Chase Barrett

Stephen Cirino

Digital Distribution


Spotify: The Pioneers Of Our New Musical Era

As humans on this earth, one of the few constants that we have held through all the different civilizations and cultures, is music. Music has always been a great unifier, a way of communication and expression. It is something that is ingrained into our bodies and minds and will be around until the end of time. It is so simple and easy to understand and appreciate music, so why have we had such difficulty trying to place a value on it? Like all good things in this world, music has become a commodity. As the music business grew, it reached a point as the turn of the century where people were truly questioning what value should be placed on music, if any at all. What ensued was years of record lows for the music industry, mass music pirating and illegal downloads, and an extreme level of devaluation of music. But like a Phoenix rising out of the ashes, the music industry has moved in a positive direction, taking steps of recovery. The catalyst to this reemergence, has been Spotify. The introduction and popularization of On Demand Interactive Music Streaming reinvigorated the music industry and has shaped it into what we know today, for better or worse. As the world of music continues to move forward and evolve, it is becoming more evident every day that our sense of newfound growth can greatly be attributed to Spotify and it’s progressive model which was able to both pander to our lost sense of value when it comes to music, and also retain a constant stream of revenue.

Officially launching in 2008, Spotify certainly didn’t take over the world overnight. The Swedish startup went through loads of revisions before it became the bohemyth it is today. The company was founded in 2006 by Daniel Ek and Martin Lorentzon, who had previous business experience with each other when Daniel Ek sold his business Advertigo to TradeDoubler, a company of which Lorentz had co-founded. The two set out with a mission to develop Spotify to one day be “The Operating System of Music” (Van Buskirk 1). They ran into their first hurdle shortly after their official European launch, when a mass data leak exposed potential personal information from their list of subscribers. But after positive public feedback and endorsements from the likes of Mark Zuckerberg, Spotify truly gained mass popularity and was able to raise fifty million dollars in Summer of 2009 to pay the major labels and get access to their catalogues. Streaming was new in 2008, and cash was the only way to win over labels” (Crook 12).

Their momentum only kept rolling as they released their iOS and Android apps came to mobile. After more rounds of funding, Napster founder Sean Parker joined the team to help negotiate terms with the labels, Daniel Ek met with Mark Zuckerberg to discuss a partnership between Facebook and Spotify to make the apps more compatible. Shortly after passing one million paid subscribers, Spotify took it’s next big step toward becoming the world’s leading music provider, as it officially launched in the United States of America in Summer 2011. It has all been history from there, as Spotify now currently sits at roughly sixty million paid subscribers and one hundred and forty million active users. A large reason for Spotify’s success has been its use of playlists, having professional music curators use algorithms to create playlists that gain massive followings and not only benefit Spotify, but up and coming artists hoping to get their tracks somewhere a lot of people will hear. For example, popular playlist “Rap Caviar” has over eight million followers and a core group of listeners that discover new, up and coming rap songs that fit the algorithm created by Spotify to find the next big hit. Spotify’s desktop software also features the ability to see what your friends are listening to, follow their playlists, and follow each other. This creates an interactive environment that is constantly providing the user with new music to listen to and expand their tastes. Aside from Spotify’s “freemium” offer, which comes at no cost but limits the user to shuffle only listening (when on mobile) and uses advertisements to create revenue, they also offer various forms of premium accounts which work on a monthly subscription basis. The typical premium offer costs $9.99 a month and allows the user to have access to over 30 million tracks, unlimited ad-free listening and higher quality audio than the free offer. Spotify also offers discounted rates for students, with eligible college students being able to pay only $4.99 a month for the service, which also includes access to the popular television and movie streaming service, Hulu. They also offer a family plan style subscription, which costs $14.99 a month and allows up to five accounts to be apart of the plan and have unlimited access to the Spotify catalogue, and comes with all the benefits of a typical premium account. As of September 2016, Spotify has paid over five billion in revenue to the rightholders of the music that is being streamed. As with any new product, Spotify’s massive success only incited other digital service providers to attempt to grab a piece of the pie.

