In the extent to which Spotify affects the

In the late 80s, people needed to buy
commercial compact discs (CDs) and a CD player to listen to music. Today, a
phone with a mobile music app is all what’s needed. Technology changed
the way music is produced and consumed. This is possible thanks to the creation
of streaming platforms like Spotify. Launched by Daniel Ek in 2008, this
Swedish digital platform connects the supply in the music industry (artists)
and the demand (subscribers) by gathering 140 million active users and over 30
million songs (“Spotify,” 2018). Most of the basic features are free (limited
mobile listening with shuffle-only mode) while other features are not (enhanced
sound quality and listening offline with no ads) (Swanson, 2013, p.

2).

The increasing popularity of Spotify participated to the
transition from the physical music format towards the online streaming format,
which makes the files easier to share. (“Global Investor 2.15 – The Sharing Economy – Credit Suisse
Publications,” n.d., p. 20)

Their intangibility impacted significantly the way people in the
music industry make profits. Its disruptive potential attracted criticism from
the artists and created a lot of controversy between researchers on the
subject.

In this paper will be discussed the extent to which Spotify
affects the artist revenues

A literature review will be used to
answer this research question. This literature will consist of academic
articles on the effects of digitalization, its effects on the music industry..  and how Spotify participates to the sharing
economy. This will be complemented by the second section with a discussion
about the digital piracy danger related to the app and in what way did Spotify
impacts artists revenues. 

 

              Digitalization is a technology
creation defined as “the practice of moving services and data onto computers and
online “. Its application to the music sector refered to  “technology diffusion” and had as an effect
the creation of digital firms like Spotify (National Academies of Sciences, 2017, p. 22). Spotify is a music
aggregator that does not produce any good or service. It contributes to the
sharing economy by allowing file sharings (songs) on the platform, between the
producers (artist and record labels) and consumers (the subscribers). It is
called an ‘interactive streaming mode’ because consumers do not own or buy the
music they listen to on the app. As It was explained by “pipiples” in “pipelines’,
this type of platform is different from a pipeline firm because it only
facilitates interactions and exchanges between the two partis instead of being
responsible of creating value on the supply chain (Alstyne, Parker, & Choudary, 2016). Spotify creates a better
match between supply and demand by proposing over 2 billion playlists that
correspond to the subscriber’s taste and mood. Spotify proposes two versions
with some common features : possibility to create playlist, to follow artists,
to share the songs on social media and to listen to the radio. The first
version is free : subscribers can listen to music on a suffle-mode only, with
internet connection and advertisement. The second version cost 9$ per month :
subscribers can decide what song they will listen to, offline, with no advertisement.

 Because most of the features are free,
Spotify follow a system called a “freemium model”. Subscribers pay either in a
direct way or in an indirect way by listening to advertisement. As a result, in
2013, Spotify profits were around 317 million euros (Heywood, 2016, p. 5).  Each song uploaded on Spotify by the artist or
record label generates a certain number of streams (the number of time it has
been listened to). Traditionally, the money is sent to the record
label that then gives back a margin of it to the artist itself, based on
pre-negociated rates.

The
platform pays an unsigned artist 3.8$ for 1000 plays as royalties and artists
on a label l are paid $.00029 per stream. These low rates created controversy in
the music industry to the point of some famous artist like Taylor Swift remove
their albums from the app (Marshall, 2015, p. 2).

Record labels have a major  impact on the artists’ revenues, this is why
it is crucial to understand how did apps like Spotify impacted them

 

 

………..

Some researchers agreed on the idea that streaming platform like Spotify had a
disruptive potential for the whole music industry. That means that it breaks
down the industry barriers and former successful business models (Peter Weill, n.d.).

One of these models was the music
distribution with physical sales. The rise of the Internet and the creation of
new devices that play digital audio formats shifted to the right the demand for
digitally-produced music (Bockstedt, Kauffman, & Riggins, 2006, p. 5).  It has indeed more advantages for the
consumers who can get a larger choice of songs with low prices. By paying one
subscribtion, he or she can have access to millions of musics and playlist, for
the same price of one physical album. This was explained by the professor
Juliet Schor in “Debating the Sharing economy” when she stated that sharing
economy sites are generally lower in cost than market alternatives (“Debating the Sharing Economy,” n.d.).  It Is also more convenient because the listening
can be done anywhere at any time. As a result, the Recording Industry
Association of America (RIAA) reported declining revenue in nine of the past 10 years,
with album sales falling an average of 8% each year. Physical music
sales decreased from about $19 million to $3 million. (Koh, Murthi, & Raghunathan, 2014, p. 373). Don VanCleave, the current manager for the
Nashville based band Moon Taxi declared that “the checks artists receive
from Spotify are miniscule compared to the checks once given to artists for CD
sales in the 90’s” (Carver, 2016, p. 4). All of these
arguments might explain why it is a common belief that artist make less money
than before with the rise of streaming platforms.                                                 But
another important element to mention is that streaming platform did not
participate alone to the fall of physical sales. Before the creation of
streaming platform, consumers use to pay to download music instead of buying CD’s.

