limit to what people can listen to2. But, even though piracy and free streaming directly promoted discovery over a wide spectrum of tastes, genres,and niche audiences, the Long Tail itself is far from being set free from the chains of taste-making. So who are the gatekeepers of digital music distribution? 1. The same people. Rogers states that there are considerably more new outlets 'both traditional and new, through which music can be promoted and exposed than in former times'3. And yet he goes on to use John Sheehan's claim that most of the mainstream media, especially radio, remain central since 'it is fundamental to the marketing mix'4 and because 'without it, the others [intermediaries5] don't work'. In fact, digital radio has not been altered gatekeeping-wise. Its condition of being more ''cool' and non-linear, especially in the sense of being interrogable and interruptible'6 as Andrew Dubber suggests, does not negate the reality that all content begins from the curators, DJs and people that might not have any association with major interests and the music industry directly, but are nevertheless tastemakers. Also, interaction might be the new asset for the current impassive audiences, and it might suggest that people look for more than they are offered, but interaction is evident in an allocutionary framework such as the BBC in the UK7. A fine example that Dubber uses to show that, is Radio 1 and Zane Lowe's show where people can directly contact the producers, the radio staff and also suggest music through chat-rooms. 2 Of course there are very specific and justified exceptions such as the prohibition of streaming for a large number of videos in Germany after a dispute between GEMA (performance rights organisation) and Google on the YouTube streaming fees. Source: http://www.nytimes.com/2009/04/03/technology/internet/03youtube.html?_r=0 3 The Death and Life of the Music Industry in the Digital Age. Location 2644 (Kindle Version) 4 The Death and Life of the Music Industry in the Digital Age. Location 2646 (Kindle Version) 5 Intermediaries is what Rogers describes earlier as 'such technological developments, which enable the distribution and promotion of music online, have revolutionized the industry's core structure by enabling interface between artists and consumers like never before.' The Death and Life of the Music Industry in the Digital Age. Location 77 (Kindle Version) 6 Radio in the Digital Age p. 39 7 Radio in the Digital Age p. 45
  • 9. 9 Even the transition from digital radio to streaming radio does not necessarily affect the established limitations, even though initially and on the surface it is presented as a radical change in the phenomenon of gatekeeping. Streaming radio services like Pandora, iTunes Radio and Spotify radio have mainly worked musicologically so far with automated recommendations. Dubber explains how this intelligent curation works here: That [musicological stream] is, the song that you like is of a particular musical genre, key and tempo, and has been coded with certain characteristics such as male or female vocal, instrumentation and other characteristics of the arrangements, and so on. So Pandora will play you other music that shares those musicological characteristics. That it serves a function as an individualised, tailored musical experience is what it shares with some other online music services (…) 8 This, albeit typical of modern streaming radio, is not going to be the only 'method' of recommendation for this new radio model. And this is exactly the crossing point where traditional media converge with streaming services: human curation. Human curation is the trend that will monopolise the attention of all competitors in the next few years. It is set forth as a solution to the negative reviews that the restrictive nature of automated intelligent recommendations has received from the more engaged part of the music audiences. Efforts towards a more expansive discovery approach were first covered by apps integrated in streaming services, and more specifically apps on Spotify that enabled the traditional media with their 'monitoring' talents to create, suggest and curate playlists e.g. BBC Playlister, Pitchfork, Guardian, NME, Rolling Stone Recommends etc. These expert recommendation apps give us however, what we already know; they make it easier, but we can still find it on the radio and magazines. If Spotify is marketed and promoted as a medium for discovery, before anything else, is this the best it can do? No, streaming services are taking the next step in human curation and gatekeeping. 8 Radio in the Digital Age pp 99-100
  • 10. 10 2. The new people. These new faces will be the gatekeepers of streaming services and for now, nobody really knows who they will be, or if they will ever be known to the audience. Probably the latter could work so as to diminish their importance to the level of 'employees assisting individual discovery'. This would result in the emergence of a more discreet and a lot less self-conscious taste-making. The conditions of this task, though, are far from enigmatic when the streaming service is an amalgamation of all the major labels. One of these cases is Spotify, and the progress so far speaks for itself. The new discovery channel curated by Spotify and named Spotlight is advertised as a very promising tool for discovery. It is described as “a new home and editorial voice within Spotify for new, exclusive and hand-picked content from both new and established acts”9 and at a certain stage aspires to go 'local' and suggest more specific acts to each country. Considering that Spotify has already launched in 28 in the past five years, this is an ambitious project. But this plan is a long way from now and the selection of artists suggested as the breaking-stars so far seems like a farce. It includes artists with already million hits, such as Haim and Lorde, and as Stuart Dredge puts it, 'it makes you wonder if this is for a certain class of emerging artist already anointed by the industry as the next big thing'10. To this question, Will Hope, Spotify's Director of Label Relations answers that Spotlight is not going to be a label/branding partnership but rather a 'data-driven approach' that will allow the team to find the artists that are doing well on Spotify at an early stage of their career. Spotify, on the other hand, will not restrict its discovery proposal to playlists and promoted suggestions. Daniel Ek, who is the company's founder and CEO, believes that music recommendations and discovery is a priority in comparison to a huge music collection, and according to the Wall Street Journal he had already appointed 200 human curators by summer 2013 to organise music for Spotify's next browsing feature11. Spotify is not the 9 Source: http://musically.com/2013/10/01/spotify-launches-artist-spotlight-feature-with-haim-and-lorde/ 10 Source: http://musically.com/2013/10/01/spotify-launches-artist-spotlight-feature-with-haim-and-lorde/ 11 Source: http://online.wsj.com/news/articles/SB10001424127887323420604578652301245297268
  • 11. 11 innovative mind behind this idea at any rate. They basically come second along Deezer which too calls human recommendations their mantra for the immediate future12. The first streaming service to suggest human curation was Daisy, Trent Reznor's and Dr Dre's streaming service. Although Daisy is yet to be launched, it has based all along its potential on human curators which it calls 'connoisseurs'13. The 'depth of personalisation' is the main idea that the Daisy founders were counting on for the service to offer a new perspective in the market and 'differentiate itself from the many competitors in the space'14. This idea has been propagated for so long only for the already established streaming services to endorse it. Human recommendations is not a gain for Spotify's discovery pages, for its apps or its users' playlists only. Nor will it solely be considered the result of the unification with the social media – where you can follow people or see what they're streaming on their social profiles. Human curation is also a scheme inspired as a compensation for the automated radio suggestions currently used for the radio option of those streaming services. Here, it is worth to mention iTunes radio which will be launched in early 2014 and can boast over its over 250 DJ curated stations. What is important to understand is that discovery is different from curation. Gatekeeping will always exist and that is not necessarily a big problem as long as it we recognize that it is an option rather than the norm. Digital age's main feature is undoubtedly interaction and if interaction is so widely facilitated, that means that we are not limited to a small number of people to rely on for access to new music. So gatekeeping might be a preexistent problem transferred to the new state of things, along with the major interests which undoubtedly remain in the market, but this curation is somehow better and can be regarded as a solution to mainstream music dominance. The realisation 12 BPI. Digital Music Nation. p. 32 13 Source: http://www.forbes.com/sites/bobbyowsinski/2013/07/10/can-beats-daisy-be-a-player-in-the-new-music-world/ 14 Source: http://www.theverge.com/2013/10/7/4813776/beats-coo-luke-wood-says-his-streaming-music-service-will-launch- this-year
  • 12. 12 that balances discovery and curation is one: Re-distribution. 1.2. Piracy Distribution, which is directly connected to the majors and the gatekeeping as it existed for half a century now, is revisited in new terms. The 'few' established artists who are more than wealthy compared to the independent ones or less successful ones will have to deal with the emergence of the long tail. Its turn has come and it offers a wide variety15 of artists almost as many opportunities to be discovered. The industry that everyone complained about, even the successful artists who were totally exploited through 360 degrees contracts, is failing. The major stars and creations of the same industry are falling along with it to a certain level where competition is more fair. People can now choose; the gatekeeping still exists but there are so many more choices that the gates cannot stop the flood. So how did that happen? It all started with piracy. Piracy is wrongly considered by many a problem of the digital age. It is a symptom of the industry's inability to distribute sufficiently. So even if piracy is a phenomenon that spread mostly as a digital disease, it is the digital age and streaming that also started its cure. For BPI's Chief Executive, Geoff Taylor, there are two factors that will determine the elimination of piracy: first, 'the growing appeal of streaming services, from Vevo to we7, Spotify, Deezer and Rdio' and secondly, 'the progress on blocking illegal sites and delisting illegal search results'16. Spotify's action speaks in numbers in Sweden and the Netherlands, confirming that it justifiably founded its brand on the reality of piracy. Its claiming to be 'a compelling legal alternative to piracy' 17 mainly alludes to its free, ad-funded version which also is the most popular one. This happens by it luring file-sharers and users of P2P18 networks away from piracy by 15 With variety I mean artists of different genres, from different places around the globe and artists who appeal to niche markets as well. 16 BPI. Digital Music Nation. p. 3 17 Source: https://www.spotify.com/uk/about-us/labels/ 18 Peer to peer networks are de-centralized networks where the users act similarly as in what Dubber calls 'Registration and Conversation Tele-Information Services' and where 'the supply of information by a user of the information service and not by the service itself' Radio in the Digital Age p. 41