When stacked up next to the other Digital Service Providers, Spotify is able to go toe to toe with all of them. Both in terms of affordability and substance, Spotify provides just as much, if not more, than any other music provider on the market. It’s largest competitor on the market, is unquestionably Apple Music, which was started in Summer 2015. Due to the already expansive budget and wide influence that Apple has, they were able to launch the new service in over 100 countries with an offer of a three month free trial, which which drew criticism after Apple initially announced that artists would not be payed for the streams they received from users on the three month free trial. But after criticism and pushback from multi-platinum recording artist Taylor Swift spoke out about about the issue Apple immediately announced that the artists would be payed for their free trial streams. When comparing subscription models, the two services are essentially even, with 3 base subscriptions of $4.99 for students, $9.99 for the individual plan, and $14.99 for the family plan. The key difference between the two is that Apple Music does not offer any form of a free model, as it would essentially completely incentivise anyone to buy from the already dwindling iTunes store. One strong advantage that Apple Music holds over spotify would be its capital and ability to sign artists for exclusive/semi-exclusive deals. Frank Ocean, Chance The Rapper, Drake and many other high level artists have released some of their most highly anticipated albums exclusively on Apple Music for the first week or month of it’s release, something Spotify has been unable to do. Another major player in the streaming battles would be Tidal, the streaming company started by platinum recording artist Jay-Z in an attempt to create his own, unique way of providing a listening experience. Tidal features the option to stream music at a much higher quality in comparison to Spotify, offering “lossless sound quality” and music that is “not compressed and streams at CD quality” (Smith, 1). But of course, this high quality listening experience comes at a hefty price, doubling Spotify’s base price at $19.99 a month for the Hi-Fi plan. They do also offer a subscription that matches Spotify’s base tier, but it does not feature their main selling point, higher quality music for those looking for an upgraded listening experience. Another setback for Tidal is that they currently do not offer any type of app or software for Windows phones. They released a statement saying “We thoroughly examined the possibility to bring Tidal to the windows phone. At this time it is a feature that we have decided to forgo, so we can focus on the platforms that have the greatest support. We are sorry for any inconvenience that this may cause. With the continued developments of the Windows phone, we will be revisiting the idea to bring Tidal to the Windows phone.” (Smith 1). On the flip side, Jay-Z has been able to use his connections and relationships with to get other high profile artists to sign on as partial owners of Tidal and release new albums exclusively or semi-exclusively on the platform. Some of these albums include Kanye West’s The Lift Of Pablo, Beyonce’s Lemonade, and Jay-Z’s own 4:44. As far as the major players against Spotify go, Apple Music and Tidal are just about it. In comparison to Spotify’s sixty million paid subscriber count, Apple Music sits at roughly thirty million, and disputing reports have come out about Tidals paid subscriber count, with the company making press releases that they have eclipsed three million subscribers, while Digital Music News reports that “In April 2016, one month after the press release issued by the company claiming three million members, Tidal made payments to the record labels for around 850,000 subscribers. The figure reported internally by Tidal in April is 1.2 million subscribers” (Resnikoff 1). So as far as the “Big Three” go, it is clear that Spotify retains a massive lead and it is unlikely that that changes anytime soon. As far as smaller, more niche DSP’s go, the two most popular are Soundcloud and Bandcamp. These two platforms tend to be vaguely genre specific (Soundcloud hosts a very DIY Hip Hop/ Trap / EDM scene while Bandcamp hosts more of a DIY Indie, Garage Rock and Punk band scene) and are free to use and free to upload your music to. They tend to skew more towards up and coming artists just trying to get their music out there and less towards high end commercial artists. Soundcloud does stand out as unique among the digital service providers as “the major labels have used it as a discovery tool because there’s a social aspect to it” (Passman 276–277). Soundcloud does offer ad monetization options for artists, while Bandcamp allows Artists to customize how they want to release their music, free streaming, paid download, pay-what-you-want download, only taking 15% of each sale. Of course, neither of the two offer the high volume catalogues that Spotify, Apple Music, or Tidal do, but they remain increasingly popular among the college crowd, some of which have been gathered for a focus group on how they feel about the current state of affairs in the world of digital music.

The first question asked among the focus group was “How much money would you be willing to spend per year to listen to music?” This immediately sparked some interesting conversation, with most of the members simply stating the amount that they pay for their respective streaming service, which would be the five dollar student deal offered by both Spotify and Apple Music. This sharply contrasts with their answers for when asked how they consumed digital music before streaming services emerged, with the general consensus being that it was common to buy individual albums or tracks off of iTunes. Of course this is highly costly in comparison to the five dollars for thirty million tracks deal that these college students pay now. The students unanimously preferred the concept of streaming any song to paying for download and ownership. The focus group also proved that the model of a free trial works to a tee at giving users a taste and reeling them in to eventually hand over cash, with the whole group unanimously answering “yes” when asked whether or not they were reeled in by a free trial only to eventually sign up for the paid service of their respective music provider. One of the most dividing questions asked to the focus group was “How did you feel about Taylor Swift boycotting Spotify and taking all of her music down from the platform?”. The students gave mixed responses, some praised her for her courage to stand up and speak her mind about the abysmal royalty rates that artists receive, while others like Bianca D. called it “Slightly greedy because she’s already worth millions”. One direct, down the middle answer that was received came from Kera K., who stated “Although I hate that bitch, I think what she did was very cool”. When asked about certain services signing exclusives for top tier artists new album releases, the responses were pretty varied but can be best represented by this quote from Megan S. “This is something that I see the intention of, but I really hate it. Being someone who loves music and all different genres it gets very annoying and expensive having to buy all these different subscriptions just to enjoy music. It makes something I love very frustrating.” These college students were all selected to attend this focus group because of their vast love and passion for music, and as technologies advance and the music business continues to evolve, it is clear that their views on Spotify, exclusives, and streaming in general will continue to shape how these businesses create, market, and distribute their product.

With the music industry at it’s lowest point in decades, the business was in need of a new, innovative, convenient way for people to consume music. The general population had greatly devalued their views on music, with CD and digital download prices seeming like a pure ripoff for the amount of music the buyer receives. Until Spotify came along, and offered a way for the masses to access unlimited music at a fair and affordable price. Spotify is far from perfect, but there is a reason it is the largest streaming service in America. Spotify has pioneered this new musical era of on demand music, making it’s own engaging environment and revitalizing the music industry. It’s captivating playlisting feature, inviting freemium option, and massive user base prove that this company will continue to grow and strive towards one day achieving the goal of becoming “The Operating System of Music”.

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