When the music industry peaked in 1999, a CD on average cost $11.99; that year the industry made record profits to the tune of 14.6 billion dollars. With the new millennium, the internet brought us file-sharing, which forever changed the way we purchased and listened to music. iTunes, which held the largest market share of music sales throughout the late 2000’s, allowed us to legally buy our music for 99¢ a song, downloading it directly into our phones, tablets, or MP3 players from anywhere at any time. Since the concept of single-selection download was introduced, the music industry has been in a steady decline. Now in 2017, the music industry has been turned upside down again by Spotify, a subscription-based streaming service that gives their customers unlimited and advertisement-free access to almost every song ever recorded for the low price of $9.99 per month ($4.99 for students). The extremely low pricing, lack of need for digital storage, and the ability to listen almost anywhere via your phone or tablet, have put music lovers in a better position than they have ever been in history; but what does this mean for the people making the product? Will artists, record labels, and publishing companies continue to have a working business model for creating original and innovative high quality music streaming continues to dilute the purchase of the product?
In 2016 (for the first time in almost two decades) the music industry had a strong year, increasing 11.4% ($7.65 billion) from the previous year. Music streaming has been the catalyst for a lot of that new growth. With growth projected to continue for streaming services, it’s hard to argue that Spotify and other music subscription services are bad for the music industry itself. But, can an artist make enough money from touring to off-set what would have been previously an actual physical purchase of their art work? In a world where artists make most of their money from live shows, music piracy is still possible and rampant, and casual listening has become the norm, you would think that Spotify is a fresh positive. It’s practically free advertising for musicians, which brings in more foot traffic for live performances, and Spotify does pay the artist and music producers (even though the payout is not very significant).
The real question is how the money is divided up. Spotify pays its royalties to record producers by the number of streams that they accumulate. Spotify is paying out large sums to have the right to stream this music, but most of it is not going to the recording artist especially in the case of up-and-coming artist with weaker leverage on their recording contracts. On the surface, all “content producers” are paid equally from Spotify regardless of whether they are a major act or an unknown. Spotify has stated that the average “per stream” payout to rights holder’s lands between $0.006 and $0.0084, which is then divided up by the record label, music publishers, and musicians. For example, if a band’s new hit single was to receive one million streams on Spotify, at $0.0084 per stream, right’s holders would divide up $8,400 dollars for that song. If the musician (or band) makes 20% of that revenue, they will have made $1,680 dollars for their new big hit (which is why you will not be seeing Beyoncé’s Lemonade album on Spotify anytime soon).
Even though Spotify and other streaming services have shifted the areas for profit, they are in a way revitalizing a dying music industry, potentially creating a new era of great music one stream at a time. The catch? The next time you’re upset about a sky-high ticket price to see your favorite artist; you may need to stop and think about how we got to this point and why going to concerts and festivals has now become a cool way to pay it back. If you see downloading the full album as old school, and you prefer to stream-at-will for $9.99 a month; then think about going to a few shows. The tickets are more expensive but the artist will appreciate getting paid finally.
Alex Summerlin is a student of Intermediate Microeconomics at the University of Central Arkansas. The column has been vetted by Joe McGarrity, a professor of economics at the University of Central Arkansas. Contact him by email at firstname.lastname@example.org .