  • 13. 13 allowing non-subscription access to a vast music catalogue and by developing features that help discovery almost like piracy. An even bigger win against piracy is Spotify's achievement of a good level of conversion from free users into paying subscribers. Now there's a 20%+ of active users that convert to the paid premium service19 instead of just paying half the sum for the ad-free updated version. The latter of course does not offer the privileges of offline streaming and synchronization with portable devices. It is this conversion on which Spotify relies to combat piracy. Without the conversion, the freemium model can start the elimination of piracy but it cannot bring the company's wishful thinking to fruition20. The conversion percentage is 'astounding' news for Ek himself21 and it can viewed as promising as long as Spotify keeps pursuing licensing deals for all the music in the world, hard as it may be. Tommy Darker, the London-based founder of the Darker Music Talks, is an artist and a demanding music fan, exactly like the 10%22 of hardcore 'pirates' who take over half the content on these P2P networks (52%) and are yet to be sufficiently indulged into legal streaming. Their thinking is possibly similar to his : I don't mind paying £10 per month for all the music that I want. But for now it doesn't exist. There isn't everything that ever existed on Spotify, so for now it's not good enough. For them to get better conversions, they need to get all the music. This is what they will keep funding, till they get it. This means that probably 70% of that money [from investment rounds] will go into deals. (personal interview) So, the largest segment of the 'evil file-sharers', the 68%, is not difficult to convert since they only occupy a limited position and account for 20%23 of content transfers24 which are easier to find on streaming services. The demanding audience is the one that needs to be persuaded and satisfied up to a level where 'ownership' as an issue will be overlooked. Satisfaction from digital consumption 19 IFPI. Digital Music Report 2013: Engine of a digital world. p. 14 20 All of their users (both free and paying subscribers) spend twice the amount of money on music through subscription than the average downloader. Source: https://www.spotify.com/us/about-us/artists/get-paid-from-spotify/ 21 Source: http://online.wsj.com/news/articles/SB10001424127887323420604578652301245297268 22 Will Page. Adventures in the Netherlands: Spotify, Piracy and the new Dutch experience. p. 3 23 Will Page. Adventures in the Netherlands: Spotify, Piracy and the new Dutch experience. p. 13 24 Will Page. Adventures in the Netherlands: Spotify, Piracy and the new Dutch experience. p. 13
  • 14. 14 can be a tough call considering that the UK market in 2011 displays a 65% interest in music ownership – a number that has increased since 200925. Τhis actually makes sense and obtains more gravity when we see that 54% of money spent on music in 2011 was specifically on CDs, not even downloads26. Bearing in mind that the equation 'free play=exposure=sales' has been appropriated as an argument standing for piracy – especially if sales stand for general revenue instead of just physical or digital purchase -, Spotify can be viewed as an extra revenue-making mechanism for the industry. Since piracy is an indubitable reality in the music distribution, legal streaming services such as Spotify are an alternative because of their vision of ampleness in music choices and access to the Long Tail. With the blocking of illegal streaming sites and torrents, Spotify is even closer to being the alternative they wish to be. Tommy Darker believes that Spotify is a good thing simply because the Internet will be everywhere in the next couple of years: 'Google is already preparing balloons that will be broadcasting internet, which means all the streaming services will offer music for free to anyone...so that means abundance of music'. He also claims that even the freemium, ad-funded model can make a huge profit. But this huge profit is yet to happen. Unfortunately, the acknowledgement that the conversion of the large mainstream segment is successfully taking place comes along the acknowledgement that piracy still wins. More specifically, despite the legal-illegal ratio of users being 2 to 127, the illegal users consume more material. For example, in the Netherlands the least active 68% of file-sharers take 5 files or less -and it is the 68% that is easier to convert to legal users as seen above-, accounting for only 20% of the content, while the most active 10% take 52% of files28. The 2 to 1 ratio and the other findings do not negate Spotify's contribution in the combat against piracy both in the Netherlands and the company's home country Sweden, where streaming 25 BPI. Music Consumption in the UK. p. 10 26 BPI. Music Consumption in the UK. p. 8 27 BPI. Digital Music Nation. p. 19 28 Will Page. Adventures in the Netherlands: Spotify, Piracy and the new Dutch experience. p. 12
  • 15. 15 and digital sales have been gradually rising since its launch; the streaming revenue in fact rose to +79% in the first quarter of 2012 according to Sweden's IFPI body, GLF29. At the same time, there is a bigger picture to look at. However optimistic and self-congratulatory Spotify is in its report Adventures in the Netherlands where it also refers to the similarities between the progress in both countries, the GLF report states that piracy is still a big problem in Sweden even if the situation has considerably ameliorated in the past few years. It might be a solution but there is no more proof if it is a conditioned success that depended on factors such as the Dutch and Swedish culture and population as Dan Reilly puts it, because it is a 'an unfairly narrow sample'30. It is like a slow fundraising process where Spotify asks for companies and audiences to give them money promising to reward them with value and privileges in return. But you cannot make the same fundraising proposal to everyone. 1.3. Royalties & digital sales These two constitute a concern that comes right after the question about piracy because piracy is obviously contiguous to labels and artists' interests. The actual problem culminated around 2007 and was transferred to the new situation as a new, yet different problem, even though it is a mutated inherited thing. Spotify is already blooming to an advantageous, fully licensed service with over 20 million songs31 including a huge back catalogue collection from all the majors, and a growing collection that is acquiring through licenses with independent publishers, aggregators, and artists; it already has over 6 million paying subscribers to the premium service which maximizes the 29 Grammofonleverantörernas Förening. Press Release. GLF's statistics on music sales in Sweden - first half of 2012:Music sales are growing strongly. 30 Source: http://www.spin.com/articles/spotify-piracy-study-festivals-thom-yorke/ 31 Source: http://news.spotify.com/us/2013/10/07/the-spotify-story-so-far/ For the sake of a rounder perspective, I must mention that Deezer, the french streaming service that is available in around 182 countries (IFPI. Digital Music Report 2013 p.15) offers access to 'approximately 15m tracks' according to Jim Rogers in The Death and Life of the Music Industry in the Digital Age (2013). Same with Grooveshark. Grooveshark was accused of operating with insufficient licenses (only one license agreement with EMI (Source: http://www.theguardian.com/music/musicblog/2011/sep/09/behind-music-grooveshark) and is now strategically moving toward its brand's recovery. Allowing users to share their own files (P2P), it was regarded by many as the ideal place to find music. Still it only claims to have around 15m files (Source: http://www.grooveshark.com/press)
  • 16. 16 revenue for the company. And yet, it looks as if everyone is complaining and suing against the low royalties; but not necessarily Spotify... Spotify is paying. It might not be a lot but its part is accomplished with transparency since it does not only pay labels but independent artists too through aggregators with the provision of extensive reports. Why it looks a little is for a variety of reasons starting with the 'function' of the service and its value proposition. First of all, streaming works differently to anything we knew until now. Secondly, it is not the alternative to piracy as it professes; it is not here to solve the problems that always existed but it is the evolution of the same industry, a new model that is tested. It is going through a transitional period. Even though digital sales and downloads have been around a bit longer than subscription-based streaming services, they too still cause trouble. According to the MU assistant general secretary Horace Trubridge "The record label isn't incurring the same kind of costs online as it does with physical retail, but labels have been screwed by piracy, so they insist on applying the same rules to digital as they do to physical."32 In two lines Trubridge managed to point out the preexistence of a problem, avoiding however to mention that artists interests have been screwed both by the labels and the phenomenon of illegal distribution combined with copyright infringement. David Byrne, who has fierily criticized Spotify, explains this problem that Trubridge simplifies, more analytically in his book 'How Music Works': (...)the cost of all the services a record company provides, along with their overhead, accounts for a big part of the price of a CD. You, the buyer, are paying for all those trucks, all those CD-pressing plants, all those warehouses, and all that plastic. Only a small percent of the retail price is for the music. Theoretically, a digital distribution increases and much of that overhead goes away, those costs should no longer be passed along to the consumer – or to the artists.'33 So it is not a quick assumption to think that the royalties issue is the industry's fault, only boosted by the technological developments of our time; equally with streaming, where majors play a 32 Source: http://www.theguardian.com/media/2013/oct/25/spotify-artists-sue-labels-music-streaming 33 How Music Works. p. 224
