Has Spotify saved the music industry - or hollowed it out?

FROM THE ARCHIVE: As Spotify prepares to go public, we ask whether streaming is really the record industry's saviour.

by Oliver Bennett
Last Updated: 01 Mar 2018

Streaming giant Spotify is preparing to list on the New York Stock Exchange, in a move that could value the Swedish platform at $23bn.

The company, founded by Daniel Ek in 2006, now has over 150 million active monthly users, of whom nearly half pay a subscription for an ad-free service and features such as being able to download music to listen to offline.

Spotify's been widely lauded as a saviour of an industry that was taken to death's door by digital disruption. Yet while streaming is surely superior to pirating, it squeezes artist royalties to gossamer margins. In this feature from May 2017, Oliver Bennett explores how music got its mojo back and asks whether the Spotify model is sustainable. 

A warm day at Spitalfields Market in London, and the Independent Label Market is rocking. If you landed from Mars, you'd think that the market for esoteric vinyl records - including 70s Kenyan funk and even a sub-genre called 'Post Industrial Russian Gloom' - was thriving. There's Mark from Belfast label Public Pressure, who gets his LPs pressed in Germany, and Joy who's revived reggae label Greensleeves.

It's fun - but only a microclimate, as one stall's rueful name, Full Time Hobby, intimates. At the same time, the fair indicates a successful groundswell at the bottom of music's economic chain, complementing seriously enhanced takings at the top. UK revenues from recorded music hit a five-year high of £926m in 2016 according to the BPI, driven partly by the fashion for expensive vinyl but mainly by a 60% rise in revenues from streaming services like Spotify, YouTube and Apple.

The upturn has prompted claims that after a dismal decade, the record business may be getting its mojo back. Steve Boom of Amazon Music has even called our time 'the golden age ... of the music industry'. Record labels, including biggies UMG, Warner and Sony, are in profit once more. A Barclays' annual research report, published last autumn and called Dancing Days Are Here Again, noted: '2016 is the year recorded music appears to be turning a corner.' Even copyright holders are happier. Pirates are still there - but they're down to one in 10 from one in five in 2005. There's more buying, less stealing.

It certainly makes a welcome change from the bad old days. In one industry person's phrase, music was the 'canary in the digital mine', the first sector to face severe digital disruption - or rather, desecration. When file-sharing website Napster came along in 1999 (augmented by other peer-to-peer actors including LimeWire and BitTorrent) the industry was unprepared.

Legendary promoter Harvey Goldsmith (pictured) remembers a meeting in Cannes, 'around 2001. It was full of reps of record labels; suits. I remember the head of SACEM (the French version of PRS) saying, "We have to stop the internet." I stood up and said, "Are you f***ing mad?" The bloated record companies didn't believe it would change and while the kids knew, at board level they had no idea. They didn't know one end of a computer from the other.'

Music industry veteran Andy Heath, now chair of UK Music, isn't much kinder. 'In 2000, it was very difficult for senior executives,' he winces. 'No one is capable of that kind of change.' But he adds that it 'drove me crazy. The music industry f***ed it up.' Anyway, the now-fabled 'lost decade' ensued. In the US, a $14.6bn take in 1999 plunged to $6.3bn in 2009. Ideas were tried - suing file sharers, encryption, the shortlived UMG Sony response PressPlay - but the genie wouldn't go back in the bottle.

It was a textbook example of how not to respond to disruptive change, and so it was a very long time before things got better. But in 2015, the International Federation of the Phonographic Industry noted the first uptick for 15 years: single-digit, but welcome. 'After years of decline, 2015 was the first year of good growth,' says David Sidebottom, an analyst with Futuresource Consulting. 'And it's sustainable. From now until 2021, we're expecting over 20% growth in the UK market.'

The boost was largely down to the rise of subscription services, those pay as you go, play-anywhere tunes that promise an entire music library on your mobile phone. They had supplanted downloads, seen off CDs, and reached critical mass. 'There are now three gorillas in the room,' says Andy Heath, 'YouTube, Apple and Spotify.' More are looming through the mist. Google is stealthily putting out music streaming services - Google Play Music has just launched an on-demand streaming service in India. Amazon Music Unlimited launched last October with proprietary gewgaws such as the voice control Alexa - and Prime's 60 million subscriber base. Now, Facebook is said to be entering the fray, although it's tight-lipped, as is market leader Spotify. The pie is growing, adding weight to last year's streaming revenues, which in the US alone were $3.9bn.