Mike King, the vice president for enrolment
management at Berklee College of Music said in an interview that “the average
download consumer spends 60$ a year while an average premium subscriber pays
120$ a year with Spotify”(“Spotify’s D.A. Wallach Explains How Spotify Pays Artists,” n.d.). This theory can be supported by one graph provided by “Credit Suisse”  that represent the market value of the music
industry since 1973 in the context of a study on the sharing economy. The music
industry was already starting to collapse since the launch of iTunes in 1998. The
revenue due the physical sales went from 28 billion dollars in 1998 to 7
billion dollars in 2013. The digital download revenues were also decreasing since
2003 and so is the value of the music industry. However, it could start catching  up with the subscriptions revenues generated
by the streaming market. This means that the streaming industry helped
remonetize the music industry. Platforms
like Spotify can also be considered as disruptive because they lower the
industry’s barriers to entry. Indeed, artists have always been able to write and
perform their songs alone. But other skills need the support of the record
label professionals and involve some important costs : recording costs,
manufacturing (or pressing), promotion costs, shipping costs and warehousing
costs digital services pay. But
with the creation of these digital streaming platforms, musicians are able to
record their songs themselves without any advanced materials, on their computer
and learn how to edit it. They can promote it on social media without any
specialized skills and add it to online music stores or
streaming platforms. The cost of
distributing went close to zero with digitalization. Once the song is recorded,
it is cheap and easy to replicate it. (drdave, 2013). Consequently, artists are becoming more independent by
adopting a “do-it-yourself”
approach (Bockstedt et al., 2006, p. 18). Moreover, when an artist takes
care of the process of music distribution through the Internet, he or she can minimize
their cost and keep most of their revenues instead of only getting a small
margin of it.(Bielas, 2013, p. 24).This also equilibrates the
balance of power between records labels and artists that are now also
entrepreneurs (Hracs, 2012). The idea that record labels
are the one that exploit the artist’s intellectual proprety was defended by
Jared Welsh a famous music lawyer (Marshall, 2015, p. 7). Some records labels like
Warner tried to create their own music marketplace but at the opposite of
streaming apps like Spotify, the choice of songs offered were too limited and
they couldn’t gain enough market share (Bielas, 2013, p. 26). Some researchers at the opposite
believe that artist should think in a more patient way with  long-run vision. Artists should see streaming
platforms like Spotify like an addition to other type of revenues (live sales
or physical sales) (Marshall,
2015, p. 10).

One type of
advantage of these types of digital firms is their market reach. Anyone with a
credit card, a phone and an internet connection anywhere in the world can
discover new musicians and their songs on the app. This has a positive impact
of live ticket sales and consequently on their revenues (Carver, 2016, p. 7).

Another type of indirect benefit can
occur if the artists know of to promote their new pre-release streams on the
platform. The famous singer Justin Timberlake used this streategy to promote
his new album 20/20 experience. As a result, the songs were streamed 7.7
million times, he sold 980 000 copies during the first week and became one of
the most played songs in the radio (Swanson,
2013, p. 222).  Brad
Sanders, the Digital Content Manager for Secretly Canadian Distribution argues
that those royalties payments may keep increasing with time. He also defends
the idea that Spotify helps the fight against digital piracy and is an
opportunity like any other to monetize music (Swanson,
2013, p. 218).

 

 

A provisional answer to the research question would be that
digital streaming platform like Spotify did not affect drastically the artists’
incomes but rather the way they get their revenues from.  However, to give a better and more precise answer,
further studies on how they impacted the rate of digital piracy or research
that compare an artist revenue before and after the digitalization process
would be needed..

c

This paper has a main goal to show this extent to which streaming
platforms like Spotify did influence the artists’ revenues. This serves as an
exemple of how can a digital firm that participates in the sharing economy, affect
one important actor in an industry.                                                                                                                          The
revenues received directly from the apps may be inferior to the ones coming
before from physical sales. But on the other hand, it allowed their increasing
popularity which lead to bigger live ticket sales thanks to a better market and
advertisement contracts with brands . This technology creation had as a first a
disruption effect on former business models, like the supply of physical sales which
impacted negatively the artists’ revenues. It also impacted negatively another
major actor record labels that are way less needed for the artists to thrive in
the industry. By reducing their cost of distribution and getting higher independence,
artists are now able to create with digital platforms opportunities to create
profits .

 

 

–       
More hypothesis

–       
How is it sharing economy?

–       
Explain the technology

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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