What happens when the stream of music is dammed?

Aryn Clark investigates the danger of investing money into unsecure streaming platforms.

Late last year, the music streaming service Spotify lost over 200 labels when a distributor called STHoldings withdrew its entire catalogue from their library. This came in the wake of a study which claimed that streaming music services actually harm other forms of music purchasing. Despite this setback however, Spotify announced this year that they now have a record 3 million paid subscribers, and that more than 20 percent of its active users are subscribing to its paid service.

So, who do we believe? I’ve heard a lot of talk over the past few years about streaming music being “the future”, but just how secure are the fortunes of these much-praised services? Let’s look over the history of the issue.

The first big hit came in February 2010, when Warner Music (the label behind Muse and REM) stated that they would no longer be licensing music for streaming services, declaring them “not positive for the industry”. To some, this seemed extreme, but they were responding to a greater suspicion over the financial viability of the system. After all, shortly before that, La Roux’s debut album had been withdrawn from the free version of Spotify, reserved only for the ears of its ever more privileged “Premium Users”.

The latter action was clearly as a result of concerns over Spotify’s renowned free service, which (despite being a big part of its appeal) many feared was not offering sufficient financial reward to its contributing artists. Much like a number of other streaming services, its ad-funded structure was considered by many to be unsustainable, and the success of the service was generally acknowledged to rely on how well it could convert its free users to paid ones.

Numbers published by Information is Beautiful effectively convey the extent of the problem. According to a graph that they released in 2010, in order for a solo artist to earn the US monthly minimum wage, they require a staggering 4,053,110 plays on Spotify. This, as opposed to just over 2,000 track downloads from iTunes or only 1,229 downloaded albums.

Spotify and other streaming music platforms did what they could to alleviate the fears of the labels, claiming that their services were able to “monetize” the otherwise unprofitable piracy-based listeners. How exactly they substantiated these claims remains unknown, since I doubt that they would have got many honest responses from a survey questioning people’s illegal downloading habits.

Despite the concerns however, the hit that some had predicted didn’t seem like it was coming after all, and streaming music services were still going strong a year later. Spotify in particular, whose rapid growth made it a great spokes-company for the rest of the industry.

However, with Spotify’s U.S debut in July 2011, new problems arose. While offering its service to a colossal untapped market inevitably meant good things for the rising star of the streaming music scene, announcing new restrictions on its greatly beloved free service did not. Although an attempt to move towards greater profitability, this blatant attempt to shunt users into paid subscription was entirely unwelcome – one particularly discouraging comment on the service’s blog reading “So long Spotify. It was nice knowing you. Guess I’ll go back to pirating music again then.” Well, at least it adds some weight to their claims of piracy-prevention.

Fortunately for Spotify’s free users, the new restrictions weren’t immediate, and would only take effect after a six-month “trial period”. This was only delaying the problem though, and in the meantime streaming music was taking a beating from other angles.

Shortly before Spotify laid out its plans, a report by Nielsen had been released, and it did not bode well. In every age group under 50 that was surveyed, the most common response was “I know what music streaming services are, but I am not interested”. This was followed by an unfavourable report by eMusic, then finally by the study with which I began, leading to STHoldings withdrawal from Spotify.

The tale doesn’t end there though, and several other developments over the past few months are making the future of streaming music look bleak indeed.

In December, the Black Keys released their latest album, El Camino, notably withholding it from the streaming services. Subsequently, it did rather well, reaching number 2 on the Billboard album chart. Regardless of whether this success was actually related to their decision not to offer streaming, it’ll certainly look pretty damning to other record companies. This decision was followed only a few weeks ago by the revelation that Paul McCartney is removing both his solo and Wings work from all streaming services. He may not have said why yet, but this is hardly a commendation.

Adding further straws to the back of our beleaguered camel, it is around now that the aforementioned “trial period” for Spotify’s free users will begin to run out for a majority of its U.S. customers. Combined with its other problems, this service in particular is headed for a difficult time.

One of the findings of eMusic’s report was that many people prefer owning their music because they like the security that comes with it. If they own it, it won’t suddenly disappear from their library on the whim of a record company. Once the streaming services start to lose artists, they also lose faith and with it customers, and it’s all downhill from there. Less customers means less faith from labels in response, and the cycle continues.

Now, it may turn out that it’s still too early to suggest such things, and that the services are due for a phoenix-like recovery from their problems. However, looking at the weight of difficulties building up, the success of artists who keep their music to themselves and the increasing reluctance of big names to contribute their work, I wouldn’t like to bet on it.

It no longer matters if streaming services have the potential to be profitable. If things continue going the way that they are, they won’t be for long.

Aryn Clark is a freelance journalist and illustrator. He enjoys writing about arts, drinking Coca-Cola in wine bars, and long walks to the fridge.

3 thoughts on “What happens when the stream of music is dammed?

  1. Very insightful article, thank for that. I have never been big on streaming music personally. As a music fan I go out of my way to make sure I own my own music – maybe it is just the collector in me but I still to this day get a thrill out of purchasing an album an then listening to it for the first time

    • I agree, there is always something nice about actually possessing the CD (either digital or in hand), it feels like you own it. It might just be because we’re used to that medium but I think its more than that. I moved away from Spotify for that reason.

  2. Pingback: A kto powiedział, że artyści muszą zarabiać? (Kiosk 2/2012) | Ziemia Niczyja | Mariusz Herma

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