  • 17. 17 grandiose role, it is not a new problem inflicted by Spotify on the otherwise sustainable career of the artist. Swedish Musicians' Union lawyer Per Herrey explains how the royalties that Spotify pays are a major cause for dissatisfaction for the artists/performers: 'Though the Spotify streaming rate fluctuates according to the revenue from advertising and subscriptions divided with consumer usage, this means that if the service pays an average of 0.5p per stream, these artists make no more than 0.05p from it – or, put another way, they make £500 for 1m streams, while the label pockets £4,500. Add to that the shares the labels own in Spotify and the money they stand to make if it goes public – and the "access fees" that digital services pay major labels in order to get access to their catalogues – it no wonder that the labels are hailing streaming as the future.' 34 This proves exactly what Trubridge and David Byrne explained; ironically the latter managed to deconstruct the industry in his book and still is a Spotify sceptic35. As a result of the aforementioned procedure the majors get paid more, but not the artists, and this is not something very different to most deals artists used to get in the CD era, especially the 360 degrees and the standard royalty deal. The majors that now are equity investors in Spotify get a percentage of the revenue equal to their marketshare. As a pro-Spotify blog Spotidj explains 'Deals with the big labels are not about streams [what I would think relevant to single downloads] but about pieces of the pie' 36 and the revenue will be equivalent to the share unless the number of streams exceeds that amount. It makes perfect sense and it is very similar to what is called 'recoupability of minimum fee'37 in the radio broadcasting and webcasting sector. When it comes to radio broadcasting, a blanket license is paid per channel per month or year but certain rates are announced for each year that are submitted to PROs such as SoundExchange38 once the use of the copyrighted material by the channel exceeds the pre-arranged fee. 34 Source: http://www.theguardian.com/media/2013/oct/25/spotify-artists-sue-labels-music-streaming 35 Source: http://www.theguardian.com/music/2013/oct/11/david-byrne-internet-content-world 36 Source: http://www.spotidj.com/spotifyroyalties.htm 37 Source: http://www.soundexchange.com/service-provider/commercial-webcaster/commercial-webcaster-crb/ 38 SoundExchange is the independent nonprofit performance rights organization that collects and distributes digital performance royalties to featured artists and copyright holders. (Source: http://www.soundexchange.com/about/)
  • 18. 18 The controversy about Spotify has been clearly set in the distance between various artists' arguments rather than the distance between artists arguments and Spotify's defence. On occasions such as the Musicians Union's demand for a new royalties deal from Spotify, after established artists like Thom Yorke pull albums off the platform39, voices like Billy Bragg's emerge to underline the obvious that if the rates were as bad, the majors would not get on board, or stay on board as it is40. In point of fact, Spotify pays out almost 70% of all its revenue to right holders41, so how much more can the royalties rise? Furthermore, the current disappointment lies on the the ephemerality of these circumstances and it is only a current thing as a number of industry people claim. Tommy Darker is strict when he's saying that people arguing about Spotify royalties are arguing about the wrong thing: The royalties are not something to talk about now. It's a very premature thing. They're going to evolve. I think Spotify definitely wants to be the major player to demonstrate power like Youtube does. No-one complains about Youtube because it pays. Spotify in the future is going to be Google of streaming music. Google is the giant of information and Spotify will be the giant of streaming music. (personal interview) Spotify itself officially states that the royalty payouts are growing dramatically each year because of their increased popularity42, which means more free users and subsequently more paying subscribers as the conversion ratio shows. Music lawyer Donald S. Passman advocates the same belief that artists did not earn much either when the CDs were first introduced, but this will change for the streaming services once it becomes mainstream and 'those subscriber ranks grow'43. This confirms the statement on page 15, that Spotify is a new model to be tested, and not something that is here just to be an alternative to piracy or solve the industry problems of the last generation. Artist Dave Allen contests in turn this easy and unprocessed disapproval of streaming services by a large 39 Source: http://www.theguardian.com/technology/2013/jul/20/spotify-radiohead-musicians-union-rights 40 Source: http://www.theguardian.com/technology/2013/nov/07/billy-bragg-spotify-artist-payouts 41 Source: https://www.spotify.com/us/about-us/artists/get-paid-from-spotify/ 42 Source: https://www.spotify.com/us/about-us/artists/get-paid-from-spotify/ 43 Source: http://www.nytimes.com/2013/01/29/business/media/streaming-shakes-up-music-industrys-model-for-royalties. html?_r=1&pagewanted=all&
  • 19. 19 portion of the industry: 'It is hard for me to understand why intelligent people like David Byrne and Thom Yorke do not appear to understand that we are in the midst of new markets being formed.'44 Here it must also be reminded that it is not Spotify's choice alone to pay these royalties. Instead, John Schaefer explains that in 2007 the Copyright Royalty Board that decides the royalty rates when needed, was convinced by Pandora -which was also supported by Spotify- to discount internet rates until 2015. The IRFA is meant to permanently fix the rate45. Schaefer also points out that even a fix 'may be premature' as everything is still open and that 'try[ing] to legislate today for something that’s likely to be around in a very different form in a relatively few years is a fool’s errand'. Tommy Darker adds to this that royalties in the future might depend on another development. If Spotify goes public – something that will be discussed later in the paper –, the rates might improve but to Tommy 'this is quite fluid, it's part of the stoke market which means that they could go up or down at any time' (personal interview). Last but not least, it is an important point to make that even if royalties remained at this low percentage for the artists, the idea behind streaming and access instead of ownership is to invest and wait for the results that will come in the long run, and which will offer a longer lifespan for an artist's income as well. Spotify Account Manager of Label Relations Katie Schlosser says that 'In the lifetime of a consumer on Spotify, there's an inflection point where the download of one individual track is overtaken by the actual amount of streaming that an individual user does on that track over time on a streaming music service.'46 IFPI also presents this different model positively in their 2013 report where Robert Litsén, COO of Swedish-based Cosmos Music Group, says that “With subscription, you need to look across a longer timeframe to see a return on investment'47 because the amount you pay every time you stream might be smaller but it can continue indefinitely', clearly presenting a partly-established truth that 'transaction is the new purchase' as 44 Source: http://www.theguardian.com/commentisfree/2013/oct/16/why-david-byrne-wrong-spotify-thom-yorke 45 Source: http://soundcheck.wnyc.org/story/252469-internet-radio-fairness-act-explained-sort/ 46 Source: http://www.digitalmusicnews.com/permalink/2013/20130510spotify 47 IFPI. Digital Music Report 2013: Engine of a digital world. p. 16
  • 20. 20 Tommy Darker attests (personal interview). Therefore, the question of whether streaming affects downloads or not, must be rephrased into 'does streaming relate to downloads?'. Spotify answered the question long before by removing the 'download' feature for single tracks from the platform in January 2013 in an effort to 'simplify the service' 48. The discrepancy between access and purchase ought to be a difference, and it will be even more obvious once the transitional, test period for streaming is completed. For now, Spotify, as it is only natural, adopts a collaborative approach to digital retail in order to shield its position in the marketplace: 'Spotify represents a new, additive revenue stream for our label and artist partners that supports and complements traditional download services.49' However, they know well that it is not their responsibility or obligation to relate to a value proposition far from their own. 48 Source: http://www.telegraph.co.uk/technology/news/9780904/Spotify-removes-music-download-feature.html 49 Source: https://www.spotify.com/us/about-us/artists/get-paid-from-spotify/
  • 21. 21 Chapter 2: The context of evolution 'To improve is to change; to be perfect is to change often.' Winston Churchill As mentioned before, streaming is something new; it is not something entirely new since it is the evolved model of the music industry and it has common features with the previous models. Nevertheless, it still has to be liberated from expectations and cultivate its full potential which is yet unknown and that is why we cannot restrict it within pre-established moulds. Technology shapes our social existence in ways we would not have imagined decades before. Music is social and will be shaped accordingly. Hence, it is very important to realise that streaming might be something new, but the evolution of the music industry is not. Tommy Darker describes the way structures supersede one another concluding that 'what people see is music becoming more and more abundant and easy to access which means that every industry is killing in brackets the previous industry, but it is not doing it; it is just changing' (personal interview) (see Technology section p.21). Reaction to change must be a self-preservation mechanism and Tommy Darker's realistic interpretation is that the people reacting simply 'want to keep making money the way they already know'. But why the evolution to streaming now, especially when another evolution took place two decades ago with the CD-boom? Why now, when the most recent one took place when iTunes launched the iTunes Music Store in 2003? The quick answer is 'because technology develops pretty fast'. Well, once again, it is not just that. 2.1. Factors Social (R)evolution It is not about technology; it's about systems and societal shifts. It's also about music business bubbles. 50Dave Randall The prerequisite for the industry's evolution to take place rapidly might have been 50 Source: http://www.theguardian.com/commentisfree/2013/oct/16/why-david-byrne-wrong-spotify-thom-yorke
