Swedish startup Spotify has taken Europe by storm. The ad-supported music streaming service, which also offers an ad-free and mobile-enabled paid offering, has more than 6m registered users across Europe, with more than 2.5m in the UK. Expansion into the US is planned for 2010.
Spotify's popularity has attracted investment from major record labels and recent reports suggest that Spotify may be Sweden's biggest contribution to the music business since Abba.
But is Spotify's success all rosy?
Swedish recording artist Magnus Uggla made waves when he claimed he earned in six months through Spotify "what a mediocre busker could earn in a day". And a recent report in Norway indicated that indie record label Junior Racing had earned approximately $3 after music from its artists had been streamed more than 55,000 times on Spotify.
Now comes a new report that Lady Gaga was recently paid approximately $167 in Spotify-generated royalties by the Swedish Performing Rights Society. This despite the fact that hit song "Poker Face" was played more than one million times on the music service over a five month period.
Faced with the news, one Swedish recording artist commented "It is totally sick. We musicians have no rights, you may not charge [for music] anymore."
The report has sparked new debate and discussion about Spotify, and about digital music business models in general. When it comes to monetizing music online, some blame the record labels. Some "free culture". And others even blame those greedy recording artists themselves. Me? I'm not sure who to blame because I think the ongoing changes in the music industry can be difficult to dissect and analyze. There are a lot of factors at work, and a lot of players with varied interests.
There's no doubt that something feels 'off' when an artist's songs are played more than a million times and she receives less than $200 in royalties. But obviously this is only part of the picture. It's almost certain that at least some of the people who listened to Gaga on Spotify discovered her music through Spotify. And went on to purchase an album. Or went on to attend a concert. Etc. etc. etc.
The well-known "last click" bias is worth mentioning here. Your display ad campaign may have delivered paltry CTRs but if you're only looking at the last click, you may not be accurately analyzing the value of the display campaign. And so it goes that looking at royalties from services like Spotify may not accurately portray how these services influence sales.
That said, if accurate, the report does raise a lot of questions about the viability of some of the more popular digital music business models. For an artist like Lady Gaga, this discussion is purely academic. When you're a multi-Platinum recording artist and one of the hottest acts in all of music, you're making money. Big money.
But for emerging artists, those toiling and waiting for a breakthrough, and independent record labels, every little bit counts. At some point, "Stop complaining about free promotion!" rings hollow if all that 'free' promotion doesn't pay the bills. In other words, you can only give away so much product before your inability to sell it leaves you wondering whether or not you have a product worth creating in the first place.
And therein lies the inconvenient truth: not all promotion leads to profit. For the average artist, if Spotify is the future of music but a million-plus plays on services like Spotify can't even pay for a bottle of First Growth French wine, one has to wonder if we won't eventually see digital music business models reinforce the exact trend they were supposed to reverse: the importance of a smaller number of artists to overall industry revenue.
