For someone who only recently learnt the wizardry that is illegal downloading, I’ve never been mistaken for being tech-savvy. I’ve gotten used to blank stares from friends when announcing I’m going to a record store and to be honest, I’m pretty fucking okay with that. I don’t exactly know where my money is going when I hand it over at Rocking Horse Records, but there’s a certain smug self satisfaction in knowing I saved a few gigabytes from my monthly Internet bill. I like CD’s. I like records. As long as royalties are being received by the artists, I have no problem with parting with $28.99.
Enter the Australian launch of Swedish online music-streaming service Spotify. Already in widespread use in Europe and America, subscribers can pay a monthly fee of $11.99 in exchange for an ad-free version, or offering access to a current catalog of 16 million songs for free if the user puts up with ‘occasional’ advertising. The company is only 4 years old, but like many tech companies over the past few years has gained a strong early following with around about 3 million paying subscribers. Spotify's Australian introduction means users are offered a viable alternative to illegal downloading. It also means the competition between the existing streaming services in Australia such as Grooveshark and Rdio, is getting pretty cut-throat. Users access Spotify exclusively through their Facebook account, an arrangement that stirs imaginings of back-slapping, boardroom deals to seemingly embed further into our digital lives, by making itself the universal content dashboard and effectively monopolise social network sharing.
Silicon Valley wunderkind Sean Parker, founder of the first popular application that allowed users to share music files over the Internet, Napster, is one of the capitalists behind Spotify. Attacked for promoting music piracy and after Supreme Court legal battles with Metallica (YouTube Lars Ulrich’s holier-than-thou statements to the press. Priceless.) Parker is now backing a start up attempting to kill it. Influential in establishing a partnership between Facebook and Spotify, Parker (who was also an early investor in Facebook), has sunk a reported $15 million in the streaming service and is Spotify’s number one salesman. He recently told a conference at SXSW that the company is capable of making more revenue for record companies than Apple- “If Spotify continues growing at its current rate in terms of subscribers and users, we will overtake iTunes in terms of the amount of revenue we contribute to the music labels in less than two years.”
The issue for record companies is that Spotify users don’t buy the music on the spot, which makes paying royalties much more difficult. So far, there has only been speculation as to how the financial arrangements work between Spotify and the record labels. It was a badly kept secret since the music service launched that not only do the major music labels have equity in Spotify, but so do the major independent labels. However, there are still no details as to how those equity deals were reached – whether the labels invested money or agreed to waive certain royalty fees until the company were in a position to pay out revenues from subscription and advertising.
Are artists actually reaping the benefits and royalties from having their music so easily (and legally) accessible? Do music royalties only have to come from buying physical cd’s or records? Would artists lose out by having their music shared and extracted through Spotify? Spotify's payments to artists have been the subject of much debate. A traditional music purchasing/downloading model means that the user pays once for lifetime access, but in Spotify's case the artist gets paid every time the user listens instead. That often means lower revenues to begin with, but the eventual pay-off later can be larger. Regardless, not everyone’s happy. Patrick Carney of the Black Keys called Sean Parker an “asshole” in the midst of a rant against the online streaming service. The Black Keys have not made all of their music available on Spotify, while major artists such as Coldplay, the Black Keys and Paul McCartney have opted out of the streaming service. Spotify had responded to similar criticism in a statement made in September of last year, the company claiming it had already paid more than $100 million). Spotify’s CEO and founder, 28 year old Daniel Ek – “I'd also like to address people who think they'll gain sales by not being on Spotify. There's not a shred of data to suggest that. In fact, all the information available points to streaming services helping to drive sales. More than a dozen albums which debuted at Number One have been available on Spotify at launch.”
After Parker stated Spotify would make more money for the music industry than iTunes, Carney strongly disputed- “Because he’s (Parker) an asshole. That guy has $2 billion that he made from figuring out ways to steal royalties from artists, and that’s the bottom line. You can’t really trust anybody like that. The idea of a streaming service, like Netflix for music, I’m totally not against it. It’s just we won’t put all of our music on it until there are enough subscribers for it to make sense.”
Sean Parker’s silver tongue has been hard at work, calling out the “traditional gate keepers of music”, ranging from radio stations to MTV, that were “not selecting the music that met the best needs of the public” and have been replaced by the online social world. Parker offered the example of the band Foster The People, which he said came out of “virtually nowhere”, and then within three months of online publicity and promotion on services like Spotify, the once-indie group is now a huge hit. “There's blood in the water” he states, blaming their deals with artists for the reportedly meagre payouts. “There’s definitely some sort of dissent brewing between labels, publishing companies and artists,” say Parker. “A lot of it has to do with older licensing schemes. There’s a lot of artists whose contracts are written in such a way that they do not get paid for what’s happening on streaming services.” While pledging to remain neutral, Parker essentially sounds the fore-coming battle between labels and artists over yet another source of revenue.
When it comes to buying music online, iTunes have owned a massive portion of the market with their download service. That could change with the shift into people having a new way to digest their music content. We are about to move away from the age where people ‘own’ their music to a model where you pay subscriptions to have access to unlimited music wherever you are, whether desktop or on your mobile phone. I mean, it’s an option. An option from piracy and a huge deviation from the current business model which I’m sure have Apple execs more than a little rattled with moans of “Why didn’t we think of this?” Whilst leading digital users away from illegal downloading, time will tell whether Spotify’s ambitions play out but as we’ve seen in the past, big ideas in the hands of 20-something’s can have frightening success with only the sky to reach.
Martina Bailey Pitrun - AAA Backstage