7 Reasons Why We Should All Thank Spotify
The truth is that Spotify saved the music business and it's time to credit them with doing so....
There’s a lot of controversy around Spotify.
Like many tech companies, Spotify invested heavily into human resources throughout the pandemic, as consumption levels across all digital platforms exploded and the stock market rallied, largely thanks to the government stimulus check.
As we've entered the post-pandemic era, the situation in the global economy has looked increasingly unstable; with supply chain issues causing havoc and the Russia / Ukraine war creating a real risk to global peace, Spotify has not been immune to the mass layoff (500+ just recently) of stuff that's been happening across the tech sector in the past several months.
Further, it feels like blog posts and articles are going up every single day, taking aim at Spotify and creating a perspective that Spotify is ripping off artists and that Spotify should be seen as a corporate bad guy out there in the music business.
I recently enjoyed watching 'The Playlist' on Netflix, which told a close-to real-life story of how Spotify overcame the odds to create a situation that has seen massive growth in the music business over the past 6-7 years.
Despite 'The Playlist' being largely positive towards Spotify, even this ended on a negative note: focusing on the fractious relationship artists have with the platform.
It's easy to focus on the negatives.
It's also easy to focus on negatives that do not portray the full picture and that sow a narrative that discredits the great work that Spotify has done in stimulating next-level growth in the music business.
The truth is that Spotify has revolutionized the music industry, and Goldman Sachs predicts that the music business could more than double its present size by 2030.
As you might have gathered, I'm a big fan of Spotify.
Over the past three years, I've personally spoken to over 5,000 artists on a 1-1 basis over zoom and from doing so, it's very apparent that my viewpoint is a contrarian one.
The truth is that most artists are not fans of Spotify.
It is my belief, that this is the case partly because artists are reading the negative press, but also because many don't remember, or are simply not even aware of how bad it was before Spotify existed.
In the words you read ahead, I'll aim to put forward 7 Reasons why we should all thank Spotify and I hope that if you're an artist (or you work with artists), you'll start to see things differently ahead.
Before you read on, for clarity, I have no affiliation with Spotify, and Spotify has NOT paid me to write this article!
1. Through the advent of its innovative streaming platform, Spotify put an end to music piracy and allowed users access to music legally whenever they desired.
The year 1999 was a significant one.
At that point, the music industry hit $28.9 billion in revenue.
With CD sales booming, the music industry was printing money.
However, things started to head south, when the internet hit the mainstream and the music business suddenly had a big enemy called Napster.
Napster exploded overnight, with close to 80m people downloading the app in a flash.
Napster allowed people to get access to any song, anytime, anywhere (an amazing consumer experience to be fair) — eradicating the need to go to a store to purchase CDs.
From that point onward, the recorded sector of the music industry started to decline at a rapid pace and while Napster was eventually shut down, it was too late to stop the advent of music piracy on the internet.
Torrent sites like The Pirate Bay started to pop up every day and it became impossible to stop them.
People were not prepared to move away from the idea of being able to access any song, anytime, wherever they wanted to for free.
From this point onward, the global music industry was declining year on year.
Until a company in Sweden called Spotify started to come up with a solution to stop piracy and to bring about a new way of consuming music.
They created a streaming platform which meant that consumers could stream music whenever they wanted to and the rights holders could be remunerated in the process.
Spotify grew very quickly and it didn't take long to become the leading music consumption platform in its home market of Sweden.
This was hugely significant in the battle against music piracy and once Spotify started to open up into new marketplaces, the consumers started to realize that it was a much easier way to gain access to the music they wanted, without having to use torrents.
Consumers had access to the history of music at their fingertips, at an affordable price point (and free with ads).
By 2015, the music industry saw its first year-on-year growth in more than 16 years, triggering the spectacular growth we have seen since and leading to the huge future projections being published today.
2. Spotify revolutionized music streaming, opening up new possibilities for music engagement and consumption like never before.
Spotify's impact on the music business started by making streaming accessible and easy.
By making the history of music available to listen to instantly, Spotify initiated a rapid increase in music consumption.
As people consume more music, the knock-on effect is that they want to access bespoke experiences, i.e. they want to come to your show, they want to see a live stream online, and they want to be able to connect more deeply.
They want to be able to buy merchandise.
They will buy CDs and they will buy vinyl because they are getting deeply connected with the artist through their music.
As people become more and more connected with an artist, they want to be able to touch products.
They want to be able to be in a room and experience the music in a live environment.
They want to be able to be around other people who are like-minded and experiencing it as well.
3. Releasing music has never been so seamless and fast.
Spotify created a pathway that has led to the simplification of the release of music.
Previously, music would be released around the world at different times in different territories and always through a gatekeeper record label.
This didn’t help with the pace that artists were able to break on a global scale.
Consumers want to access tracks immediately upon release — regardless of which territory they are in — which has led to the adoption of a global release day by the industry.
So now, every Friday, music is released on a global scale by the industry.