  • 22. 22 technological development but the evolution itself was precipitated mainly by social factors. Technology followed the shift in society and the demands that this shift urged. Social shaping theorists view 'technological innovations and evolutions as the products of struggles and conflicts and struggles between different interest groups in society, many of which are removed from any predominantly technological logic or trajectory'51. And this is true about the music industry evolution, or in this case...revolution. It is inevitably linked to a highly consumerist society where demand keeps increasing (also with the help of technological developments). The alternative name for the streaming services like Spotify is 'on-demand', and this is because users have the privilege to have access to anything they want, the moment they want it, simply because they demand it. Consumers throughout history have been made to believe that 'they are always right' but when it comes to the market in general, there's a different space for different consumers. Society has long time now left behind the elitist practices of music through a gradual evolution of formats. The reason why this evolution to digital and streaming services is occurring is the need of more people to listen to more music, especially because more artists have the opportunity to go public and demand attention. The latter is not simply because technology allowed the DIY approach to music creation and publishing, or the rise of the Long Tail, but because modern society allows the thought of creativity to flourish in individuals more than ever before. The more the social and cultural boundaries expand, the more the human rights ideal is rooted in the heart of civilization, the more the empowerment, the confidence and the need for self-expression. So once again this is social. Dubber makes extensive use of sociologist Manuel Castell's sayings to point out that 'we do not simply inhabit but also, importantly, constitute the media environment within which we find ourselves'52. Castells according to Dubber makes clear that the underlying prerequisite for the existence of social unevenness is ironically the collectivity of human beings. This collectivity constitutes the media environment and the digital tools that facilitate their communication are the 51 Jim Rogers. The Death and Life of the Music Industry in the Digital Age. Location 384 (Kindle Version) 52 Andrew Dubber. Radio in the Digital Age p. 33
  • 23. 23 points of connection and separation53. On these opinions we can base the argument against the fault of streaming services and against the allegations that they decrease the digital sales or change the economy for the worst54. The people are the ones that lead the way in consonance with their needs. Within the specific conditions of (1) abundant distribution and (2) global economic crisis, people cannot afford to pursue more than a limited amount of songs, and those songs would naturally be the ones from their favourite artists. If those artists are their favourite indeed, they would be able to listen to them in a year maybe -it depends- 140 times. The popular point for the Spotify supporters is that for a 99c sale of a track on iTunes an indie artist gets 70c and you need 140 Spotify streams to make the same 70c55. On subscription based streaming services music fans listen to more music that they normally would, because they listen to music they would not necessarily buy and at the same time produce revenue for those artists that are not on their priority shopping-list. Daniel Ek explains that 'Sure, you're going to stream that Rihanna song five or 10 times, but you're also going to listen to David Bowie's entire back catalogue, which you might not have gone out and purchased' adding that 'Those are two very, very different behaviors56'. Those behaviours are both permitted and promoted by Spotify. So the reality call is that people who stream music, do it simply because they can and because until recently they did not have as many options. This will in turn create a more balanced industry income. Now consumers can browse more easily, try more artists and while doing so, promote (through Spotify's social features) those songs to other listeners. This will be beneficiary for most artists, eventually. The 'democratisation' of music is two-sided; it is for the audience and the artists. Katie Schlosser says that streaming is all about the Long Tail value proposition of each individual user57 and this is were music egalitarianism appears. Streaming services actually offer a chance for 53 Andrew Dubber. Radio in the Digital Age pp 33-34 54 In reality, these accusations have not been sufficiently proven and Spotify responsibly claims that 'In every territory where Spotify has launched, digital download revenues have sustained their growth, and in some cases have even accelerated.' Source: https://www.spotify.com/us/about-us/artists/get-paid-from-spotify/ 55 Source: http://www.spotidj.com/spotifyroyalties.htm 56 Source: http://online.wsj.com/news/articles/SB10001424127887323420604578652301245297268 57 Source: http://www.digitalmusicnews.com/permalink/2013/20130510spotify
  • 24. 24 equality and balance, more justice for artists that are unable to get a contract with a major but they're really good. It extends to a social circumstance where also consumers for the first time are within an even territory. Ironic as it is now that no-one’s is sufficiently paid yet, it is at least comforting to see that we have reached the level of music egalitarianism, where everyone gets a chance to around the same amount of money and attention. Naive and idealist as this may sound, an independent artist might not be backed by a major with intensive marketing strategies and sold-out concert opportunities but an independent songwriter who is also the performer in their own songs will get a lot more from the distribution of their music on different streaming services, and depending on the aggregator a small front fee might be their only expense58. Of course independent artists cannot compete with the likes of the industry's commercial giants such as Taylor Swift, but when it comes to a single streaming of their song, they will get a bigger percentage in royalties! As Chris Anderson remarked early in the rise of the digital age 'the emerging digital entertainment economy is going to be radically different from today's mass market. If the 20th- century entertainment industry was about hits, the 21st will be equally about misses.'59 A last point to be made in this section is the one that is sometimes taken for granted and which is that music is along the people the reason of the evolution. The needs of the people concern music, because as Spotify declares on its website 'Music is Social'60. It is a social phenomenon that helps in the evolution of society and the success of technological developments. Both Plácido Domingo and Frances Moore, the Chairman and Chief Executive of IFPI respectively, affirm that music is behind all innovation and that it is 'an engine of the digital ecosystem'61. Technology To be fair, the evolution is influenced bilaterally. It might have been the capitalist, 58 e.g. Tunecore http://www.tunecore.com 59 Source: http://www.wired.com/wired/archive/12.10/tail.html?pg=1&topic=tail&topic_set= 60 Source: https://www.spotify.com/uk/about-us/artists/what-is-spotify/ 61 IFPI. Digital Music Report 2013: Engine of a digital world. pp 4-5
  • 25. 25 consumer-centred economy that led to demand but as we saw, this demand rose higher with the use of the internet and the emergence of the Long Tail that was entirely buried underground for niche audiences to enjoy. Anderson blames the poor supply-and-demand matching for the quick assumptions about popular taste, calling it 'a market response to inefficient distribution'62. So the mass never knew what they were missing out, just like Plato's Allegory of the Cave63 suggests. So technology is a major factor in the development of the streaming services. The sequence of the technological developments that helped the music industry monopolise all significant profit in the music world goes like this. Music has also existed as an elitist commodity confined within the concert halls' walls when sheet music circulated and it started being played in people's living rooms. And then the gramophone record arrived and they thought it was killing the sheet music. Afterwards the compact cassette was introduced and later on the compact disc followed. The latter proved to be 'a real boom technology for the record industry' and opened a decade of super-profits driving global revenues to a record high of US$38.7 billion in 199964. More specifically, due to the technological evolution the record industry's value rose from $109 million to £38.7 billion between 1940 and 199965. The subsequent decline and loss in profit that the digital and internet age caused are only a side effect of technology, and the inevitable repercussions of transition. But it is only for the music industry and not the music world as we must keep in mind. The gigantic steps forward that the tech world is making everyday are generally observed from an independent perspective. This happens because nowadays society is so widely tech-dominated that the majority fails to see the connection between the sociopolitical environment and the technological development. Technology is advancing very fast and at this stage the one discovery is outmoded by the next in a chain reaction process. For example, the transition from the first wireless 62 Source: http://www.wired.com/wired/archive/12.10/tail.html?pg=1&topic=tail&topic_set= 63 In this allegory, Plato describes a number of people being chained under the earth facing a wall. Behind their back there's a fire and when things pass in front of the fire they see the shadows of those things, but never the things themselves. These shadows are their reality. Only when someone breaks away from the chains (the philosopher) and sees, they can free themselves of the illusion and that, only if the philosopher comes back to share the truth with them. 64 (IFPI, 2000) The Death and Life of the Music Industry in the Digital Age. Location 308-309 65 (IFPI, 2000) The Death and Life of the Music Industry in the Digital Age. Location 308-309
