Like plenty of music fans, Sam Broe jumped at the chance to join Spotify two summers ago, and he hasn’t looked back.
Spotify, which began streaming music in Sweden in 2008, lets users choose from millions of songs over the Internet free or by subscription, and is increasingly seen as representing the future of music consumption. Broe, a 26-year-old from Brooklyn, said that having all that music at his fingertips helped him trim his monthly music budget from US$30 to the US$10 fee he pays for Spotify’s premium service.
“The only time I download anything on iTunes is in the rare case that I can’t find it on Spotify,” he said.
A decade after Apple revolutionized the music world with its iTunes store, the music industry is undergoing another, even more radical, digital transformation as listeners begin to move from CDs and downloads to streaming services like Spotify, Pandora and YouTube.
As purveyors of legally licensed music, they have been largely welcomed by an industry still buffeted by piracy. But as the companies behind these digital services swell into multibillion-dollar enterprises, the relative trickle of money that has made its way to artists is causing stomachs to tighten at every level of the business.
Late last year, Zoe Keating, an independent musician from Northern California, provided an unusually detailed case in point. In voluminous spreadsheets posted to her Tumblr blog, she revealed the royalties she gets from various services, down to the ten-thousandth of a cent.
Even for an under-the-radar artist like Keating, who describes her style as “avant cello,” the numbers painted a stark picture of what it is like to be a working musician these days. After her songs had been played more than 1.5 million times on Pandora over six months, she earned US$1,652.74. On Spotify, 131,000 plays last year netted just US$547.71, or an average of 0.42 cents per play.
“In certain types of music, like classical or jazz, we are condemning them to poverty if this is going to be the only way people consume music,” Keating said.
The way streaming services pay royalties represents a major shift in the economic gears that have been underlying the industry for decades.
From 78s to the age of iTunes, artists’ record royalties have been counted as a percentage of a sale price. On a 99-cent download, a typical artist might earn 7 to 10 cents after deductions for the retailer, the record company and the songwriter, music executives say. One industry joke calls the flow of these royalties a “river of nickels.”
In the new economics of streaming music, however, the river of nickels looks more like a torrent of micropennies.
Spotify, Pandora and others like them pay fractions of a cent to record companies and publishers each time a song is played, some portion of which goes to performers and songwriters as royalties. Unlike the royalties from a sale, these payments accrue every time a listener clicks on a song, year after year.
The question dogging the music industry is whether these micropayments can add up to anything substantial.
“No artist will be able to survive to be professionals except those who have a significant live business, and that’s very few,” said Hartwig Masuch, chief executive of BMG Rights Management.
Spotify is confident that they will. The company has 20 million users in 17 countries, with 5 million of them paying US$5 to US$10 a month to eliminate the ads seen by freeloaders.