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

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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

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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

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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

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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. 3213 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

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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. 317 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

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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. 1420 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. 323 Will Page. Adventures in the Netherlands: Spotify, Piracy and the new Dutch experience. p. 1324 Will Page. Adventures in the Netherlands: Spotify, Piracy and the new Dutch experience. p. 13

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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. 1026 BPI. Music Consumption in the UK. p. 827 BPI. Digital Music Nation. p. 1928 Will Page. Adventures in the Netherlands: Spotify, Piracy and the new Dutch experience. p. 12

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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 Grammofonleverantorernas Forening. 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)

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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/)

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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 Litsen, 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/2013/20130510spotify47 IFPI. Digital Music Report 2013: Engine of a digital world. p. 16

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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/

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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. FactorsSocial (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.htm56 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 Placido

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

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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 110072 Source: http://www.theguardian.com/music/2013/nov/02/is-music-album-dead-us-worst-ever-sales-figures

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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. 974 BPI. Digital Music Nation. p. 1775 Source: http://www.theguardian.com/music/2013/nov/02/is-music-album-dead-us-worst-ever-sales-figures76 IFPI. Digital Music Report 2013: Engine of a digital world. p. 1577 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

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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. 1980 BPI. Digital Music Nation. p. 1781 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. 984 BPI. Digital Music Nation. p. 17

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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. 886 BPI. Digital Music Nation. p. 1787 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)

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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. 1591 Jim Rogers. The Death and Life of the Music Industry in the Digital Age. Location 916 (Kindle Version)

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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 Beyonce's fifth self-titled album on iTunes in December 2013. It almost looked as

a direct gift from Beyonce 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. 493 BPI. Digital Music Nation. p. 1194 Source: http://www.npr.org/blogs/therecord/2013/12/13/250737809/beyonces-new-album-is-entertainments-october-

surprise

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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. 2296 BPI. Digital Music Nation. p. 2897 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 cliche 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

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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

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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

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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/

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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. 15120 Source: http://soundrop.fm 121 In the beginning it was more about it offering an alternative to piracy.

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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

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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. 22125 BPI. Digital Music Nation. p. 23126 BPI. Digital Music Nation. p. 23

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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. 29130 IFPI. Digital Music Report 2013: Engine of a digital world. p. 15

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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. 32132 Mark Foster, Managing Director at Deezer. BPI. Digital Music Nation. p. 32133 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. 31136 BPI. Digital Music Nation. p. 23137 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

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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/

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untapped area':

If you think historically about how people have consumed music in the past, about

half of the population were proactive buyers of music. But the other half of the

population listened to music in a passive way, mainly through radio.142

Spotify is a platform that uses subscription and apps as the mechanism to turn all consumers into

proactive users instead of proactive buyers. These audiences, including the 'contented segment'143

will be able to find whatever they need without any effort on services like Spotify that combines the

radio experience and the back catalogues of so many classics. And when Billboard's Ed Christman

refers to consumers as 'fickle beasts [that] want choices'144 he clearly points to the restless segment

'that want[s] to enjoy professionally produced content of a high standard' and 'want[s] to be guided

towards discovering the best new music being made'145. Both these audiences will influence

Spotify's new discoveries, as even the 'old-school' audiences require an ease that the new

technologies sometimes seem to complicate. A fine example of the demanding wishes of the

otherwise 'contented' segment is a niche audience that Dubbers calls 'the golden ears'. The music

fans that prefer the music they already know, are often more strict regarding their expectations,

because they are pretty precise about what they want. Dubber uses the BBC as a good example of a

station that transmits its classical music station, 'Radio 3', on FM, on DAB, and it also streams in

high definition sound on the Internet in order to please the audiophiles or 'golden ears' as the audio

engineers describe them146:

(...)it is possible to imagine that, under conditions of increased capacity, cheaper data

streams, more widespread and more reliable high-speed mobile data transmission,

greater uptake of devices capable of receiving large quantities of data at low cost

(especially without being tethered to cables and telephone lines), consumer demand

142 BPI. Digital Music Nation. p. 28143 This segment, at the broad end of the cone as opposed to the restless segment at the top, according to BBC's

George Ergatoudis, represents the mass market and covers by far the greatest section of the music listening/ consumer base. It is more interested in the classics and in purchasing records of familiar artists. (Jim Rogers. The Death and Life of the Music Industry in the Digital Age. Location 2872)

144 Source: http://www.theguardian.com/music/2013/nov/02/is-music-album-dead-us-worst-ever-sales-figures 145 Placido Domingo, chairman, IFPI. IFPI. Digital Music Report 2013: Engine of a digital world. p. 4 146 (Lax 2011: 157) Andrew Dubber Radio in the Digital Age p. 97

47

could conceivably increase for this sort of service and the number of so-called

'golden ears' may turn out to be greater than the BBC audio engineers whom Lax

describes might have imagined. What's more, they may not all be classical music

fans. 147

Dubber makes a prediction that is now already true but which will also be further implemented.

Premium Spotify members already enjoy high fidelity in audio quality when streaming and this is

becoming a standard expectation for the average music fan.

