Is Spotify the Answer to Music Piracy?

Earlier this week, the US House of Representatives blocked the Swedish music streaming service, ‘Spotify‘, from working on the chamber’s computer network, a move influenced by House rules against peer-to-peer (P2P) file sharing. Even though Spotify isn’t a P2P sharing service, the move brings up the pre-existing debate over whether music streaming programs like Spotify form a better alternative to illegal, yet unstoppable, music piracy.

Since the advent of digital music production, piracy has become an unwanted beast that can’t be tamed for the music industry. Digital products are easy and cheap to reproduce and redistribute; who wouldn’t prefer to download music for free in the comfort of their computer chair, instead of going to a music store to spend as much as even $30 for the same thing?

The problem has been compounded further by the presence of peer-to-peer file sharing, as now anyone with access to the internet is capable of sharing their music with anyone else with internet access.

Spotify, and similar music streaming services such as Pandora and we7, are marketed as ethical alternatives to downloading music illegally. The programs stream music – with a wide-ranging variety of artists – for free, but thanks to profits made from advertisers and subscribers they are also able to pay royalties to artists depending on how much they’re played.

It seems like a smart business model: by offering people a free alternative to illegal downloading, music streaming services can attract a lot of listeners, making their brand attractive to potential advertisers, especially those aiming to direct their messages at particular demographics; and for listeners who want to improve their experience with their streaming service, they can pay a fee as is convenient for them to receive more benefits.

One such benefit is the ability to use the program to stream any music you want, at any time you want it, without needing internet access, or the ability to do so on your phone using its app. These are features which can’t be offered by simply downloading music or purchasing it from online stores such as iTunes.

It’s for these reasons that some people are calling these services a happy medium between downloading and purchasing music. Whereas the former is unethical, yet highly convenient and free, the latter is inconvenient, expensive and, well, not that much more ethical than piracy because a lot of the money ends up going to corporations who control the music market and charge whatever they want for them accordingly (see here).

As we can see from the following image, most of the money paid for albums go to paying for retail and label overheads and marketing/production and label companies. Artists are fifth in line to receive royalties from the albums they create. Of course, this is still better than receiving no royalties at all.


Image Courtesy of deviantART


But not everyone is convinced that music streaming services are a better alternative to music piracy.

Firstly, there are concerns artists are still getting very little in royalties from music streaming services. According to the New York Times, Spotify, for example, pays a measly 0.5 to 0.7 cents a stream, which means artists or rights-holders receive only $5000 to $7000 for every million plays. But this is still obviously better than illegal downloading, which offers no royalties whatsoever.

The number of customers for music streaming services is still relatively low to say it is making an impact. Spotify now has more than 30 million users and Deezer has around 22 million, says The Guardian. While a great achievement, this is still just a drop in the ocean for the music industry.

YouTube seems to be the weapon of choice for listening to music for American teenagers. In a study conducted last year, most Americans aged 18 or less used YouTube to listen to music (as reported by Time). This is still not a bad thing, as a similar rate of royalties (0.6 cents) goes out to artists or rights-owners for each view.

People still want to own their music, rather than have access to a streaming service. This will always be the overriding benefit of illegal downloading. But there are signs music streaming is growing while illegal downloading is in decline (see here).

Additionally, there have even been claims the Spotify library contains counterfeits and bootlegs. An analysis conducted by Neowin showed that, for some artists, there are more fake recordings and album cover images than official ones. This brings into question where music streaming services get their content from and whether this is ethically appropriate.

Ultimately, it doesn’t seem like Spotify and music streaming services in general are making a noticeable change to the number of illegal downloads. In this sense, it is not the answer to music piracy. However, they still form an ethical alternative to piracy (even if only a marginal one, given their low rate of royalties), and if it continues to grow, it could very well be the answer in the future.

It could even grow to rival the main forms of royalties in the music industry. Consider the following passage from the New York Times article:

Cliff Burnstein, whose company, Q Prime, manages Metallica and other major acts, said that even if streaming hurts sales, all is not lost as long as the number of paying subscribers continues to climb rapidly.

“There is a point at which there could be 100 percent cannibalization, and we would make more money through subscriptions services,” Mr. Burnstein said. “We calculate that point at approximately 20 million worldwide subscribers.”

Metallica recently announced an exclusive deal with Spotify.

If those subscriber ranks grow, royalty rates will also climb, recapitulating a process seen whenever new technologies have been introduced, said Donald S. Passman, a top music lawyer and the author of the book “All You Need to Know About the Music Business.”

“Artists didn’t make big money from CDs when they were introduced, either,” Mr. Passman said. “They were a specialty thing, and had a lower royalty rate. Then, as it became mainstream, the royalties went up. And that’s what will happen here.”

Let’s hope that this figure of 20 million worldwide subscribers is achievable; it’s apparently sitting just above 10 million right now.

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