That means that songs can break quickly around the world in a way that they couldn’t in the past.
4. The advent of streaming has removed the barrier of entry for artists — they can bypass the gatekeepers.
In the modern era, artists have a plethora of options for rapidly sharing their music with an expansive and diverse audience.
Yes, they could do this before with iTunes, but the market was limited and people did not use iTunes at the level that they are using music streaming platforms - which now include Apple Music, Amazon Music, YouTube Music, and many others.
Through pioneering music streaming, Spotify has created a situation where people are consuming music more than ever before, and artists are now able to build businesses by bypassing the gatekeepers.
Let's delve into the financial payouts and debunk the claim that Spotify doesn't provide fair compensation to artists.
The reality is that Spotify pays out approx 66% of all of the income that it generates to the rights holders.
Some of it goes to the master owner and some of it goes to the publishing owner.
This is 66% of Spotify's gross income.
To put that into perspective, record stores and retailers traditionally paid out a maximum of 20%-25% of the retail price of a CD or vinyl — so they were only paying a small proportion of their income.
Spotify is paying out 66% of all of its income to the rights holders.
Not only has Spotify created a situation where artists can grow and be empowered, but it also pays a higher percentage of its income to rights holders than traditionally was the case.
I've heard artists say that Spotify should pay out $0.01 per stream and I believe that in the long term, this level of payout will be possible in major markets, once the race to the moon (once the entire world streaming market is captured) has been completed and the only way to increase revenues is through price increases.
It is my belief, that much of the negativity around Spotify's payouts should be blamed on the major record labels, whose deal structures mean that artists receive tiny streaming payouts and in most instances never get paid at all.
5. Spotify is a long tail platform where you can keep on making money off of your music for years to come!
Streaming is the gift that keeps on giving.
What I mean by that is, when somebody streams your music today, you will get paid.
If they stream it again a week from now you will get paid.
If they stream it again a month from now you will get paid.
It’ll be the same in six months, in a year, in two years, in three years or five years, and so on.
If you build deep connections with your fans, they will keep on streaming your music.
If you keep on serving your fans, you'll get more and more super fans — who will stream your music day in and day out, and over the lifetime of that fan's relationship with you, you'll end up earning more money than if they downloaded your song from iTunes or bought a CD.
Further, as I already mentioned, your fans will still want to buy your physical releases, meaning you're monetizing your music via your fans from multiple angles.
The long-tail effect is powerful and Spotify is a long tail platform.
Streaming is a long tail situation.
It is ultimately about judging what you make over a long period.
It’s not about what you make today.
It’s not what you make in the short term, but what happens over time.
If you build fans, real fans, you will make more money from streaming than you otherwise would have made from CD sales or downloads.
6. Spotify is transparent with their data, allowing you to make more strategic choices for your artist project!
Spotify has worked to create connections with artists, with a strong focus on providing data transparency.
Fan insights have become a really big part of Spotify’s offering and while other DSPs (digital service providers) have followed suit, Spotify leads the way here and is still well ahead in terms of the analytics you have access to in Spotify for Artists (SFA).
As an artist (and somebody who works with artists) the SFA app provides comprehensive insights across your entire catalog.
Some of the insights you can see in SFA include:
How many streams a track has had in a given time frame.
How many saves a track has received?
What playlists your music is on.
Which countries and which cities your listeners are from.
With these insights updated on a 24-hour basis, it puts you in a position to be able to make informed decisions as to the effectiveness of your marketing activities as well as understand which towns and cities you should target for performing live in.
Before the existence of SFA, artists and their teams had very little insight and transparency on where sales were coming from and so this is another area we have to credit the innovation of Spotify.
7. Spotify was (and is) at the forefront of algorithmic playlists, allowing people to seamlessly discover music, discover trends, and be able to then help people to decide on what music they should listen to.
Playlists have been a huge part of the Spotify platform from the very beginning.
Spotify has a huge array of its editorial curated playlists, the playlists many artists and their teams obsess over.
These editorial playlists are helpful, however, the real power of the Spotify platform is in the vast array of algorithmically curated playlists.
These playlists are incredibly accurate in understanding the listening behavior of the Spotify user base and in doing so they're designed to provide artists with a chance to have their music discovered, as well as ensure that the artist's fans are served with both their new and existing music consistently.
Spotify invested aggressively into innovating and pioneering the technology required to create the best possible user experience through its algorithmic playlist system.
Spotify has fundamentally impacted the music industry in a hugely beneficial way to both artists and fans, pioneering a situation where streaming is likely to be the final medium for music consumption — at scale.
Despite the negative press Spotify receives, we have to be thankful to Daniel Ek for being a visionary leader; someone that had the guts to fight for this to become a reality.
Spotify has laid the foundations for a bright future — there is still a long way to go before the global premium streaming marketplace is maxed out and it is inevitable that as terrestrial radio dies, more and more advertising dollars are going to move to Spotify.
I hope this has given you some different ideas about the way you see Spotify and I'd love to get your feedback in the comments below.
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