The Swedish Experiment: Spotify Helps Recording Industry Make Lots Of Money

from the in-the-pirate-bay's-home-country dept

We’ve mentioned before that Spotify shows how providing consumers what they want can really have a much stronger impact on “piracy” than any enforcement initiative. Both Spotify and The Pirate Bay started in Sweden, and both got tremendous penetration in the Swedish market. But as various studies have shown, infringement of music dropped drastically in Sweden as the service became more popular. A new report looks at the Swedish recorded music market, and found that it’s up an astounding 30.1% in the first half of this year, due almost entirely to Spotify. Digital music now accounts for 63.5% of all music sales, and streaming services (mainly Spotify) represent 89% of all digital music sales. MusicAlly notes that streaming may be cannibalizing downloads, but the massive growth in streaming is more than outweighing the decrease in downloads.

This even has the labels (who, yes, have an equity position in Spotify — more on that in a bit) talking about how they’re making more money than they have in a long, long time, thanks to Spotify:

“We’re back to the same revenue levels as during 2004, and if the development continues in the same way we’ll be back on turnover similar to those during the “golden days” of the CD in just a few years,” says Universal Music Sweden’s MD Per Sundin.

“We’ve seen massive change in music consumption, where music fans are now listening to more music than ever, in an entirely legal environment. This means that revenues are increasing all the time, and artists get paid every time their music is played. Our artists get significant revenues from Spotify, which is our biggest income source for Sweden. A positive side effect is that we’re investing a lot in new talent.”

Mark Dennis, CEO of Sony Music Sweden, makes the same point: “One of the most gratifying consequences of this is that it gives us the opportunity to sign more artists, and record more new Swedish music than ever. In fact, for most of our artists, streaming music now represents the majority of the revenue.”

Now, I’ve learned to take any claims from the major labels with a grain of salt, and there are some clear issues with Spotify. People have complained that the deals favor the majors so they get a larger cut than the indies. That’s definitely a problem. Others insist that Spotify doesn’t pay enough — but multiple studies keep finding that, on a per listen basis, Spotify actually pays quite nicely. There may still be significant issues with how the labels pass that money on to artists, however.

The point of this isn’t to say that “Spotify” is the answer. There are, clearly, some questions about that particular service. But it certainly shows that there are solutions that very effectively compete with free, and as they grow, they can certainly help make significant money for the copyright holders. Spotify, of course, had a head start in Sweden, and the adoption rates there are incredible. However, the point is pretty clear: let new services like Spotify grow and thrive and effectively compete with free, and they will do so — and the business issues seem to pretty quickly sort themselves out. Obviously having even more competition would be a good thing as well, as competitors will keep trying to offer something even better (and put pressure on Spotify to advance as well).

In the end, though, Spotify is a classic case of giving the public what they want, rather than what the industry wants them to have. And yet, in doing so, it’s also now providing massive revenues for the industry — even as people continue to insist that such a result is impossible.

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Companies: sony, spotify, the pirate bay

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Comments on “The Swedish Experiment: Spotify Helps Recording Industry Make Lots Of Money”

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Lowestofthekeys (profile) says:

A lot of artists can complain that they’re not getting enough from Spotify now, but if you look at the long term effects, the service has potential to reach millions more and as a result, increase profits for the artists.

But for as much as they (or the labels) complain about the consumer’s “right here, right now” attitude towards content, they display the same mentality when it comes to getting their money.

Pickle Monger (profile) says:

Sorry to burst the bubble...

As great as things like Spotify are, the problem with wide adoption that I foresee concerns data transmission limitations. One of the perks people in Europe, and especially Scandinavia, enjoy are low mobile rates, including data. That means things can be streamed almost everywhere. With the high cost of data in US and even higher in Canada, not to mention the constant back and forth on UBB, adoption of the streaming service won’t be as fast and wide as in other places.

TtfnJohn (profile) says:

Re: Sorry to burst the bubble...

In North America cell rates and all that accompany them were set high in order to “establish” the industry. Put another way, to subsidize companies to build out their networks.

“Socialist” Europe, by and large, issued licenses, set rates low to ensure there were consumers there and told the licensees they could sink or swim on their own.

Europe and most other global markets continue with the model of here’s the license now have fun, here’s what you can charge and if you can’t make a profit too damned bad.

You do realize that in most places in Africa phone rates are much lower than in North America, don’t you? 🙂

Meanwhile the FCC and CRTC are still in subsidize mode as if, for example, TELUS and Bell Canada need a subsidy in Canada or Verizon and AT&T need one in the States. Both countries are becoming classic cases of regulatory capture.

The funny thing is that there hasn’t been a consumer revolt of any notable extent in either country though the issues are the same in each. It’s as if we’re waiting for the other guy to do it. “Let’s wait for the Canucks to take the lead on this one”. “Nahhh, we want to wait for the Yanks.”

Hint to the folks on both sides of the border. The North American telecom system is a single market and single system. That’s why we all have 10 digit dialing, the same standards for transmission and stuff, the same places doing the same network clocking. Two locations in the US and one in Canada..if the system loses one or two, it stays up on the third one.