  • 26. 26 products to 3G and 4G smartphones did not take long and these quick changes were the ones to precipitate the ripening of streaming services. Since this is more of a theoretical chapter, specific technological developments that confirm their participation in the evolution of the industry are mentioned in 2.2. 'The evolved players' pp 27- 31, and 3.3. 'Future' pp 41-44. Other Other factors which are inevitably social but transcend the theoretical approach I took in the first section, have also contributed largely in the early domination of the digital market and streaming. They have to do more with the practical evolution, the one incited by financial interests and capital and the one which incited in turn the social 'revolution' described above. Most of those factors mentioned laconically below are one way or another associated once again with insufficient distribution. • Physical Limitations: According to Chris Anderson, the limitations of the physical world was the basic problem that caused insufficient distribution and by extension digitisation and the rise of the long tail (which is central in the evolution of the streaming services as seen before). The need to find large local audiences and not niche ones made the retailers 'carry only content that [could] generate sufficient demand to earn its keep'66. Moreover, 'physics itself' enhanced these restrictions since 'broadcast technologies (…) profligate users of limited resources'67. • Majors: If we are to support the theory that technology did not cause the change out of no where, but followed the symptoms of a certain failure in the industry, we must turn to another factor, the capital that controls the entire modern society; it gradually devoured the music industry and turned it into any other industry driven by a small number of majors. 66 Source: http://www.wired.com/wired/archive/12.10/tail.html?pg=1&topic=tail&topic_set 67 Source: http://www.wired.com/wired/archive/12.10/tail.html?pg=1&topic=tail&topic_set
  • 27. 27 Music turned into a tangible commodity and competition was no longer just a matter of audience's choices. Jim Rogers elucidates this history of greed in the major record labels that climaxed through actions of price-fixing in a crystal clear manifestation of negligence towards the interest of their own audiences. Rogers also uses an observation by Longhurst where 'a House of Commons Committee monopoly enquiry into the overpricing of CDs in Britain in the 1990s ]which] concluded that copyright restrictions artificially inflated CD prices by restricting the import of cheaper recordings'68. • Supermarkets: Overpricing, ironically enough, joins powers with the seemingly contradictory Walt-Mart model, which might be reducing the price of the product in an effort to sell more but which is 'extraordinarily elitist'69 nevertheless. When supermarkets chains such as Walmart in the U.S. And Tesco in the U.K were admitted into 'the arena of music retailing in the 1990s' Walmart in the United Sates and Tesco things were bound to change. By 2008, such chains represented 65% of all physical record sales in the United States70. This is when 'the negotiating power of giant supermarket chains and their in-store pricing structures' trimmed retail prices of recordings and as a result drove overall sales revenues downward.71 This happened because as Chris Anderson made clear, the physical limitations are also set audience-wise and supermarkets, as physical stores, promote 'a limited selection of discounted releases to bring in customers'72. Because of the supermarkets the problem of physical sales low revenue was caused even before the digital era. The realisation that the 'death' of the physical album preceded the era of internet and digital retail is one of extreme importance. However, it is also important to open a parenthesis at this point and note that 68 The Death and Life of the Music Industry in the Digital Age. Location 330. 69 Source: http://www.wired.com/wired/archive/12.10/tail.html?pg=1&topic=tail&topic_set 70 Cited by Nielssen Soundscan in The New York Times, 1 January 2009. The Death and Life of the Music Industry in the Digital Age. Location 1082 (Kindle Version) 71 Jim Rogers. The Death and Life of the Music Industry in the Digital Age. Location 1100 72 Source: http://www.theguardian.com/music/2013/nov/02/is-music-album-dead-us-worst-ever-sales-figures
  • 28. 28 physical still accounts for the majority of industry revenue73. Also, the word death is an overwhelming, over-the-top choice and actually alludes to the continuously reducing demand for physical in contrast to the increasing demand for digital. This demand led to the digital music switch over in Q1 2012 when 'digital income accounted for over half of all recorded music income for the first time'74. Now, in the digital age, physical stores continue the effort to be leading forces in the digital music retail industry and thus have widely contributed in the switch over, not over in the switch over to digital retail, but in the quick expansion of subscription streaming services. Streaming now (2013) accounts for 16%75 of the music industry revenue and is backing digital services. Streaming services have also been partnering with tele-communication companies, car companies etc. in order to establish themselves in the everyday life of the music consumers (see Chapter 3: Future pp 41-42), so it is no wonder how major stores have joined the parade when numbers speak of a highly profitable future for these services. Some examples are Media Saturn, which actively promotes its own subscription music service JUKE to traditional music buyers76 and Tesco which in summer 2012 acquired the We7 music streaming service.77 2.2. The evolved 'players' The reasons behind the evolution to streaming are as important as the recognition of this evolution as a reality to which the industry and the music world must comply. Music has been turned from a product that could be purchased to a service; the first official streaming chart was launched in 2012 in the UK78 and right now 4 out of 5 people are aware of streaming services as an 73 IFPI. Digital Music Report 2013: Engine of a digital world. p. 9 74 BPI. Digital Music Nation. p. 17 75 Source: http://www.theguardian.com/music/2013/nov/02/is-music-album-dead-us-worst-ever-sales-figures 76 IFPI. Digital Music Report 2013: Engine of a digital world. p. 15 77 Jim Rogers. The Death and Life of the Music Industry in the Digital Age. Location 1084 (Kindle Version) 78 BPI. Digital Music Nation. p. 7
  • 29. 29 option for music consumption79. The actions taken by the old and new members of the music industry in order to adapt and benefit from these new conditions and prospects are at times slow and steady and at times extreme. Record Labels - Majors The BPI reports that the digital income of all record labels consists of revenue from various sources such as digital retail with the 'a la carte download system' (iTunes, Amazon MP3 etc.), games, ringtones, subscription downloads, ad-supported music and video streaming (Vevo, YouTube, Spotify, Muzu, We7), subscription streaming (Spotify, Deezer, Rdio). According to this report, ad-supported streaming accounts for 10% of the total revenue80 but if we take into consideration the above mentioned percentage of total streaming revenues which reaches 16%81, subscriptions are doing fairly well. Streaming services offer a huge opportunity for independent artists to share their music. Viewed by some as the last most perfected 'tool' for online DIY promotion, they have inevitably contributed to 'diminishing the power of major music companies in acting as intermediaries in artist-consumer relationships'82. In reality this threat was mostly immediate at the early rise of the internet and digital age, because the industry and the majors were really slow at acclimating to the changes. This is not the case now; the record labels are doing better than they were thought to for three important reasons. • Firstly, because physical distribution still accounts for the majority of the industry revenue83, and despite the switch over to digital which is yet to be considered a stable fact, the gifting market during the last months of the year is characterised by a cd and vinyl-driven demand84-not to mention that the gift market in general constitutes 30% of the total music 79 BPI. Digital Music Nation. p. 19 80 BPI. Digital Music Nation. p. 17 81 Source: http://www.theguardian.com/music/2013/nov/02/is-music-album-dead-us-worst-ever-sales-figures 82 Jim Rogers. The Death and Life of the Music Industry in the Digital Age. Location 77 (Kindle Version) 83 IFPI. Digital Music Report 2013: Engine of a digital world. p. 9 84 BPI. Digital Music Nation. p. 17
  • 30. 30 spend!85. Of course that does not refute the fact that the CD is gradually dying and that 'the digital is the driving format and, most importantly, a growing format'86. For example, in 2011 paid streaming was already higher on the preference list of consumers, above both CDs and free copies and a bit less preferred than paid downloads87. • Nevertheless, the fact that the CD is slowly dying does lead to the second reason why the labels can be optimistic. Until CDs become the outnumbered option, the time will have been given to the record labels to find new mechanisms to engage both the artists and their audiences. This effort has already been successful for some of the major labels. All in all, majors are still making money and their extinction might be a possibility, but not one to be seen in the near future. • Lastly, major companies are still the big players because no matter the democratised environment of participation and publication of music through aggregators and registration services such as YouTube, they still have more facilities to build the applications and create the highest quality bundles available in the market to indulge the music lovers. In addition to this, established producers, songwriters and popular bands still need them to supervise and regulate this 'immediate contact' with the consumers even in the occasions where the artists themselves choose to take up new roles and assist the marketing through the social media (e.g. Lady Gaga). Therefore, the record labels are evolving by changing parts of the industry and by creating a space inside their companies for creative innovation. When Rogers chooses to name a whole sub-chapter in his book 'Job cuts at the major labels'88 he fails to mention that more jobs have appeared in the market too. It is part of the same evolution. Positions in the music industry have been 85 BPI. Music Consumption in the UK. p. 8 86 BPI. Digital Music Nation. p. 17 87 BPI. Music Consumption in the UK. p. 3 88 The Death and Life of the Music Industry in the Digital Age. Location 762 (Kindle Version)
