Spotify has been in the spotlight these last few months, with Taylor Swift and others not allowing their music to be available on its services. I’ve been asked many times what I think of this. Is Spotify a good model that we as an industry should support, or is it the antithesis? I wasn’t sure about the correct response. So I dug in and here’s my conclusions.
First, let’s set the stage. With today’s technology, there is more music available to more people than ever before and more people are actually listening. That’s obviously a good thing. However, according to RIAA studies, the U.S. recorded music revenue has shrunk from a high of $14.6 billion in 1999 to under $7 billion in 2013. Down over 50% in 14 years….yet more people are listening. Can we ever get back to that higher level of revenue? We must admit that physical sales, and permanent downloads, are not music’s future. Today’s consumers are embracing streaming—what Spotify is.
I sat down with a Spotify executive, who said in Sweden, where Spotify originated, 20% of the population are paid subscribers of the service, and they pay close to the equivalent of $17.00 U.S. per month. His argument is, if Spotify could reach that level in the U.S., meaning 20% of the population as paid subscribers, then that would have a significant positive impact on the U.S. music industry. Let’s do the math.
The U.S. population in 2014, according to U.S. News, is around 317 million. 20% of that number is 63.4 million. Is that a realistic number of people to subscribe to a premium music service? Spotify reports they currently have 50 million active users world-wide, but only 12.5 million paid subscribers, and only 4 million or less in the U.S. According to another report, the total paid subscribers for all interactive streaming services in the U.S., including Spotify, is 8 million. That’s quite a ways to go. To compare, at its height in 2001, Napster had 80 million registered, but non-paying users. For further reference points, according to Bloomberg Reports, Netflix currently has 36 million paid subscribers, HBO has 31 million, and 111.5 million people tuned in for last years’ Superbowl. Also, there are 327 million active cell phones, with paid subscribers, in the U.S. (For those of you who caught it, that’s more active phones than active people in the U.S.). My conclusion is it looks reasonable that 20% of the population could be interested in paying for music subscriptions.
If that 20%, or 63.4 million people, paid $9.99 a month for a premium music subscription (the current Spotify rate), that would generate $633 million per month, or $7.6 billion per year. The 70% Spotify says they pay to content owners would be $5.32 billion per year. Okay, but the Spotify executive said Swedish consumers pay the equivalent of $17.00 per month. If we applied that amount to the 20% subscribers in the U.S., the 70% paid to the content owners would be more like $9 billion per year. Now we’re getting somewhere…higher than today’s revenue, and only 5 billion shy of the peak from 1999. Hopefully non-streaming recorded music revenue could make up the difference.
Problem is, this only works if we can persuade consumers to pay for something they can now get legally for free. That will be a tough sell. Is music worth a couple of hundred dollars a year to 20% of the population, when they can easily get it without paying anything? (Many pay over a hundred dollars for one concert ticket for one night, but there are few alternative “free” options there.)
According to Scott Borchetta, CEO of Big Machine Label Group, Swift’s music is available on services like Beats or Rdio, which don’t offer music for free (or ad supported only). Scott’s stance is music shouldn’t be free for an endless time. Maybe a 30-day trial in order to entice people to purchase a premium service, but not forever. Scott says, “Music has never been free. It’s always cost something and it’s time to make a stand and this is the time to do it.” (per Sixx Sense).
So my conclusion is this. We need to get rid of the “free” or ad supported platforms. As an industry, don’t support them. Music owners should be able to hold their music from streaming services in order to maximize and control their distribution, like Swift. Kudos to her for standing up for the value of music. Unfortunately, with today’s laws, only the owners of the recordings can withhold their music from these services, and not the song owners. That’s what Taylor and her record company did. And I’ll bet, 3.5 million units later, the song owners on her album are applauding that move. Until laws are changed and song owners can actually control their songs in this space, we need more artists to take that position. Is that being too restrictive and unfair to the public? Or is that simply recognizing the value of music. Taylor Swift wrote in an op-ed, “Music is art, and art is important and rare. Important, rare things are valuable. Valuable things should be paid for.” I hope we all agree.
We should support interactive models like Spotify, but only for premium, or paid, subscriptions. Music is valuable, it should not be free. Ad supported models just don’t work. Do I want Spotify and other streaming services to succeed? Absolutely. But let’s help them, and everyone else, understand that music has a value greater than free. If we want to get more golden eggs, we simply have to make sure the goose is fed. As Borchetta said, we must take a stand, and this is the time to do it.
John Barker is President & CEO of ClearBox Rights, LLC, an independent rights managements company based in Nashville, TN. He is also Chairman of the Copyright Society of the South. John publishes a blog related to songwriting, publishing and copyright issues which can be found at http://clearboxrights.wordpress.com or www.clearboxrights.com.