Friday 18 November 2011, 17:45 | By

Editor’s Letter: If you don’t want to be on Spotify, don’t be. But don’t think you can dictate what consumers want

Archive Columns Editor's Letter

Andy Malt

There’s a debate rolling on at the moment. It’s one I’ve touched on here before, and it’s one that is seemingly going to continue to roll on and on for some time: Are streaming services good for the music business?

This week, Dorset-based distributor STHoldings announced that it was pulling all content owned by 234 of the 238 labels it represents off Spotify, Napster, Simfy and Rdio, claiming that “these services cannibalise the revenues of more traditional digital services”. It also quoted one of the departing labels who, when asked if they wanted to remove their music, said “Let’s keep the music special, fuck Spotify”.

The mass withdrawal seems partly based on the distributor having seen iTunes revenues drop by 24% in the first full three months it was delivering music to these streaming services, and also on Digital Music News’ interpretation of some research carried about by the US-based National Association Of Recording Merchandisers. An interpretation that both Spotify and NARM say is incorrect.

That the term “traditional services” and “let’s keep music special” are being used in relation to iTunes does suggest that the debate on digital music has started to move on a bit. It wasn’t that long ago that people would scream similar things in arguments about why iTunes and other digital retailers shouldn’t be allowed to compete with high street record shops. But this new phase of the debate shows that some in the music industry, and in particular the record industry, remain distrustful of new digital developments, and fearful of what new business models will do to old revenue streams.

It’s understandable that people fear the risk of the ‘new way’ destroying the ‘old way’ (or in this case the ‘old new way’), but being in business is all about taking risks. And besides, I suspect those withdrawing from Spotify et al are failing to really appreciate the risks of not participating in the new subscription-based and ad-funded business models. Because the music industry doesn’t control – and never really did – the way music fans acquire music. If enough music fans embrace them, the new ways are going to take off, and by resisting those ways now, artists, labels and distributors risk having to play catch up down the line.

People who download music from iTunes do so because for them it is the most convenient way to get music. People who use Spotify do so because for them that’s the most convenient way. People who download music illegally are also often attracted by the shear convenience of file-sharing. This isn’t new. Some people used to use their local record shop because for them that was most convenient way to get music, while others relied on Woolworths or WH Smiths, and others still bought most of their records from the Britannia Music Club so their cassettes and CDs arrived in the post. As a record label it wasnt your job to dictate how customers got your music, you put your records in as many of those places as you could. The good news is that, because there is infinite storage space in the digital domain, smaller labels aren’t locked out of the more mainstream routes to market like they were back in the heyday of the CD.

Of course the difference today is that the different ways of selling music operate different business models, whereas in the physical product era everyone worked to the same system, if on different terms. But that’s not a problem for the music fan. They don’t really care if and how the label and artist get paid – partly because of the received widsom that all labels are evil corporates who screw over their artists, and partly because they are more concerned with, hey, look, music! Which means these new routes to market are going to grow whatever, and it’s the job of the labels, distributors and digital service providers to figure out how to make things work behind the scenes.

Now, some labels may say that the payment structures of Spotify et al have been forced on them, that they get a poor deal compared to the majors, and that they simply can’t afford to take part on the current terms. Any of those claims may be true, it depends on the terms digital services are offering different rights owners, and most of those deals are shrouded in secrecy. Said secrecy is a problem in itself, but that’s really a different debate.

And I think there are four weaknesses to the arguments of those bailing on the subscription model right now.

First, yes some of the people clicking on Spotify tracks may be doing so instead of buying downloads – hence the hit to iTunes revenue – but a lot of Spotify users are not former iTunes customers. There’s a Venn diagram to be drawn somewhere, though I’ve not got the time or data to do it, but it’s certain that Spotify et al are in many cases generating revenue where previously there was none (ie Spotify users are not former iTunes customers).

Second, even if Spotify users are listening to tracks via the streaming service INSTEAD of buying them on iTunes, you can’t equate the per-play royalties you earn in one quarter to the wholesale price of a download. As streaming services grow, we need to increasingly start thinking more long term even on new content – ie the royalties that can be generated from one user throughout the lifetime of a song. Someone might only listen to a song once or twice, or it might become entwined with their personality and be played hundreds of times. In the latter case, the Spotify pay out in its totality would exceed that one-time download fee. And maybe in those terms streaming services force artists to try to be better. Only those who write songs that people take to heart will be truly successful.

In fact there are all sorts of problems with equating new style royalties with old style royalties in a simplistic way. Which I’m calling point three. Mercury-nominated producer Jon Hopkins said via Twitter this week: “[I] got paid £8 for 90,000 plays. Fuck Spotify … Radio 1 pay about £50 for each play”. At a glance that might look like a considerable disparity, but let’s say a million people hear that track on Radio 1 (and likely many more than that will), then that’s only £4.50 for 90,000 listeners. Comparing streaming service royalties with radio royalties actually makes more sense that comparing Spotify revenue with iTunes revenue, but only if number of listeners is taken into account.