  • 31. 31 replaced by job opportunities dealing with streaming and app design among others. A good example is the huge demand for developers at services like Deezer89 and at the majors due to the exact same exigency. EMI introduced the Open EMI initiative in 2011. According to Cosmo Lush, the SVP Digital Business Development at EMI Music, this initiative aims to reinforce innovation in digital music: (...)at the heart of Open EMI is the concept of sandboxes. We’ve joined up with a technical partner called The Echo Nest to create secure environments on the internet where developers can play with EMI’s rich music repertoire and experiment with products or services that they may be developing. They can very quickly and easily publish those products in the most suitable digital environment or channel for their creation.90 Partnerships like the one above are undeniably a big part of the new era. Digital age is defined through interaction and ease in communication and this is reflected in the process before the result that reached the audience with the same ease. The majors need the knowledge and experience of companies that will allow them to broaden their revenue streams. This is directly connected to their relation with streaming services which in order to secure a sufficient income they need to acquire a larger audience from free users to paying subscribers. The desired outcome can be attained faster through integration. Integration refers to streaming services in association with car and living room integration as well as in association with 4G integration on mobile devices. This is something that mostly relies on the streaming services and not on the record labels, but, the latter can surely affect the engagement of audiences within the streaming services via their own developments. One of these developments is the new bundling that follows the unbundling that came early with digitisation. Unbundling is the choice of 'consumers [to] purchase single tracks at digital music stores such as iTunes for 99cents per song, rather than buying entire 'bundled' albums or collections' 91. In truth, this depicts a massive 89 http://developers.deezer.com 90 BPI. Digital Music Nation. p. 15 91 Jim Rogers. The Death and Life of the Music Industry in the Digital Age. Location 916 (Kindle Version)
  • 32. 32 choice that despite its existence before the internet era (with the sales of CD singles) is a digital symptom in its entirety. The sales of singles reached 189,000,000 in 2012, 99.6% of which were digital92. This comes against the labels' interests since the download or streaming of one song generates little income in comparison to the purchase or streaming of an album. What is more, in some of these cases it is only the song that catches the attention of a large audience, but not the artist. And this is slightly if not a lot different from the artist being recognised; when the latter happens, the artist can eventually bring more revenue in through concerts, advertisement and merchandise besides streaming or downloads. Certainly, this also depends on the contract and how much these options contribute to the label's income as well. One way or another, there is a new kind of bundling in an effort to push complete works of artists (albums) in a digital format and this bundling has an extremely social character; it is the album as an app. One of the early examples was in 2011 when Bjork released Biophilia. Through the app, her fans could download the audio tracks and a 'whole host of multimedia content (…) stunning graphics and scrolling lyrics on their mobile phones or tablets , as well as special features such as games, essays, bespoke animations and even an introduction narrated by Sir David Attenborough'93. The most recent and auspicious release was when the Columbia marketing team purposefully neglected the advance marketing prerogative and directly launched Beyoncé's fifth self-titled album on iTunes in December 2013. It almost looked as a direct gift from Beyoncé to her fans94. Neither was a streaming option included nor did it allow single downloads. The new bundling option here is that the album was infused with 17 music videos, downloaded along the album -the album is called the visual album- in the regular price of £12.99. Still, this is only a part of the distribution innovation that labels come up with, and it can be seen as a herald for new developments that will prevail in the music industry with even more content and possibilities. Labels want to transform the simple auditory experience to a fully visual 92 BPI. Digital Music Nation. p. 4 93 BPI. Digital Music Nation. p. 11 94 Source: http://www.npr.org/blogs/therecord/2013/12/13/250737809/beyonces-new-album-is-entertainments-october-surprise
  • 33. 33 and social one because the new digital environment allows so much experimentation and liberty in audience satisfaction that the future potential is infinite. Paul Smernicki, director of Digital at Universal Music UK exclaims that his focus will always be 'on the experience as opposed to the digital product'95. Ole Obermann, SVP International Digital Business for Sony Music Entertainment also agrees that the album experience should be interactive96. It is no coincidence that Spotify has already started launching similar apps for the streaming of music, via partnerships with the labels. Artist apps are driving fan engagement according to the BPI, and a great example of this is the PLAY GUETTA app that was created by EMI and has been available globally on Spotify since November 2012. The app blends the immediacy of traditional broadcasting with the ease of digital interaction as it offers 'a real-time global communal listening experience for fans'97 and a deeper connection with David Guetta who can talk to fans within the Spotify app. This app is a strong model for labels to engage audience within the streaming services. Further proof is that David Guetta was announced the most popular artist on Spotify almost a year after the launch of the app98. All in all, when it comes to labels and streaming services, in the very end, it is not just about licensing music as it was with VEVO on YouTube, but also about taking advantage of other opportunities for engagement. Independent artists Jim Rogers describes the structural change in artist-intermediary-consumer relationships that so defines the new streaming services as 'a net gain for the artist' and a 'new music order'99. The ability of independent artists to upload their music on these streaming services enables them to reach people more easily than ever, especially due to the discovery apps such as those on Spotify that integrate the old-school intermediators and the traditional media (magazines and radio) as well 95 BPI. Digital Music Nation. p. 22 96 BPI. Digital Music Nation. p. 28 97 Source: http://www.emimusic.com/blog/2012/david-guetta-launches-play-guetta-spotify-artist-app/ 98 Source: http://news.spotify.com/us/2013/10/07/the-spotify-story-so-far/ 99 The Death and Life of the Music Industry in the Digital Age. Locations 79-81 (Kindle Version)
  • 34. 34 as the social media for personal recommendations. Of course, most of these streaming services like Spotify and Deezer allow the unsigned creators to be featured through aggregators which is still a great opportunity but makes it impossible for them to be in total control of their profiles in contrast to how they are with their YouTube channel or Facebook pages and personal websites. Still, AIM CEO Alison Wenham says that streaming services 'provide value as additional bandwidth providers to indies that can't afford to stream [music content] directly from their own sites'100. This is really important as the digital age brags over this confidence that independence inspires to creatives from all domains. In the music territory alike, the rise of the musicpreneur is an undeniable actuality. Entrepreneurs are independents that want to build something colossal around them; usually it is a community or a whole business. But the new artist-businessman, can create a community without the help of other experts but by using the knowledge that belongs to him/her alone. Tommy Darker is one of the first people in the music industry to promote so actively the word 'musicpreneur'. According to his own entry in the urban dictionary online 'Musicpreneur is an independent, polymath musician who takes care of both their artistic and entrepreneurial aspect of their music career.'101 In his small essay 'The Rise of the Musicpreneur'102 which consists of three parts, Tommy Darker gives advice about the business side of music like marketing, finance and touring. The artist is one of the primary parts of this music evolution and their assets and abilities are at this moment advanced enough so as to gain complete control of their own music, image and revenue. The artists, especially the singers/songwriters have always been on the spotlight, but now they're also the protagonists behind the scenes. And indeed, it is them that determine the outcome, so for the first time the content has lost some of its original value and the attention has once again turned to the creator. It is their knowledge that shapes their future. In Jamie Leger's 'The Musicpreneur Manifesto' this 'new economy is delineated definitively: 100 Personal interview with Jim Rogers. The Death and Life of the Music Industry in the Digital Age. Location 1541-3 (Kindle Version) 101 Source: http://www.urbandictionary.com/define.php?term=Musicpreneur 102 http://www.musicthinktank.com/blog/the-rise-of-the-musicpreneur-part-13.html http://www.musicthinktank.com/blog/the-rise-of-the-musicpreneur-part-23.html http://www.musicthinktank.com/blog/the-rise-of-the-musicpreneur-part-33.htm l
  • 35. 35 (...)the intangible assets have become the most valuable form of currency because attention is one of the most limited resources, thus obscurity has become the elephant in the room. But it is why for the first time in history creators, are not only the leaders, but the farmers, manufacturers and distributors of value. In the NEW economy it’s not “CONTENT is king...” It’s the Content CREATORS who are king!103 Social media started this deconstruction of the status-quo and now the cliché of the musician that needs a record contract or a publishing deal is history. At a time where an album's existence in the physical market is not mandatory and does not prove an artist's credibility, distribution is a digital and internet thing at large. To be able however, to manage this without the music business professionals, artists need to reach for the knowledge themselves. Today's musician is not only an artist but a business-like radar that needs to identify opportunities. Streaming services count on this radar for greater expansion. Grooveshark for example, after having been sued by majors and artists as not sufficiently licensed, is trying to rebrand and reposition itself in the music industry and one of the ways to do it is to give the chance to artists to claim their profiles and be in charge104, something that Spotify has not done. Something similar is also Deezer's D4A105. But Spotify in general does not need to do that; their main claim is that indie artists will get exposure anyway because the company spends a great deal of its income on development of discovery apps and tools, so it feels as if they're counting on this alone to convince artists to join. Spotify is also specifically tailored to provide information to the individual artist and how their participation in the platform will be beneficiary. And yet, the realisation that it has been somewhat affected by the negative critiques against their royalty rates, led Spotify to a recent announcement about new plans to further help its artists sell merchandise and concert tickets 103 pp 9-10 at http://www.jamieleger.com/wp-content/uploads/2013/04/The-MusicPreneur-Manifesto.pdf 104 Source: http://www.musicweek.com/news/read/grooveshark-re-launches-features-tip-jar-to-encourage-artist-royalty- payments/052207 105 Deezer For Artists is a Deezer initiative that offers more exposure to artists on their platform. http://www.theguardian.com/technology/appsblog/2013/mar/25/deezer-end-of-downloads