All in all there are many opportunities for Spotify to fulfil its potential and this potential

reflects the wider vision for all streaming services in the future. With a generous 93% of music

subscription services users stating their satisfaction148, with a rapidly growing awareness of their

existence and a number of yet unexplored markets with a huge prospective such as Brazil149, we can

be sure to witness an unforeseen democracy in music consumption very soon. Russia is the perfect

example of a country with a 'nascent digital music business' and already 12 licensed services,

accounting for more than a quarter of overall music sales revenues with iTunes having only

launched there in December 2012150. However, Spotify has neither launched there nor in other new

markets -yet. The future is definitely promising.

147 Andrew Dubber Radio in the Digital Age p. 97 148 BPI. Digital Music Nation. p. 20149 IFPI. Digital Music Report 2013: Engine of a digital world. p. 24150 IFPI. Digital Music Report 2013: Engine of a digital world. p. 25

48

Epilogue

Conclusion

In this paper I tried to disseminate the first impressions about the streaming services and

deconstruct the arguments against the new music industry. I proved that streaming services are

viable for the industry by showing that their rise is part of a general evolution. Spotify has been the

primary object of criticism and therefore I focused on it as the most successful model for

subscription streaming services at the moment.

In Chapter 1 we saw how issues that the world ascribes to digital age and Spotify are issues

of the electric age as well. Gatekeeping is still a characteristic that can be seen as a self-imposed

burden for Spotify. However we came to the conclusion that it is not a new problem and that

streaming services are dealing better with it due to the emergence of the Long Tail and a more fair

re-distribution. Piracy is closely associated with the new 'unfair' state of royalty rates and digital

sales. Evidence showed that both issues find more of a solution in Spotify rather than an outlet that

would allow them to uncontrollably spread. At this exact point, we were faced with the epiphany of

the music industry evolution that cannot be related to the previous status-quo, neither in terms of

formats nor in terms of profit.

In Chapter 2, we were presented with the factors behind the evolution toward streaming

services along with the evolved members of the industry including their advanced strategies and

plans. Through the acknowledgement of the factors we came to realise that the evolution was an

inevitable reality and not a plague upon neither of the 'houses' of the artists or the music industry

employees. This realisation that started in Chapter 1 is followed by a more practical approach of

how the labels and the independents are successfully getting to grips with the necessary

transformation. Through these new arrangements we witness the new state that is characterised by

convenience, interactivity and open-ended potential. The emancipation of the artist that had mainly

been a puppet of the earlier circumstances also heralds a future to which the artists arguing against

49

Spotify are still oblivious but which exists nevertheless.

In Chapter 3, the focus turns exclusively on Spotify. The analysis of its business model, the

subsequent advantages that it has over its competitors and the faults that ask for improvement show

once again a company that responds to demand instead of shaping demands as the sceptics accuse

them of doing. Its future depends on the public, something we saw both in the business model

section and the future section.

Based on these findings, my question of whether Spotify and streaming services can be a

viable option for the music industry in the future is answered positively. I found all the basic

arguments against Spotify hurried, biased or ignorant. The evidence shows that subscription

streaming services are the evolution and evolution can only be sustainable. It is not an independent,

accidental progress but one that follows the social patterns and their transformations.

Limitations & Future Research

The wrong arguments of the title are the arguments that the conditions themselves

contradict; they are arguments that sometimes even the articles that enclose them contradict.

Throughout the paper my sole intention was to describe a state of things as criticized by the media,

and comment on those media's effort to shape opinions that can only be positioned on a brief reality.

The internet on which I based my research is as illusive, disorienting and transitional as the state of

the industry. It changes on a day to day basis and evolves and this can be considered a major

limitation. Articles on blogs and online newspapers and magazines allow commentaries from just

about everyone while others are deleted the moment their claims are disproved. Therefore, those

wrong arguments against which I stood passionately, were at times implied and at times mentioned

concisely in the paper in an effort I made to resist them and move on to my own critique. I am

aware that the pro-Spotify argumentation in this paper might seem predetermined but it was the

50

result of an opinion formed once again through these internet inquiries in combination with the rest

of the research. By preventing myself from being easily influenced while reading the allegations

and critiques, I subconsciously and gradually found myself standing in positive discrimination

towards Spotify, but not towards all streaming services. Additionally, when I started researching I

already had a peripheral opinion on Spotify's functional and operative value due to my Spotify

premium membership.

While there are no books on streaming services alone so far, there are many I read that

analyse the music industry as a whole and offer a wide perspective on its history. The argument that

'history repeats itself' might have been enough to lure me into using this knowledge in this paper

but I intentionally chose to confine myself within the limits of the internet and its generous data

collection. Furthermore, the short period of time that was examined did not allow any comparisons

between the industry's reports from the near past, but it did help me reach my point without losing

focus. The restrictions in fact accelerated the progress to the moment of epiphany and the

limitations were part of the point made. The wider knowledge about the industry and the experience

of its members arguing against the evolution is a cause for reasonable debate but it is also a cause

for incessant drawing of comparisons between the different states of the industry. These incessant

comparisons proved to be the wrong arguments mentioned in this paper which delay the music

world from evolving as a big player along the labels and the musicpreneurs.

Future research, though, requires a detailed examination of the industry from the

introduction of the Compact Disc to the present. It also asks for further analysis of the technological

innovations that can be 'shared' between labels, independent artists and streaming services, that is if

we want to talk about the very practical survival of the music industry and not merely its evolution.

51

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