The Music Revolution

For an industry that’s fundamentally changed over the last decade, there is no safety, even for the grandest of players. Recorded music revenues are down 25% since 2005, and are not looking likely to return to the heady heights of the early 2000s. This massive downturn has formed from rapidly changing consumption, where the CD was king, iTunes took over, and now on-demand streaming services lead the charge. The industry has struggled to adapt, but we now see at least 19 countries – including the five largest markets: Australia, France, Germany, the UK, and the USA – where streaming figures have been integrated into their sales charts. We see revenues taking a slight upturn over the last couple of years. And we see artists embracing their new medium.

All of this is to say, the future of music is now upon us, and Spotify looks set to lead us into the new age. With over 100 million users worldwide, the music streaming service is by far and away the largest service of its kind. By many measures the fight won by Amazon in e-commerce, and by Google in search, is a fight already won by Spotify in music. As Amazon accounts for over 40% of e-commerce sales, as Google accounts for 67% of search traffic, Spotify holds 44% of the market in music streaming.

Recorded Music Industry

Percentage by company, Neilsen 2013

However, Spotify has put its dominance into a precarious position. They recently announced a deal with Universal Music Group to introduce restrictions on free-to-play users, giving them access two weeks after some Universal release dates. Universal accounts for around one third of the recorded music industry (tallies vary from 32-39%), thus this deal is the biggest fish Spotify had to land. The driving motivation behind a restructured deal is looking ahead to a potential IPO (Initial Public Offering) in the next year, and Spotify had to give something up to facilitate a true long-term guarantee with the largest music rights company in the world. Unfortunately, what it’s giving up is potentially more than 70 million non-paying users.

In the announcement of this new deal, Daniel Ek (Spotify founder) said; “Starting today, Universal artists can choose to release new albums on premium only for two weeks.” The worry is whether or not “artists can choose” anything about this. Universal will likely use this mechanism to entice customers into buying albums over waiting two weeks to stream them, a move that benefits the label massively, and may benefit the artist in the short term, but a lower potential audience is far from ideal. As artists like Chance the Rapper have shown in recent years - by releasing 4 albums completely free to play and share - there are new ways to the top of the pile. His income, as with so many artists in the 21st century, comes through touring. But tour revenue isn’t the bread and butter of Universal, their goal is to recoup and eventually profit from record production; artists be damned.

The worry is whether or not “artists can choose” anything about this deal.

Music is moving so fast these days that buzz for Friday's new releases can be dead before Monday morning. If users have to pay to access the newest music, they won’t listen, at least not on Spotify. And the company has to forget about converting those free users into paying users, their big secret is that they won’t pay, not ever. Spotify can either have their ears, or lose their ears, that’s the offer on the table. These listeners were won over from YouTube, or from traditional radio, and this was done by giving them an easy to use, personalised experience. Those who aren’t paying now won’t ever pay, and they’ll drop Spotify the moment their listening experience is made more difficult.

The superstars are fine, but Spotify mints the new wave.

Buzz is all consuming. Last year Beyonce launched her album, and film, exclusively on the Tidal music streaming platform, a much smaller Spotify competitor. And there was talk about it; it sold incredibly well. But this is Beyonce, who can grab the ear of the public and take it wherever she happens to be. The same is true of Adele, who outright refused streaming services her album (25) and promptly sold millions of copies. The superstars are fine, but Spotify mints the new wave.

As an example, Kungs is very successful on the streaming service (garnering 7+ million listeners a month), and before he gained the radio play, TV syndication et cetera, his career was based on a remix climbing the charts on streaming services. Artists like Drake (41+ million listeners) take full advantage of streaming services to keep on top of their audience, with new music always flowing in. And then there’s Matoma (15+ million listeners), who began the release of his “album” Hakuna Matoma in 2015 by uploading a playlist to streaming services that expanded and evolved over the next year. Listeners subscribed to the Hakuna Matoma playlist to hear the music and would get notifications on upcoming additions. These are a selection of the artists at the forefront of the next generation; they are not concerned with the traditional album format, and their listeners are on the same page.

The smart artists are those who stay on top with consistent releases, a constant stream of new. When this deal is enacted for the end-user, releases will be buried behind a fortnight of priors. This hurts the listener, as there will be a disconnect between the promotion, the buzz, the excitement - all that which surrounds new music - and their ears. This hurts the artist looking to grow their base, with a stratification into classes of listeners. This hurts Spotify, who will undoubtedly lose non-paying users. And those users will revert to YouTube, illegal downloads, or radio. The only group to win in this deal is Universal, who are likely to see a small bump in their revenue over the short term.

But just as this deal puts blood in the water around Spotify, it may well do the same for Universal, for how do you announce new artists if no-one can listen to them?