'So you want to be a rock 'n' roll star? Sell your soul to the company,' sang The Byrds, 50 years ago. Not any more - the digitisation of music means that the barrier to entry for wannabes is now lower than ever. A musician can make a video on their phone and have it online in seconds at low or no cost. Raife Burchell, the founder of Dirty Soup - which organises music for advertising - says that YouTube is being used by artists like UK grime star Stormzy 'to monetise and build careers on the underground before becoming hot property'.

Computerisation has also helped artists manage their money and become more professionalised. Not everyone approves. 'They're "360 degree" people now,' says Andy Connell of Swing Out Sister, famed for soul/jazz sounds that helped define the 1980s. 'They're fund managers not buccaneers. When we started it was escaping a career. Now music is a career, often funded by the bank of mum and dad.' What would Connell do if he were starting out? 'Not this.' Like many bands, Swing Out Sister gig a lot, use social media to make connections with fans, and work their back catalogue hard.

Indeed, the back catalogue remains all-important and here, the blockbuster album-selling, baby-boomer classic rockers still hold sway. Pink Floyd, currently at the Victoria and Albert Museum in Their Mortal Remains exhibition has a net worth of about $145m. The 50th anniversary of The Beatles' Sgt, Pepper's Lonely Hearts Club Band throws up another factor. 'The 'body of work' artists are disappearing,' says Goldsmith. 'The third or fourth album was usually the best. We're losing that identification with artists.'

The culture of streaming is song-based rather than album-based and it's having an impact on connoisseurship, fan affinity and expectations. 'People don't understand the slog of success any more,' says Goldsmith. 'It's all about instancy not creativity.'

Then there's the money - or rather the lack of it. High-profile musicians protest that they don't get paid enough for streaming - Taylor Swift flounced from Spotify, and David Byrne has issued his own weighty jeremiads against its low royalties. In 2013, it was calculated that a Spotify stream earns between $0.006 and $0.0084 per play.

Streaming isn't even profitable for the firms who do it: Spotify operates at a loss, although as a classic tech disruptor in the Uber/Airbnb mode, it's hardly unusual in that respect. It's also gearing up to a make or break IPO - financial events that these days are all about prospects for growth rather than boring old income.

So streaming may be the record business's last best hope, but it's certainly not without problems. 'It's a volume game, favouring the Mariah Careys and Adeles of this world,' says Stephen Witt, author of 2015's How Music Got Free, a picaresque account of recent music history. 'Streaming marginalises innovation and it's hollowing out the middle ground.'

On the other hand, argues Witt, it has benefited the consumer. 'The music industry loved LPs and CDs because they're bundles. But if you bought a Vanilla Ice record you only wanted one song.' Streaming 'disaggregates' those songs, a process which can have unexpected consequences. Last autumn, little-known pianist Neil Cowley ended up on a Spotify 'Jazz' playlist and went from a handful of streams a week to 2 million. Still, few argue that it's a boon for artists themselves.

Or even labels themselves. Recently, the head of BMG, Hartwig Masuch, said that the recovery could be jeopardised if artists demanded bigger royalty revenues, adding that he was 'cynical about the view that the good days have returned. Every renegotiation (with an artist) will cut down massively on the margin'.

As in other industries, digitisation has favoured those individuals who really work their own brand - like Imogen Heap. The UK-born singer has become a bit of a guru: in demand for her future-facing ideas as well as her music. Her tour, which started in May at the Sage Gateshead, features VR and AR, spoken word, local link-ups and yes, music. 'The tour should be called "Take the studio on the road". It's going far beyond the label: bringing these parts together again in an interaction. It's peer to peer. I don't even think Napster was about free music, more about convenience, immediacy and sharing the thing you love.' That's what the industry missed: that file-sharing wasn't kleptomania but peer group enjoyment.

Now Heap has developed Mycelia, a fair-trade platform that aims to drive payments straight to artists who control their own data using 'curation, analytics and verification'. It's tracked using blockchain technology that records digital transactions. 'It's a vision,' she says. 'I'm not saying it will be the presiding model.'

Phone, tablet, laptop, phablet. These are the agents of listener change and they've taken music from the physical store into the ether. Jeremy Brill, who started record shop Brill in London in the 90s, has now turned it into a San Francisco-style cafe selling posh coffee and bagels, with records and CDs attached. 'Music products are now 1/25th of our take,' he says. And with it has gone the connoisseurship of the record store - 'recommend' algorithms take care of that. Nick Hornby's book about record shop nerds, High Fidelity, wouldn't be written today.

Taylor Swift pulled her music from Spotify in protest at its low royalties

The path to market has changed, too. 'Ten years ago, music discovery worked in a certain way,' says Russ Crupnick of US music analysts MusicWatch. 'There was a DJ you liked on the radio. You bought the CD or LP to a friend's house and listened to it intently.' Now it's more eclectic and weightless. As Heap says, 'Even on a CD we knew the name of the songwriter and publisher. Now often people don't even know who the artist is. There's a disconnect from the work.' But perhaps it doesn't matter that much.

