Written by Niko Smith
The entertainment business, but especially the music business, is one of the most visible, but least understood fields of work by the general public. Since the inception of the recording industry near the turn of the 20th century, it has gone through many changes in the way that it interacts with consumers. Music is a product based business, however, as with all art forms, it can be very difficult to quantify the value of this industry at large from song to song or album to album. This problem of valuation has become especially apparent in the 21st century, as what was traditionally sold as a physical product in record stores, big box stores, supermarkets, and other local outlets has become almost an entirely digital-only product. These days its physical counterparts exist as a sort of additional outlet for merchandising and not as the main draw of the medium. In our current landscape of digital music distribution, the market is primarily run by streaming services which together account for a little over 80% of all revenue generated by the music industry (Friedlander 2020). As with any market system, when an industry relies primarily on one small group of businesses to keep it afloat, an oligopoly emerges. In today’s Music industry, the Largest player in this streaming oligopoly is Spotify which holds over 30% of the market share, followed by Apple Music with 15% percent and Amazon and Tencent’s streaming offerings which each account for between 10-15% of the market (Duarte 2023). As a result of this market structure, Spotify and these other major firms have enjoyed an outsized impact on the streaming sector, and the music industry in general.
Spotify has, over the last decade, transformed itself from a small disruptive tech startup in the music industry, to the main player advancing the industry forward as a whole. As a result of its initial disruption, Artists large and small who previously made their living from the declining sales of physical media, and live shows were now essentially cut off from sales of physical media as a whole. This forced a generation of artists to make the shift to optimize their music and their personal enterprises for a new mode of music consumption. This can be seen in modern music as the shift from the traditional 3 min pop song, to songs closer to 2 and a half minutes (Leight 2022) evidenced by popular songs like SZA’s “Kill Bill” and Harry Styles’ “As it was” which both come in around two minutes and 30 seconds. Because Spotify, and other streaming and social platforms incentivize creators to garner high stream and viewing numbers as fast as possible to achieve a level of profit maximization, it makes sense that much of the popular music that is produced in recent years is shorter. This is because each shorter track can be played many more times than a longer song could. This has led to the fee structure for streaming royalties being the main crux of the issue between artists and music-streaming services. For the last decade since Spotify broke into the mainstream, it has paid artists between $0.003 and $0.005 cents per stream (Aswad 2023). However this amount is not paid directly to musicians, but instead to the rights holder of the music, which more often than not is the record label to which the artist is signed (Peoples 2023).
As of September this year, Spotify has changed the parameters of what counts as a stream in an attempt to help artists, but has done so with mixed results (Ingham 2023). As with any company, Spotify’s main goal is to continually generate revenue. Because of its unique position as a tech company, where its primary contribution to the consumer is as a musical middleman, its real product is the algorithm that it uses to suggest music to its users (Alter & Mickle 2023). This contrasts an artist’s product which is actual musical recordings. As is evidenced by the company’s stock price, which today rests at a lower rate than it did 5 years ago (Forde 2023), Spotify struggles to maintain profitability on the main product users actually want, which is the low-margin, high-cost product of music. In order to boost its revenue, Spotify has implemented a filter that will cut royalty payments to artist tracks whose streams don’t reach a certain threshold (Ingham 2023). Although this is a practical measure to avoid paying royalties to spam content uploaded to the site, it would likely also hurt very new artists who are uploading their own projects without a label for the first time. Furthermore, based on Spotify’s complex fee structure discussed earlier, the people who really benefit from established artists’ streaming success are often record labels. These labels’ predatory recording contracts have been a source of divisiveness between artists and the business of music for decades. However, the way that Spotify has implemented its new streaming rules and the streaming system in general, gives a new appearance to the unequal relationship between artists and labels, while still maintaining the decades old hierarchy in which artists lack power and representation.
Throughout Spotify’s history, it has streamlined the process of distributing and profiting from music in the age of the internet, while in the process presenting a complex set of pros and cons for artists and listeners. On one hand it empowers more listeners to listen to more kinds of music, but on the other it also has the potential to homogenize the public’s view of what music is considered popular or good. In terms of the artist’s experience with the platform, it can open an artist up to a wider audience than may have previously been possible, but it also doesn’t equitably distribute the revenue earned to all involved.
References
Alter, A., & Mickle, T. (2023, October 4). Spotify gave subscribers music and podcasts. next: audiobooks. The New York Times. https://www.nytimes.com/2023/10/03/technology/spotify-audiobooks.html
Aswad, J. (2021, March 18). Variety. Spotify Unveils ‘Loud and Clear,’ a Detailed Guide to Its Royalty Payment System. Variety. https://www.variety.com/2021/digital/news/spotify-loud-clear-guide-royalty-payment-system-1234933349/
Duarte, F. (2023, October 10). Music Streaming Services stats (2023). Exploding Topics. https://www.explodingtopics.com/blog/music-streaming-stats
Forde, E. (2023, July 28). What will Spotify’s price rise mean for its recording artists and songwriters? Music Streaming | the Guardian. https://amp.theguardian.com/music/2023/jul/28/what-will-spotify-price-rise-mean-for-its-recording-artists-and-songwriters
Ingham, T. (2023, October 25). Spotify is changing its royalty model to crush streaming fraud and introduce a minimum payment threshold. Its. Music Business Worldwide. https://www.musicbusinessworldwide.com/spotify-is-changing-its-royalty-model-to-crush-streaming-fraud/
Leight, E. (2022, November 18). Here’s why shorter songs are surging (And why some welcome it). Billboard. https://www.billboard.com/pro/songs-getting-shorter-tiktok-streaming/
Peoples, G. (2023, March 20). Spotify isn’t supporting 1M creators yet — but it’s working on it. Billboard. https://www.billboard.com/pro/spotify-paying-more-artists-not-1-million-yet/
Friedlander, J. P. (n.d.). Year-End 2020 RIAA Revenue Statistics. – Recording Industry Association of America