My only question is, why are we, as comsumers, putting up with this nonsense? Corrupt politicans is a good answer on both sides but there also seems to be this blindness that tells us the FCC and CRTC are there to look after the customers of monster telcos when, in fact, they’re in the service of the monster telcos.

TtfnJohn (profile) says:

Free, in the download, pirate, whatever sense is that it’s not the easiest thing in the world to do. Worth it in many ways to many people but not as easy as the doomsayers seem to think Not that hard either.

Spotify competes with that simply by streaming what its customers want. All perfectly legal and above board.

As Mike has said over and over again, you can compete with free by living by the mantra of “give the people what they want”. And, in this case, charging for the convenience of it all. For the recording industry it pays them handsomely, too.

I’m sure someone will find something bad about it. Look hard enough and you always can. Experience seems to show that it’s a win all the way around, imperfectly I’m sure but everything is imperfect.

It seems better than what preceded it by a long shot though.

Keroberos (profile) says:

It’s almost amusing how mystified record label execs seem to be over the most basic product marketing processes. With all these people they allegedly employ, you would think they would want to hire some with some product research/marketing skills. Even the most basic knowledge would suffice. What do our prospective customers want? How do they consume it? What other ways would they like to consume it? What are they willing to pay for it? How can we sell it to them at that price and still make enough profit to support growing our market?

Anonymous Coward says:

I just wish Spotify didn’t require facebook. I don’t wanna sell my soul to the facebook devil to have the priveledge to sell my soul to the spotify devil.

Oh well, I have unlimited 3g streaming and Pandora, I’m happy with that till a facebookless competitor comes a long. My phones battery life is a bigger issue anyway.

AdamBv1 (profile) says:

Re: Re:

I just ran into this same issue, after hearing so much about Spotify here on Techdirt I wanted to see what there catalog was like and what music they had available only to find out that their website has no search function.

OK, fine then, I’ll download your app after all and search through everything that way. Oh, I can only create an account by linking it to my Facebook account? Sorry, app deleted and one chance of getting another paying customer lost.

I have a Facebook account but the last thing I ever want to do is use it to log into other sites/services. I hate that I even feel a need to have a Facebook account to keep in touch with friends and the last thing I’m going to do is give them more power over me by using them as a form of authentication.

Anonymous Coward says:

and yet it’s the industry itself that is it’s own worse enemy! they admit to making serious sums of money but do whatever they can to restrict, if not stop, this type of service, more often than not, by trying to get such a big share for themselves that the service cannot continue because there isn’t enough left for itself. that has to be one of the most stupid business practices going!

Anonymous Coward says:

Re: Re:

I have heard of cases where they want to take severel times the revenue to allow such services to use their content. I think Mike is hitting the nail on the head for why most industry is squirming about Spotify:
“There may still be significant issues with how the labels pass that money on to artists”
It is not free to distribute money! A secretary at the cost of 10 $ per hour and taking half an hour for each distribution, it is just too bad if you get 5$ to distribute for each cycle. You would need 8 cycles of revenue to keep wage at a 10 % loss if it is even doable in half an hour at that point…

Adam V says:

If there continue to be artists who complain that Spotify isn’t paying them for their songs, why doesn’t Spotify publicly release their monthly play counts & payouts? Is it in their contract with the labels that it must be private?

I’d just release a huge XML file each month, saying “here’s how many times each song was paid, culminating in this amount going to the label”. Each artist would be able to say “okay, so the label made $100k from my songs, I can now go to my label and ask for my 25%/50%/99%”. And then it’s no longer between Spotify and the artists, it’s between the artists and their labels.

Anonymous Coward says:

Re: Re:

It is worthless to compare the two yet. Do the same in 10 years and the numbers will most likely have crawled closer for her existing catalogue, since music sales are an I/O income, while per listen most likely is a lot more sustainable income. Look at Spotify, libraries and to some lesser extend radio etc. as a longterm income and iTunes as the quick fix to sustain you short-term. Dude! You have a copyright and therefore the sustainable income for the rest of your life and almost the rest of your childrens lifes (exceptions are if the artist dies early or the child really gets to be a geezer).

On the big company thing, she is however completely correct, but that is the big 4 for you: Always working angles to gain unwarrented advantages…

Anonymous Coward says:

“A new report looks at the Swedish recorded music market, and found that it’s up an astounding 30.1% in the first half of this year, due almost entirely to Spotify.”

Wow, talk about drawing a conclusion where it’s not merited. Spotify isn’t he only reason, there are plenty more reasons out there.

It should also be considered as to what the mentality of the people are. Is what you are seeing actually the longer term effects of the attacks on piracy? While pirate traffic remains about constant ( ) , I would wonder if in fact the pirate traffic is just a smaller subset of people doing more, while the larger group is slowly moving away from the illegal activity?

Measuring file sharing traffic isn’t enough to say if there is more or less pirates out there, only that files are moving.

It looks more like the slow and inevitable move of people away from the illegal activity and back towards the legal side.

Niall (profile) says:

Re: Re:

If you actually read the article, it does mention the process of more people spending money on legal digital music as a result of making it more convenient for them. Piracy by its very nature is hard to measure (do you measure files or kB or people?) but if several studies are saying that better music access is slowing down piracy then that’s a positive effect.

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