The Economics of Spotify

Spotify has upheld its reputation as the biggest streaming platform for almost eight years. The introduction of streaming platforms has been a game changer for the music industry, causing it to grow by 44% since 2014. Spotify has pioneered this revolution, accounting for almost 20% of global recorded music industry revenue.

The meteoric rise of Spotify has not remained untainted by controversy. With several musicians claiming mismanagement of funds, Spotify has been under fire for it's apparent lack of transparency. Artists claimed that they were not recording increase in revenues despite increase in the number of streams.

Despite all controversy, Spotify has established a monopoly in it's field. It's 286 million monthly users dwarf apples music's 60 million users. The user remains relatively unaffected by the monopoly. However, just as the dairy farmer loses out due to fix market costs, losing the ability to negotiate, the artists and labels are the new diary farmers of the music industry. The phenomenon of artists being sidelined by streaming platforms gained global relevance in 2020, when most artists looked to their streaming income due to the pandemic.

Kanye West, a renowned American rapper, defined streaming splits as an "absolute joke".

30% of the subscription fees goes into Spotify's pocket, while the remaining 70% is divided among the right holders like the record labels, publishers, and distributors. The right holders then pay the artists based on the terms and conditions of their individual contracts. West also took to Twitter to report that 14-25% of royalties made on his sales and streams remains unpaid. The disparity in revenue between the artist and the record label is further widened when we examine who owns the streaming platform. Two of the biggest record labels, Universal Music Group and Sony Music Independent, share in Spotify. Major labels have promoted the free streaming of music, referring to the 1 billion users who listen to music on YouTube. The argument put forward by the artists is that the revenue generated through subscriptions is not even going towards the artists whose music is being listened to.

The unfair business model of such streaming platforms has called for government action, with the United Kingdom Government launching an investigation into the economics of the streaming industry. Even the government realizes that artists are not being adequately compensated for their work. The music industry in the UK brings in more than $1 billion in revenue, but the artists get a meagre 13% of the income generated. Pressure has been put upon the major record labels to rework and revise their contracts to allow musicians to make a justified living.

However, delayed responses by the major record labels has resulted in the boycott of streaming culture. A linear growth has been observed in the resistance against streaming platforms, causing other services like vinyl records and CDs to experience colossal growth. The increasing pressure has been diluted because Covid-19 makes it impossible for musicians to conduct live music sessions and performances. Moreover, the physical sale of products like CDs and vinyl records has also faced an impasse because of the safety restrictions.

Musicians have become more and more reliant on streaming. Before the pandemic, upcoming musicians performed at small venues in the hopes of being noticed, but the closure of such venues and opportunities has been a causality of the virus. Thus, musicians are more dependent upon streaming platforms than ever. Social Media has also played a major role in increasing this dependence on streaming. A lot of musicians found social media platforms like Tik Tok and Instagram as effective ways to promote their songs. By sharing snippets of songs, social media creates a sense of curiosity among its consumer base. After discovering a song, the common consumer heads over to streaming platforms like Spotify to listen to the entire song. Though social media has been instrumental in advocating music growth, it has also made streaming platforms more prevalent.

The current climate has bought to light the extent of unsustainability in the music industry, with Kanye West's Twitter stunt the latest addition to the #BrokenRecord movement. With major record labels holding the purse strings, and the streaming giants they have a deep financial investment in maintaining the monopoly over where most music is listened to, it is unlikely that change will come about any time soon. But, through frugal innovation, artists are finding new, more sustainable ways to use platforms on their terms.

78 views0 comments

Recent Posts

See All