  • 36. 36 through its website and apps106. The world has obviously turned its focus on independents and even if the new services are still some stages away from offering the artists a sufficient income, their mere 'exposure' advantage does not allude to a drawback for the company. It actually confirms the need for the rise of the polymath musician who will act before they dream: If you're on Spotify, is the same with being on Amazon, the song is not going to buy itself. If you're on Spotify don't expect big changes. But it does work for the artists that want to be on every platform and get exposure as well as say 'I'm credible'... Tommy Darker (personal interview) The negative criticism proves even more the necessity of the musicpreneur. Artists need to know, judge or speculate in advance and make choices with full responsibility when it comes to the sustainability of their career. The fact that they put their songs on Spotify before checking the royalty rates and then proceed to sue or write articles about it is a very naïve move. Research so far has shown that the rates will naturally increase, but until then, indie musicians have the ability to refrain from uploading their songs on streaming services. The interesting thing is that they prefer to demand rise in the rates instead. This proves again one thing, that they realise that Spotify is the future. They want the future but they want it now. 106 Source: http://www.ft.com/cms/s/0/57b60d40-5c09-11e3-931e-00144feabdc0.html#slide0
  • 37. 37 Chapter 3: Spotify & Future Ουδέν κακόν αμιγές καλού (ancient greek saying: in every cloud there's a silver lining) Before we discuss the potential and future of Spotify as possibly the best model for streaming services globally, we have to look at its present state and these conditions that will determine the next steps towards its full bloom. The positive characteristics and the faults that now put the company at risk (some of which were discussed earlier in the paper), especially within this very competitive and innovative environment, are the ones that need to be looked at, even if concisely. However, all these primarily rely on Spotify's business model which will be reviewed first. In a nutshell, the present features and conditions are part of a pre-arranged and planned step on the way to this company's future development and success. 3.1. Business Model No one really knows Spotify's business model but it is speculated with much confidence by the industry professionals and the public itself. What is crucial in Spotify's future is its value which has risen to $5.27bn in 2013107 from $1bn in 2011108 (and $3bn in 2012109). And this time while the new financial rounds are closing, Daniel Ek and chairman Martin Lorentzon are reportedly 'reluctant to give up more of the company to investors'110 with the new money coming in being more of a loan rather than an equity investment. Especially after the credibility issues that their relationship with labels have caused them so far, even more shares can be tricky and further undermine their integrity. This idea of allowing more equity investment is not far from the idea of 107 Source: http://techcrunch.com/2013/09/06/let-the-music-play-spotify-is-raising-money-again-at-a-5-3b-valuation-says- swedish-paper/ 108 Source: http://www.telegraph.co.uk/finance/newsbysector/mediatechnologyandtelecoms/8583247/Spotify-valued-at- 1bn-after-fundraising.html 109 Source: http://techcrunch.com/2013/09/06/let-the-music-play-spotify-is-raising-money-again-at-a-5-3b-valuation-says- swedish-paper/ 110 Source: http://techcrunch.com/2013/09/06/let-the-music-play-spotify-is-raising-money-again-at-a-5-3b-valuation-says- swedish-paper/
  • 38. 38 selling the company which Ek does not wish, but which at the same time does not feel strongly against if it is for the better.111 The other question that is directly connected to these prestigious investors and the new rounds and which puts Spotify in the centre of attention is whether they intend to go public in the future. Ek answers: We have investors, and obviously, at some point in time, they want to get their money back…If we think that that goal is better aligned by going public, sure we'll contemplate it, but it's not something that I spend any waking time thinking about. 112 So far, therefore, the answers are slightly negative while the attitude and tactics that Spotify follows when it comes to the new fundraising rounds seem to hint against such an option to the untrained mind. But, it is very probable that this is only part of the script. The rise of money from investors will play its part in the larger strategy for expansion and in the long run contribute in the rise of subscriptions and number of partnerships. Concomitantly the portion that goes to the right-holders (70%) will gradually follow the rise. Tommy Darker insists that this is the one viable business model for Spotify and that it does not entail any premature confession of their goal to go public in the near or distant future: They will keep getting value for the company till it's worth billions. So this is the business model. There's only one business model. And up to that point, maybe the royalties for the artists will get better. But this is quite fluid, it's part of the stoke market which means that they could go up or down at any time. If people don't trust the company for any reason, the value of the company will go down. It's all about how they're going to handle the company. (personal interview) This is where the idea that David Kusek from Berklee University has been propagating can find a place. If Spotify manages to go public that means that most people will soon be paying for access in the same way they pay for other services and goods. More specifically, Kusek makes the revolutionary statement that 'the industry ought to establish a “music utility” approach to the 111 Source: http://online.wsj.com/news/articles/SB10001424127887323420604578652301245297268 112 Source: http://online.wsj.com/news/articles/SB10001424127887323420604578652301245297268
  • 39. 39 distribution and marketing of interactive digital music, modelled after the water, gas and electricity utility systems'113. All this confidence and talk about the future might seem misplaced considering that Spotify is actually dealing with a remarkable loss despite its perpetual expansion and it has yet to turn a profit114. Yet, this is a calculated transitional stage in this business model. Spotify's last financial reports show net losses of €58.7m ($78m) in 2012, an obvious increase from €45.4m ($59m) in 2011115. Although it is noted as a huge increase, taken into perspective this loss is actually reduced as Spotify's revenues rose 128% year on year in 2012116 from $250 million (2011) to $577 million (2012)117. The distance between revenues and expenses will scale down and eventually start turning a profit. Just like with the royalties, the argument about the loss condemns Spotify to oblivion quite unnecessarily. Instead, there are many productive processes and investments behind the obvious loss that almost guarantee the turnabout in the future which will also mark the end of the transitional period and the official change of the industry as we know it now. There are quite a few reasons why the company is still losing money, some of which are competition, development, and of course the negative criticism that reflects the industry's intransigence towards evolution. When it comes to competition, Spotify is in a battle against the Apple colossus with iTunes, iTunes Match and iTunesRadio, against Pandora (which also undergoes financial difficulties), Rdio, Google Music, Daisy, Deezer and others. All of them are developing features, creating exclusive deals through prestigious partnerships but as Tommy Darker points out, Spotify are better businessmen: People have the same idea, but when it comes to making it global and public Spotify are doing it. They're getting there. Their value proposition is streaming music.It just streams. Itunes' value proposition is 'Buy the songs so we can sell iPhones', nothing to 113 Source: http://www.forbes.com/forbes/2005/0131/042.html 114 Source: http://www.nytimes.com/2013/08/01/business/media/spotify-losses-grow-despite-successful-expansion. html?_r=0 115 Source: http://www.theguardian.com/technology/2013/aug/01/spotify-pandora-streaming-music-profits 116 Source:http://www.theguardian.com/technology/2013/aug/01/spotify-pandora-streaming-music-profits 117 Source: http://techcrunch.com/2013/09/06/let-the-music-play-spotify-is-raising-money-again-at-a-5-3b-valuation-says- swedish-paper/
  • 40. 40 do with music. Nobody goes to iTunes to stream music, they're going to Youtube now. Then it's most probably going to be Spotify. (personal interview) The high cost of licensing and development that is also responsible for the net loss is directly linked to this competitive environment. Spotify is spending a great amount on new features and the new technologies that will allow them ubiquity and the smooth switchover from CDs to streaming. When streaming is a dominant reality, the vast majority will not afford to subscribe and pay more than one services for access to music. Spotify's future downright depends on its efficient technological development that will offer convenience and entertainment to all the users, but with even more appealing offers for the premium users so that the ratio of conversion grows even higher. 3.2. Spotify Advantages & Drawbacks Spotify has managed from the day of their launch in 2008 to acquire over 24 million active free users and over 6 million paying subscribers among which president Barack Obama and UK prime minister David Cameron. Their constantly updated site claims to have paid the rights holders a revenue of $500 million until 2012 and another $500 million in 2013118 which makes it $1billion with a massively culminating revenue. Also, the fact that Spotify has achieved this through a limited launch in 28 countries globally (and still growing) in contrast to other streaming services like Deezer which has launched in 182 countries, supported by ISP partnerships in 20 territories and has an equivalent of three million paying subscribers119, is enough evidence to show that Spotify is doing remarkably well. The undeniable positives of Spotify are the anti-piracy effect, the social media integration via Soundrop120 and the discovery and community features which seem to be the leading force behind Spotify's brand for the past two years121. The two last ones are innovative features that have 118 Source: http://www.spotifyartists.com/spotify-explained/ 119 IFPI. Digital Music Report 2013: Engine of a digital world. p. 15 120 Source: http://soundrop.fm 121 In the beginning it was more about it offering an alternative to piracy.
