(Illustration by Jan Feindt)
Meet Michael Acton. In many ways, he represents the past, present and future of the music business.
As a teen growing up in Buckinghamshire, England, in the 1980s, Acton trawled record stores for vinyl. In his 20s, he combed London for electronica CDs, sometimes spending hundreds of pounds a month. Now, the 38-year-old British entrepreneur spends just £9.99 monthly to listen to as much music as he wants on Spotify, a subscription music service that lets users play its catalog of more than 18 million songs.
"I buy fewer CDs and spend less on iTunes than before," Acton says.
Acton's story, and others like it, have lead some in the music business to conclude that digital jukebox services like Spotify, Rhapsody, Muve Music, Rdio, Slacker, Sony Music Unlimited and others are bad news for the industry, which continues to struggle with double-digit declines in physical CD sales.
This is roughly the conclusion that managers for Coldplay, Taylor Swift and, most recently, Rihanna came to this year when they decided to withhold their artists' latest releases from streaming services-at least for the first few months-with the belief that listeners like Acton wouldn't buy the albums if there was unlimited access to the music on said streaming services.
The hypothesis has met with strenuous objections from digital music services, which devoted much of 2012 to presenting evidence refuting the notion that they cannibalize sales.
Despite their best efforts, though, the debate rages anew each time a major artist decides to "window" his or her release-meaning it's available only for sale first, then released to streaming services at a later date. Rihanna, for example, withheld her latest album, Unapologetic, which topped the Billboard 200 in its debut week. As a result, the topic is likely to burn into 2013 and beyond as some artists continue to fear potential loss of sales, NPD Group digital media analyst Russ Crupnick predicts.
Next year, the topic may even heat up as audiences continue their migration to on-demand services, a move fueled by technology juggernauts like Microsoft pushing Xbox Music and Samsung Electronics hyping its Music Hub service. In addition, Beats Electronics is expected to crank up its marketing machine in early 2013 for the relaunch of MOG, a music service it purchased in July.
"I don't see the issue going away for the next year or two," Crupnick says. "Different artists will continue to take different paths for their release strategies, and for different reasons."
The issue is clouded by several factors that make it impossible to draw definitive, blanket conclusions, Nielsen SoundScan analyst David Bakula notes.
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Take Acton, for example. Yes, he spends less buying downloads and CDs. But that's not the end of his experience with music. "The net result is that I listen to more music now," he says. "And I probably spend more money on music in total than I had before, going to shows and such."
In addition, the problem with anecdotal evidence is that it rarely tells the whole story.
"There's no way to prove it one way or another," Bakula says, "because for every point you make on this issue, someone could make the opposite point and make it with as much validity."
Don Passman, a veteran music lawyer who represents Stevie Wonder, Green Day and other major artists, points out that it's not possible to conduct experiments with irrefutable results because the music market isn't a petri dish that lends itself well to confined control groups. "Once a song is out, it's everywhere," he says. "You can't hold it back from a group of people to see what they do."
Another complicating factor is that the answer for whether streaming cannibalizes sales can vary, according to Crupnick. "The answer is often, 'It depends.' It can depend on the artist, the album or the genre," he says. "For some artists, there is an impact on sales. For the majority of artists, however, there is probably no impact."
But the math could look very different for a well-established country artist like Swift than it would for a burgeoning electronic group like Cazzette. For one thing, Swift, who withheld her album Red from streaming services in October, might not benefit as much from the marketing exposure as Cazzette, which debuted its first album on Spotify in November. A second consideration is that Swift can rely on album sales as a significant income stream compared with acts like Cazzette, which make the bulk of their money from touring.
Deadmau5, who in September withheld his <Album Title Goes Here> from Spotify but made full, free streams available on SoundCloud, reinforced this in his comments at Billboard's FutureSound conference in November. "Awareness is key," he said. "I'm all about the tour. I'm all about the show."
The crusade against windowing, however, is still considered crucial for Spotify, Rhapsody and other advocates of on-demand digital services. That's because windowing releases can make it difficult to grow a music service that relies on new releases for the bulk of its spins. Five of the top 10 tracks on Billboard's On-Demand chart for the last week of November, for example, were for music that had been released during the prior two months. Driving spins is especially important for streaming services that require, among other things, scale and volume for their business models to work.
"This is a substantive change in the business," NARM VP of digital strategy Bill Wilson says. "Everybody is understandably cautious about this. These artists are making their own business decisions based on how they feel. We just have to keep reinforcing the positive side of what streaming brings."
Wilson points out that the number of digital downloads has increased-up 15% for albums and 6% for tracks in the first 46 weeks of 2012, according to SoundScan-suggesting that the widespread availability of free on-demand streaming hasn't led to a sales apocalypse.
Rhapsody chief executive Jon Irwin says, "The only thing streaming music cannibalizes is piracy."
Citing a study by Media Vision Group, Irwin says piracy in Spotify's home country of Sweden dropped 24%, from 47% of the population to 23%, in 2011.
Spotify chief content officer Ken Parks notes that windowing only drives consumers elsewhere on the Web to get music, such as YouTube, where he argues that artists receive "a fraction" of the royalties they would from a premium on-demand subscription service. He declined to state what those royalties were, citing confidential contract provisions. "It's weird that we get demonized, but channels like YouTube get a free pass," he adds.
In the long run, however, the debate could settle-just as it did for iTunes, which had its share of notable holdouts through the years from artists who felt the 99 cent per track model devalued full-album sales. This is particularly true for those who believe that on-demand streaming services represent the future of the music industry.