'Back then you listened to Zeppelin or R&B or whatever and it was very Balkanised,' says Crupnick. 'Now it's "genre neutral". No one cares. It's about mood and mobility. Music is more fungible.'

But the music biz is not all about selling recordings of whatever format. If you're large enough or have a sufficiently loyal cult following, the real goldmine in recent years has been live performances - the original 'gig' economy. 'For big artists, 70% of revenues are in tickets,' says Goldsmith. Festivals have become branded experiences. 'Wilderness, Bestival, End of the Road - they've really moved on from the "hot dogs and bands" days,' says music industry consultant and A&R veteran Alan Pell, who adds that the new digital ecosystem has thrown up a tranche of 'under the radar' artists with dedicated followers but little name recognition. 'Like Bear's Den, who sold out the Roundhouse and Jack Garratt at Hammersmith Apollo. The whole "record sales into venue size" equation has changed.'

Live music has a murky side, and secondary ticketing is tacitly endorsed ('technically, bands don't know,' says one musician) but in any case, Andy Heath thinks that live has 'plateaued'. 'The biggest threat to live is property prices and licencing laws,' he says. 'Seriously, it's destroying a 60-year history of small gigs.'

What of the return to vinyl? Some, like Witt, think it's nostalgic and overplayed: 'It's merchandise for superfans, like T-shirts.' But Alan Pell is so enthused by its potential that he's preparing a business venture called Pressing Matters in London's East End: a real pressing plant as part of an experiential social space. And why not? A list on a laptop isn't exciting.

So if you can't make a living from streaming and you are too small to gig profitably, what else is there? The brand extension business model, reckons London musician Alexander Grant, known as Alex da Kid. Via his brand KIDinaKORNER, he has urged artists not to 'stop at a pop song' but to 'spill into a marketing plan, TV show, sitcom, or whatever it is'. The band Flying Lotus has a radio station on bestselling video game Grand Theft Auto V. Lil B has a brand partnership with a vegan food company, Follow Your Heart. It's all part of a growing sense of self-management.

But business is alive to the possibilities too. Paul Smernicki, once head of digital at Polydor, runs a new kind of music promotion company called Restless Natives. 'Music had been a wholesale business that sold music to other people that sold it to fans,' he says. Now his vision is an agency model that creates 'frictionless, unclumsy' band-brand link-ups, citing a House of Vans link-up with Metallica as a good example. He even sees brands helping to create musical content. 'Not many artists make sales on music alone.' He says that if he signed an act, he'd want them to be on top of their data analysis and audience demographics.

Also pursuing the music-brand linkage is Rob Wood of Music Concierge, which curates music for restaurants, hotels and stores including Harvey Nichols. The ex-journalist and DJ is interested in how music can fit into growing areas like sensory marketing and experiential retail. Indeed, he finds it amazing that brands don't use music as it is omnichannel catnip: 'Think of how music emotionally connects.'

All this may not be very rock 'n' roll but it works. The big corporations are now looking at streaming in the BRICs, the MINTs and beyond. 'There's incredible potential for paid subscriptions in the US, UK and EU, where it's only scratching the surface. In the developing world it hasn't even reached the bottom. Even if people only paid $4 a year, that would be enormous,' says Crupnick. Indeed, Heap thinks that innovations might happen in these territories, just as they have in mobile banking.

Now, we should expect new salvos in a streaming war. 'There'll be a growth of premium features, such as "buy a live show for £2", and proprietary deals with artists,' says Crupnick. Some will die - the streaming service Rdio, started by Skype's founders in 2010, filed for bankruptcy in 2015 - and others will be absorbed: there were recent rumours that Spotify was seeking to buy SoundCloud. 'I wonder why Facebook hasn't bought Spotify,' muses Witt. 'It must have thought it over.' Old and new are linking arms. Universal Music, the biggest label in the world, recently made a licensing deal with Spotify.

As for musicians, supply has always outstripped demand. Goldsmith bemoans the loss of the 'big themes, the movements, the avant-garde stuff', but music goes on. You can't stop it, and there are different ways of getting a kill. 'The revolution is over and the Bolsheviks are in,' says Crupnick. 'We're going through maturity and evolution.' At the same time, pop's basic themes don't change. 'Look at Taylor Swift,' he adds. 'Put her in the 1960s in go-go boots. She'd have worked.'

Image credits: Getty Images; Harry Borden; Alamy


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