Can Spotify streams really hurt sales?

Posted 20 Dec 2011 — by
Category Pay outs, Spotify

Labels like ST Holdings pulling their music from Spotify and big acts like Adele, Coldplay and The Black Keys not releasing their latest albums on Spotify. What’s going on? The reason for this anti-streaming position is obvious: they all think streaming hurts sales. Is Spotify the new enemy after years of putting the blame on filesharing? Of course Spotify draws a lot of attention. With 10 million active users it is the most successful streaming music service by far. The 10 million number and all the hype around Spotify may lead to the feeling that the whole world is using Spotify. Let me attempt to put the 10 million users in perspective.

Internet access and Spotify usage
Spotify is available in 12 countries so far. Let’s take a closer look at the population and the internet users in these countries. Source: www.internetworldstats.com

Of course not every internet user is into listening and downloading music. A few months ago Musically.com referred to a report from the Internet Infrastructure Foundation in Sweden. It’s called Svenskarna och Internet 2011 ( PDF file in Swedish) According to this report 57% of the Swedish population uses the internet to listen and download music. Now let’s assume that the situation in the other 11 countries is more or less the same. (I know that you really cannot compare things in such a simple manner, but let’s do it anyway.) That would mean that there are 336 million people in these 12 countries who use the internet for music. 10 million of these 336 million people use Spotify. That’s just 2.9 %!

Can such small percentage cause sales to drop in any significant way? Highly unlikely!
Could Spotify be the reason for the 30% decline of sales ST Holdings witnessed? Well maybe if all their customers happen to be in the 2.9% niche. If you can defy the odds in such a way, leave the music business and go buy a lottery ticket.

Why the fear of streams?
I guess the cause of all this is that labels and artists now see data they have never seen before. Statements of their distributors are showing more streams than ever. For the first time they can actually tell how many times people listen to their songs. They don’t have any other data other than sales to compare this with. Just like with illegal downloads, every stream probably feels like a missed sale  But you just can not compare streams with sales. Listening and buying are worlds apart.

Why is the revenue of streams still that disappointing? The answer seems easy. Because in this stage only 2,9 % of all internet music users in just 12 countries are listening with Spotify. It has all just started, there is not enough volume yet. Labels and artist consider a higher payment per stream as the solution, but the real solution lies at the start of the calculation: more streams! And trust me there will be more streams. The US, the biggest market of them all with 272 million people with internet access, has little over 2 million Spotify users now. That is such a small percentage. You cannot even show that in a graph.

Taking a look into the future

For this we just have to view the current situation in the country where it all started: Sweden. You may have read about Spotify being the largest digital music retailer in Norway and Sweden. The report from the Internet Infrastructure Foundation in Sweden that I mentioned before also shows that 37% of the Swedish population who has internet uses Spotify. In Sweden Spotify launched September 2008. It took them 3 years to reach this market share.

Now imagine what would happen if Spotify can achieve the same 37% user level in all the 12 countries. That would mean 168 million Spotify users.

Imagine a band having a great review on about every influential music blog. If that would make 10% of all these 168 million users listen to a song once it would generate 16 million streams. With the current pay out per stream to indie artists ( $ 0.0063 ) the revenue is  $100,800. What if that one song is a killer track and people started listening to it over and over again for years in a row? And what would happen if Spotify gains access to more countries?

The Swedish report I mentioned earlier has more promising data (chapter 04). 86% of 16-25 year-old Swedes are using Spotify, with 55% listening on a daily basis. A whole new generation is being brought up with listening to music in a legal way.

And that’s not all. Two thirds of 26-35 year-old Swedish Spotify users are paying for the service and the majority uses the service several times a day.

A different approach
Too many flaws and uncertainties in the calculations above? Too much wishful thinking? Then try this approach. iTunes pays about 70c for a download to an (indie) artist. The pay per stream will of course never reach this 70c. The way things are developing right now we may witness a pay out of 1 cent per stream soon. According to this article on MusicThinkTank it seems unlikely that the amount per stream will rise further. One cent per stream means you just need 70 plays to match an iTunes sale. Is that impossible to achieve? Isn’t it way easier to get someone to listen to one of your songs than to get them to buy it?

Time and patience
I really believe that streams can create substantial revenue for artists. It just takes time and a little patience. Jumping Spotify after looking at your first statement like ST holdings did…. well need I say more?
Let me show you an example of the revenue of Ugress who’s music is on Spotify since 2009.

His patience was rewarded. Spotify and it’s Norwegian competitor Wimp bring in more than iTunes does. Need another example? Check this post from the UK label Kudos Records.

One more thing
Feel free to comment. I have already been called a Spotify fanboy, an idiot, insane, a Spotify troll and such. I’m not on the payroll an have no financial interest in Spotify. So please, skip the name calling. Why am I doing this then? Because I love music and Spotify is the best thing that happened to me musically speaking. I hate the holes in the Spotify catalog, especially if they are there for no good reason. Artists, I would love to listen to your music and you deserve to get paid for this. Streaming can help us both out.

The next few days when you hear the usual Christmas tunes, take in mind that most of the 10 million Spotify users will play Last Christmas at least once (like it or not). They probably all have some Christmas CD lying around with this song on it, but out of sheer convenience they start the song in Spotify. 10 million plays will make George and (who was that other guy again?) $ 63,000 this year. Isn’t that a nice Christmas bonus? And next year? Over $ 100,000? Could be the record label takes most of that, but that’s George’s and the other guy’s problem.

Happy Holidays!

Hans Handgraaf
www.spotidj.com

 

 

2 Comments

  1. Fredrik Loftheim

    Great post with many great points and examples Hans.
    I love Spotify too, just signed up for the third premium account in my family. I think it’s great that you write these posts defending streaming. It really frustrates me that so many people still don’t get it. It’s frustrating mostly because I am afraid for my favorite artist disappearing from Spotify, because of labels/artists not understanding why Spotify is good for them. I really really don’t want to go back to managing files on a computer. And CDs, what was that again?
    Keep the posts coming.

  2. Kevin Jones

    Anyone that advocates streaming without profit(at least from the artists perspective)should have his/her head examined. Who works for nothing? Definitely not Spotify(paying subscribers pay for the streaming…a service provided by Spotify…but the artist supposedly gains exposure…without turning a profit). .0002 per stream cannot be considered a profit(1,000,000 streams would only yield $200.00). Your music would have to be extremely popular in order to garner that many streams!!!