Music streaming has taken over the industry. But where does it go next?
For years, they said it wouldn’t work. ‘They’ being select industry insiders, ‘it’ being music streaming. Yes, they knew it worked in many ways. It made a huge catalogue of music available to anyone with a WiFi connection. It changed the artist-listener dynamic into something more immediate. But what it didn’t do was make money. It still hasn’t, but its industry dominance suggests it’s here to stay. So what’s next?
Streaming services are still unprofitable. That needs to change
Streaming was for a long time seen as inherently unprofitable. In November 2017, music industry stalwart Jimmy Iovine warned that streaming was ‘not a good business’, and that Spotify was at risk of going under. He was far from alone on this opinion. And at the time, he was correct. Spotify had managed to get almost every record label to make their content available on their platform, but it seemed like they hadn’t figured out a way to make money. In the Silicon Valley-inspired world of tech startups, this didn’t matter. Spotify could make money from venture capitalists, willing to invest on the hope that the business would become profitable eventually.
As streaming increasingly became the norm for music fans, Spotify looked at its options. It would be difficult to secure investment capital forever, so it made sense to go public. In early 2018, Spotify joined the stock market, revealing that in 2017 it had made $4.6 billion in revenue, but a net loss of $1.4 billion. As recently as March this year, dozens of articles asked whether streaming could ever become profitable.
Maybe it can’t. But it’s getting more and more important that it does. As the tide turns towards awarding songwriters and rights holders the (higher) royalty payments they deserve, streaming services need to make enough money to pay those prices and make profit. At the moment it’s not clear how they can do that. But they are trying.
Spotify plans to keep disrupting the industry. This could be a bad thing
‘Disruption’ is hailed as a buzzword in the tech industry. Disrupting anything, regardless of the consequences, is seen as positive, and, crucially, something worthy of investment. Spotify certainly disrupted the music industry, but only to an extent. Really, it was illegal download sites like Napster that caused the initial disruption.
iTunes legitimised the possibilities the internet had for music, but its pay-per-track system was quickly overtaken once Spotify began to offer almost every recorded song ever for free with ads, or for a monthly fee. By this point, though, the traditional music industry model was already so disrupted that Spotify was just offering a new spin on something we’d already seen.
But the ‘disruptive’ mindset is clearly still important to them. And their next step might prove to be genuinely disruptive.
The new, higher royalty rates are not paid directly to artists. Instead they are paid to record labels, who then pay a proportion to the artists themselves. This is what Spotify now plan to disrupt. Even though the company’s CEO recently spoke warmly of record labels, Spotify’s next move appears to be directly licensing artists. They’ve presented this almost as an inevitable next step in the industry’s evolution, but really it’s a dramatic departure from decades of tradition. Licensing an artist directly would mean completely cutting out record labels. This would potentially change everything from how artists are signed to how they book tours and sustain their careers.
Spotify is not the first to do this. Apple Music teamed up directly with Chance the Rapper, still proudly an independent artist, in 2016 to release his third full-length Coloring Book (his previous two albums were free mixtapes). Jay Z’s own Tidal streaming service hosted albums from Prince’s independent era directly. But if what Spotify is suggesting does go ahead, the industry could truly be disrupted, and it might not be for the better.
Read more: Is China’s QQ Music the future of streaming?
Read more: The history of music distribution