Business Matters: Flaws in the Argument That Spotify Will 'Never' Be Profitable
Business Matters: Flaws in the Argument That Spotify Will 'Never' Be Profitable

Spotify May Dazzle Consumers, but Low Payouts Still Worry People
-- As the U.S. launch of Spotify gets closer (apparently), just about the only topic that hasn't been beaten into the ground is the amount of revenue rights holders will actually make from the service. While Spotify might get the attention, this conversation is really about the industry's transition to a steady flow of micropayments from streams and away from less-frequent but larger payments from purchases.

While the company expects 50 million U.S. subscribers in its first year, according to a document leaked to the Wall Street Journal, its payouts can be almost comically small. In European countries where Spotify operates, some artists and record labels have been disappointed by the returns. One particular complaint is that Spotify users stream rather than buy new releases, resulting in just a few pennies per user. Such is life in the age of streaming media, however: Streams replace purchases, pennies replace dollars.

Or fractions of pennies, in many cases. The latest analysis of Spotify's financial impact comes from a U.S.-based artist. At his Digital Audio Insider blog, David Harrell walks readers through the latest Spotify numbers from his band's two albums that are available on Spotify in Europe. From August 2009 through March 2011, his band received an average of 0.2865 cents per stream from Spotify. The smallest payment was 0.02056 cents and the largest was 1.1456 cents. His band owns the masters and acts as its own record label. However, those figures are before the 9% cut taken by digital distributor CD Baby.

It would seem the payouts are getting better. Back in December 2009, the musician Gisle Martens Meyer detailed even smaller Spotify payouts in a blog post. In nine months, he had received $500 for half a million streams at Spotify - or 0.1 cents per stream. "I expected the road to the future Shangri-La of digital music to be a long and windy one, and it certainly is," he wrote.

Whether or not Harrell's 0.2866 cents per stream is good or bad depends on how you look at it. Harrell notes that it would take 244 Spotify streams to equal the label cut of a 99-cent iTunes download. And while it's comparable to what labels receive for an online video stream at YouTube, artists and labels may expect more from Spotify since it generates revenue from both advertising and paid subscriptions.

I should mention that Spotify does not discourage the buying or collecting of downloads -- far from it. Spotify now sells its own downloads (that function was previously handled by 7digital) and it allows users to mix their cloud-based collection with locally stored music files. But the service is primarily positioned as a streaming-and-caching subscription service.

Spotify-sized payments for streams will probably be stomached as long as the service is being used by more casual music listeners. Micropayments won't look so small when they're multiplied by a large number of streams coming from a huge group of listeners (and casual music fans are certainly high in number). But rights holders will probably be frustrated if they feel the Spotifys of the world are being used by more avid music fans as a substitute for purchasing music. Harrell is taking an optimistic view of new services. "My best guess is that, given the relatively small percentage of consumers who regularly purchase music, any additional income streams are a net positive," he concludes. ( Digital Audio Insider)

Spotify Is Getting Name-Dropped in the Most Unusual Places …
-- Even Ed Vaizey, England's Minister for Culture, Communications and Creative Industries, is name-dropping Spotify these days. Here's an excerpt from his speech Wednesday at the BPI's Annual General Meeting.

"There are already around 70 online music services in this country, and business is growing strongly, with revenue from subscription services rising by 38% last year. I am delighted that Virgin has announced its deal with Spotify. I hope that will be a game-changer with a major ISP offering a streaming service to its customers. I hope other ISPs will take note and follow Virgin's example." (Department for Culture, Media and Sports)

… Yet Not Always in the Best Way
-- The revenue reality of streaming music appears to be hitting folks in the U.K. Over at The Guardian there's a look at the government's insistence that it must play the role of "protector of the creative industries." Minister Vaizey supports voluntary action by ISPs to fight piracy and the industry is happy to have the government's support. Yet there are worries that private or government intervention won't be enough. An excerpt:

"But many in the music industry have serious doubts that streaming services such as Spotify will stem the downward spiral in revenue. Total revenue from recorded music in the UK last year was £800m. Of that £200m came from digital, and only £26m came from streaming."

Labels might not get to have it both ways. The best way to fight piracy is to convert people from illegal free services to legal free services. And because legal free sites offer very low revenue per stream, there won't be much to gain from turning a casual pirate into a casual consumer. There is much more to be gained by turning an avid pirate into an avid consumer. However, many studies and surveys have showed that the most avid pirates are already the most avid purchasers of music. And it seems unlikely that many casual, low-value consumers can be pushed to become avid, high-value consumers (this is the goal of bundling music services with data and mobile packages). There are simply too many ways to get music for free these days.

At the end of the day, the record business needs to ask this question: It is better to get behind services that truly thrill and engage music fans or put your weight behind services that attempt to get back lost CD revenue?

( The Guardian)

RIP Sony MD Walkman
-- Sony is planning to kill the MD Walkman, the Minidisc version of the iconic Walkman. The last model, the MZ-RH1, will disappear from store shelves around the world in the coming months. ( Wall Street Journal)