Nov 08

Spotify v. Swift: Controversy over Subscription Based Services

Spotify has recently been all over tech news. Whilst earlier this week Taylor Swift decided to withdraw her whole music collection from the music streaming service, claiming that artist’s were not compensated well enough for their art, it is left to be seen whether Swift is indeed going to start a trend of artists aiming to forgo the streaming based model which is becoming prevalent across entertainment industries.

What started with Netflix, that allowed us to tap into a library of movies and tv programs without really owning them, spread into the music industry with services like Pandora, Rdio and Spotify to name a few, and has recently also reached the book industry with Amazon recently announcing Kindle Unlimited, a subscription that allows you immediate access to hundreds of thousands of books without legally owning any of them. This subscription based model is a divergence from the classic ownership and consumption model that allowed you to consume entertainment on demand only through physical control and ownership of the work (owning DVDs or VHSs allowed you to watch when you want rather than wait for a show to be on TV, radio or in the cinema).

I believe that the subscription/streaming model has become exceedingly popular over the past few years due to two main factors: high speed, reliable internet access, and social integration. For anyone who grew up during the 90’s the internet was a slow and unreliable service unfit for live video and music consumption, the constant buffering and lack of coverage were a cause for great frustration. The spread of high speed reliable internet to nearly every device and network in the developed world has caused many to be more willing to rely on the internet for storing their entertainment media without a need to worry about access to it. The social aspect of subscription services has also served as a major accelerator for changes in consumer behavior, as we are now able to watch, listen and read the same things as our friends or other cultural icons we choose to “follow”.

The move to subscription/streaming based services has seen a reduction not only in the purchase of physical VHS, DVDS and CD but also a decline in the purchase of their electronic equivalents. One of the major arguments against subscription based services is that that revenues don’t trickle down to the artists and Swift herself has claimed that this is the main reason to remove her music from the service. It should be noted that Swift’s decision to remove her new album from Spotify was based on her unhappiness with the fact that Spotify was unwilling to make her album available only to it’s paying (premium) users (Swift has elected to leave her music on Google’s All Access Music platform amongst others that agreed to her demands). Perhaps Swift’s actions have helped her increase sales as she has gone on to sell over 1 million copies (both physical and electronic) and scored the highest one week sales for her album beating Eminem’s previously held record from 2002.

To refute this argument Spotify claims that the average US music listener spends $55 dollars a year on music whilst the Spotify premium user pays $120 a year to take part in this service, effectively increasing the revenue stream (Spotify’s premium (paying) users make up 30% of its 40 million subscribers). Additionally, it was reported this week that in Europe, Spotify’s revenue contribution to artists outstripped iTunes (which offers purchasable rather than subscription based content) by 13%. If this trend will continue, the last arguments against streaming (bar audiophiles complaints of lower quality of music) services will well and truly be nullified.

For now, I’m off to listen to another playlist curated for me by Arctic Monkeys on Spotify.

Yoav Susz first-year MBA student at NYU Stern and InSITE Fellow. Prior to Stern, he practiced corporate litigation specializing in technology companies.

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