  • 41. 41 been possible through Spotify's priority to invest on advanced apps and partnerships with other media, labels (their technological developments are usually related to their relationship with Spotify) and companies, something that reflects on its business model. Many of its 'advantages' let's say, have been mentioned throughout the paper but they're not the only ones to be considered accountable for the service's successful course so far. Some other privileges that Spotify users enjoy are the convenience it offers from a space/storage point of view. The app allows its users to save data on their phone, laptop and other devices but what is even more convenient from an economical perspective, is that it allows offline streaming for premium users. Consequently, streaming of downloaded playlists is possible without extra data charges and even with the phone's data being turned off. Another one is included in the communal feeling that Spotify emanates and is its radio service. It actually manages to combine its primary value proposition that is streaming with an already tested and popular radio experience by emulating Pandora's model. Pandora is an internet radio service that works with automated musicological recommendations. Their possible favourableness is enhanced by the choice that the service gives to their users to either like or dislike the songs that are played as a suggested sequence to a genre or band initially picked as a radio 'station'. This way Pandora and now Spotify can improve these stations. Taking into account that Pandora is the best-known internet radio service globally, even though only US-based so far, with with 66 million active listeners and accounting for 8 per cent of all radio listening according to IFPI122, there are many reasons to believe Spotify radio is one of the service's greatest assets. At the same time Pandora's is exclusively a radio service that has endorsed the image of radio promoting sales via an option that the users have to directly purchase songs from the platform. But as we saw earlier, sales will probably soon be an argument of the past. Furthermore, Spotify also promotes traditional radio through apps such as BBC Playlister where DJs and presenters from different BBC radio channels and shows add the songs of their choice or the ones that play on air on their own playlists. So, if traditional radio promotes sales, then Spotify indirectly assists by sharing the 122 IFPI. Digital Music Report 2013: Engine of a digital world. p. 17
  • 42. 42 intention – at least for now. The deficiencies, or some Spotify characteristics which have been critiqued as such, e.g. royalties, have also been examined but there are also some other practical difficulties in the use of the service which are worth to be considered for future improvements. One huge drawback for some users is the lack of ownership whose perception as a defect can be ascribed to the general resistance to the change of the industry. Some blogs describe this access instead of purchase as 'the ghost of digital reality, […]the double extinction of the physical connection to the music.'123 As it seems, according to the YouGov SixthSense Music 2012 report, the majority of fans (54%) still want to own downloaded music with only 9% saying they prefer access over ownership124. The importance of ownership extends to more traditional formats that reflect the users' need to have this physical relationship with their favourite music. For some devout music fans vinyls are the only worthy tangible purchase as CDs are actually digital as well. Therefore the return to vinyl, as the Director of Digital at Universal Music, Paul Smernicki, observes : There are bits of our business that might surprise people: we have a vinyl box-set store τthat does really well and we have a direct-to-consumer store where we reissue great albums from our catalogue on vinyl'125 Last but not least, and also due to the lack of ownership, the Spotify subscriber is condemned to 'live' within the architecture of the platform. Smernicki thinks that 'a music service without a front end where you subscribe to the architecture that delivers the music' is a thing of the future that he would very much like to see.126' So, to him, this architecture means a lot more than just user restrictions; it shows a restricted environment by the labels and the interests behind the streaming services that have launched so far. Those interests still create impediments to the back-end users -because in the end, users are both the artists and the audiences-, and this is also widely believed to 123 Source: http://www.digitaltrends.com/mobile/why-i-have-to-quit-spotify/ 124 BPI. Digital Music Nation. p. 22 125 BPI. Digital Music Nation. p. 23 126 BPI. Digital Music Nation. p. 23
  • 43. 43 be the same reason why Spotify is yet to be trusted by a portion of artists and music fans. Because labels are equity investors and because it was founded on a dependency of premium content (Sony, EMI, Warner, Universal), this architecture with its limits and boundaries is not only an independent assignment to a developer; it is a more than a digital space or a platform. 3.3. Future As we saw, partnering-up is an indispensable part for a promising future. Spotify has a decent number of commercial partnerships, among which a multifaceted strategic partnership with Coca Cola which 'Combines Music Expertise, Innovative Technology and Massive Global Reach to Share Music With the World'127. Such dynamic partners are as crucial to the brand as Spotify's distinguished users such as the US President and UK Prime Minister, and its popular investors such as Ashton Kutcher and Justin Bieber.128 Especially relationships of these likes with artists that are also featured on the platform add considerable value and industry credibility to the company at a global scale. Still, the most valuable partnerships that will accelerate awareness of streaming services is the ones with ISPs and mobile operators. Their significance has been already certified and 'the access model and evolution of bundled subscription services within mobile operator plans' will be equally imperative in the future according to Leanne Sharman, VP and MD at Digital Strategy and Business Development at Warner Music Int129. As a matter of fact, those deals 'allow telecoms companies to sell higher-value packages to their users, reduce customer churn and associate their brands with music while subscription services benefit from the marketing power, billing relationship and user reach enjoyed by telecoms companies'130. It works with the cost of accessing the music service being included into the monthly payments to the ISP or mobile 127 Source: http://press.spotify.com/nl/2012/04/18/spotify-and-coca-cola-partner/ 128 Source: http://www.forbes.com/forbes/2012/0504/celebrity-100-12-just-bieber-investments-music-venture-capitalist. html 129 BPI. Digital Music Nation. p. 29 130 IFPI. Digital Music Report 2013: Engine of a digital world. p. 15
  • 44. 44 provider131. Deezer has partnered with EE after Orange132, Daisy has allegedly agreed to a collaboration with a AT&T133, even before its launch and Spotify has a partnership with both Virgin Media and Vodafone134. Of course, these collaborations and schemes are viable only due to the rise of 4G. In fact, Spotify has a 4G partnership with Vodafone; 4G will allow users to stream with unprecedented speed without any buffering. Forecast data from Futuresource Consulting shows the scale of uptake where there will be 44m 4G subscribers in the UK by the end of 2016 – almost 70% of the population135. The next very important development that is yet to take fully place is the complete in-car and living room integration of streaming and is fundamental for the ubiquity of the 'format'. Paul Smernicki of Universal confirms that 'neither have been nailed'136. The intention to 'nail' them as Smenicki calls it, is the intention to multiply the revenue through the continuous streaming of music everywhere, anywhere by anyone. Spotify started the effort in March 2013 with the Parrot partnership. The Parrot ASTEROID Smart, Mini and Tablet allow the download of the Spotify app bundled with driving assistance applications – such as points of interest, information, applications, access to the Internet and navigation137. A month later Spotify announced the partnership with Ford with the new Spotify app for Ford SYNC AppLink via which a premium Spotify user and Ford owner can use voice command to dash-control access to their favourite music and playlists138. This way the user can easily find music suitable for their road trips depending on destination, length of trip and other aspects. Spotify also took a step towards living-room streaming around the same time 131 Mark Foster, Managing Director at Deezer. BPI. Digital Music Nation. p. 32 132 Mark Foster, Managing Director at Deezer. BPI. Digital Music Nation. p. 32 133 Source: http://www.hypebot.com/hypebot/2013/07/late-to-the-party-iovine-in-talks-to-launch-beats-daisy-music-service- with-att.html 134 BPI. Digital Music Nation. p. 33 & http://blog.vodafone.co.uk/2013/10/10/making-the-most-of-4gmusic-how-to-activate- and-get-the-most-out-of-you/ 135 BPI. Digital Music Nation. p. 31 136 BPI. Digital Music Nation. p. 23 137 Source: http://news.spotify.com/us/2013/03/01/parrot-device/ 138 Source: http://news.spotify.com/us/2013/04/02/spmarket-13say-hello-to-spotify-in-your-carspmarket/ & http://support.ford.com/sync-technology/spotify-for-sync-applink-sync
  • 45. 45 in 2013 via an alliance with Samsung Smart TV while also offering a 30-days free trial for anyone interested139. Since Spotify's value proposition is very clear with a focus on streaming and a side radio service, it is very doubtful that a Spotify TV service will be launched anytime soon if ever. However, in some countries such as the UK, TV viewing figures increase140 and YouTube channels such as Transmitter are launching as a new equivalent of the now declined MTV with a very ambitious plan. In cases like this, it might be worthwhile for Spotify to consider collaborations for the generation of creative content as part of the new fan experience that they are seeking to offer music lovers. Chiefly because their local-oriented aspirations could be assisted by efforts like that of Transmitter. Will Hope, Spotify’s director of label relations, explains that Spotlight is part of the idea they want to promote: that Spotify might be streaming only, but it is not just streaming: 'Creating original content is a really good way to drive that, whether it’s live sessions, documentary series like Landmark, or the magazine-style interviews rolling out for Haim and Lorde.'141 Start ups such as Transmitter with the goal to create the same unique content in order to drive consumption and celebrate music creativity in the UK, would very well suit Spotify's vision. On the other hand, the idea of Transmitter extends to a more obscure and ambiguous effort to appoint new gatekeepers, something that Spotify must resist if they want to lure the sceptics in. All these new steps forward will be largely determined by the music audiences. As already put in Chapter 2, one of the factors for the evolution to streaming services and the most determining one is the social factor. People make up the media and their needs comprise the technology sector. The music fans are a very demanding type of consumer that will further lead the way to the new discoveries in music consumption in the following years. Ole Obermann, SVP International Digital Business for Sony Music Entertainment, believes that digital interactive radio services are 'a huge 139 Source: http://news.spotify.com/us/2013/03/20/samsung-smart-tv/ 140 Source: http://metro.co.uk/2013/03/18/tv-viewing-figures-increase-in-uk-despite-decline-in-number-of-television-sets- 3547742/ 141 Source: http://musically.com/20 13/10/01/spotify-launches-artist-spotlight-feature-with-haim-and-lorde/