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Music Labels Earning More Thanks to Spotify

Posted by: , 15:36 AEDT, Sat January 16, 2016

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Labels and artists have complained, but Spotify appears to help revenue, not hurt it
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Image/Photo Credit: Sorosh @ Flickr, CC

Despite many complaints from some in the music industry about Spotify's low royalty payments, music labels are actually coming out ahead thanks to free music streaming, a study has found.

The paper, which was presented at the annual general meeting of the American Economic Association last week, is written by the EU's Joint Research Centre (JRC), specifically looking at the effect that music streaming has had on music industry. The paper examines the effect streaming has had on music revenue, focusing in particular on Spotify and Pandora, and its conclusions are very different from the ones espoused by some in the music industry.

Far from the low royalty rates from Spotify cannibalising music sales and reducing the revenue for labels and artists a like, the study found that at its worst, Spotify appears to be a revenue-neutral prospect for the music industry.

Instead of killing music sales on a large scale thanks to ad-supported free streaming, only one sale is affected for every 137 listens of the free streamed track, at an estimated loss of USD $0.82. But each of these 137 streams also earns the music industry 0.7 cents (for a total of $0.96), meaning the music industry actually comes out ahead.

This is because Spotify, as the researchers found, did not affect the habits of those who buy music, and instead, offers those that don't buy music (for example, music pirates) a way to contribute without having to spend their own money.

And all of this is not including the indirect promotional effect Spotify and Pandora has, with research suggesting songs played or streamed via these services have better sales than songs that don't get "airtime".

So it appears Spotify not only does not compete directly with music sales, it supplements sales and gives the music industry with another way to "sell" its music.


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