And four, evidence shows that Spotify revenues improve with time, and I suspect many of the doubters simply haven’t stuck with it long enough. For proof of this I’d point you in the direction of a blog by another distributor, Kudos, whose experience of the streaming services seems dramatically different to ST’s, despite both companies being of a similar size. Managing Director Danny Ryan put his positive experience down to the length of time his labels had been available on the service – since its launch in 2008, rather than the three months ST stuck it out this summer.

On his blog post he wrote: “Streaming services are very ‘long tail’. It takes time for consumers to discover your music, add it to playlists, favourite it, and share it with friends. The longer a label is on a streaming platform, the more established they become, and the more time users will have had to discover their music … Currently, Spotify is our number two digital account in most of the territories where it exists in terms of actual turnover”.

Don’t get me wrong, if you are an artist or label or distributor, it’s not for me to tell you where to sell and distribute your music. For the time being – while ‘ownership’ model digital services still dominant, perhaps it does make sense for labels and artists with more niche or older audiences to exploit the iTunes and HMVs of this world as fully as possible, and to avoid newer competing approaches in the interim. And with legit services like Spotify, chosing not to participate is a luxury they offer.

But remember, we are not in control. The consumers are. Convenience is king, and for some Spotify style platforms are proving more convenient than anything else – including illegal file-sharing. Ignore the new way in the long term and you’ll almost certainly lose out – so the risk-free route of non-participation may actually turn out to be the riskiest decision of them all. And, of course, if too many rights owners bailed on the subscription services, they would cease to be so convenient for many, and those illegal platforms would start to look rather attractive all over again.

That’s a bit doom and gloom isn’t it? Well, don’t worry, because Google is going to save the music industry, just like every other tech company that has ever launched something vaguely musical. Actually, to be fair, unlike when Facebook announced its tie-up with Spotify, I don’t think anyone at the big Google Music launch announcement on Wednesday uttered those precise words. They were thinking it, though.

Now, you might remember me previously saying I wasn’t especially excited about Google doing music. So I was one of the few not to be disappointed by Google’s rather lacklustre announcement. Hooray for my low expectations. OK, one element of Google Music – now live in the US – was a bit interesting, but we’ll come to that in a second.

In the main what Google announced was fairly standard – a ‘traditional’ digital service, you might say (so, good news for Team ST) – bringing together various services already run perfectly well by other companies. The main download store is very much like iTunes, and your purchases are added to your Google digital locker, just like Amazon’s equivalent service already does. You can also give your Google+ followers a free play each of anything you buy, a bit like mflow, and the store does ‘direct-to-fan’ like Bandcamp.

And in case you wondered, that’s the interesting bit. Google may not be innovating, but its move into the direct-to-fan space is rather interesting. No one has really taken that mainstream yet, and none of Google Music’s direct competitors offer such a service. And if Google can get it right, the company’s size and online dominance means that self-releasing artists could find themselves promoted alongside mainstream artists. So it really does have the potential to set DIY and major label releases on more of a level playing field.

But, like I say, that’s IF Google gets it right, and I’m reserving judgement on that for now.

So, what else happened this week? Of course, since my last letter, there have been more developments in the sale of EMI, with Sony/ATV announcing its purchase of EMI Music Publishing late last Friday night UK time. EMI CEO Roger Faxon confirmed the sale in letters to his staff, adding that it would take some time to legally separate the company’s two divisions, and providing a list of answers to some of the pertinent questions relating to the immediate future. Though plenty of questions remain unanswered.

This week I also spoke to Chromeo’s Dave 1 ahead of the duo’s upcoming London show, and Real Estate put together a playlist for us. In his column, Eddy Temple-Morris announced an event to promote suicide prevention charity CALM, which will see a string of top DJs playing in Topman’s flagship Oxford Street store later this month.

In the CMU Approved column, we featured popstress Sky Ferreira, who might actually be getting around to releasing her debut album soon, the amazing John Maus, indie duo Crushed Beaks, and Dutch electronic producer Krampfhaft.

We also bought you new music from The Big Pink, Little Boots, Salem, The Maccabees, 120 Days, and a free download compilation from Nordic showcase night Ja Ja Ja.

And if you want more music talk, you can find it on the latest CMU podcast, in which Chris and I cover the EMI sale, the Google Music launch, the streaming debate, Justin Bieber’s continuing (or not) paternity suit, and The Clash’s Paul Simonon cooking in prison. I also drank another drink that I didn’t like, so that’s something look forward to. Download or stream it later today here.

Andy Malt
Editor, CMU

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