In the late 80s, people needed to buycommercial compact discs (CDs) and a CD player to listen to music. Today, aphone with a mobile music app is all what’s needed. Technology changedthe way music is produced and consumed. This is possible thanks to the creationof streaming platforms like Spotify. Launched by Daniel Ek in 2008, thisSwedish digital platform connects the supply in the music industry (artists)and the demand (subscribers) by gathering 140 million active users and over 30million songs (“Spotify,” 2018). Most of the basic features are free (limitedmobile listening with shuffle-only mode) while other features are not (enhancedsound quality and listening offline with no ads) (Swanson, 2013, p.2). The increasing popularity of Spotify participated to thetransition 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 SuissePublications,” n.d., p. 20) Their intangibility impacted significantly the way people in themusic industry make profits. Its disruptive potential attracted criticism fromthe artists and created a lot of controversy between researchers on thesubject.
In this paper will be discussed the extent to which Spotifyaffects the artist revenues A literature review will be used toanswer this research question. This literature will consist of academicarticles on the effects of digitalization, its effects on the music industry.. and how Spotify participates to the sharingeconomy.
This will be complemented by the second section with a discussionabout the digital piracy danger related to the app and in what way did Spotifyimpacts artists revenues. Digitalization is a technologycreation defined as “the practice of moving services and data onto computers andonline “. Its application to the music sector refered to “technology diffusion” and had as an effectthe creation of digital firms like Spotify (National Academies of Sciences, 2017, p. 22). Spotify is a musicaggregator that does not produce any good or service. It contributes to thesharing economy by allowing file sharings (songs) on the platform, between theproducers (artist and record labels) and consumers (the subscribers). It iscalled an ‘interactive streaming mode’ because consumers do not own or buy themusic 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 onlyfacilitates interactions and exchanges between the two partis instead of beingresponsible of creating value on the supply chain (Alstyne, Parker, & Choudary, 2016). Spotify creates a bettermatch between supply and demand by proposing over 2 billion playlists thatcorrespond to the subscriber’s taste and mood. Spotify proposes two versionswith some common features : possibility to create playlist, to follow artists,to share the songs on social media and to listen to the radio. The firstversion is free : subscribers can listen to music on a suffle-mode only, withinternet 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 adirect way or in an indirect way by listening to advertisement. As a result, in2013, Spotify profits were around 317 million euros (Heywood, 2016, p. 5). Each song uploaded on Spotify by the artist orrecord label generates a certain number of streams (the number of time it hasbeen listened to). Traditionally, the money is sent to the recordlabel that then gives back a margin of it to the artist itself, based onpre-negociated rates.Theplatform pays an unsigned artist 3.8$ for 1000 plays as royalties and artistson a label l are paid $.
00029 per stream. These low rates created controversy inthe music industry to the point of some famous artist like Taylor Swift removetheir albums from the app (Marshall, 2015, p. 2). Record labels have a major impact on the artists’ revenues, this is whyit is crucial to understand how did apps like Spotify impacted them ………..
Some researchers agreed on the idea that streaming platform like Spotify had adisruptive potential for the whole music industry. That means that it breaksdown the industry barriers and former successful business models (Peter Weill, n.d.). One of these models was the musicdistribution with physical sales. The rise of the Internet and the creation ofnew devices that play digital audio formats shifted to the right the demand fordigitally-produced music (Bockstedt, Kauffman, & Riggins, 2006, p. 5).
It has indeed more advantages for theconsumers who can get a larger choice of songs with low prices. By paying onesubscribtion, he or she can have access to millions of musics and playlist, forthe same price of one physical album. This was explained by the professorJuliet Schor in “Debating the Sharing economy” when she stated that sharingeconomy sites are generally lower in cost than market alternatives (“Debating the Sharing Economy,” n.d.
). It Is also more convenient because the listeningcan be done anywhere at any time. As a result, the Recording IndustryAssociation of America (RIAA) reported declining revenue in nine of the past 10 years,with album sales falling an average of 8% each year. Physical musicsales decreased from about $19 million to $3 million. (Koh, Murthi, & Raghunathan, 2014, p. 373). Don VanCleave, the current manager for theNashville based band Moon Taxi declared that “the checks artists receivefrom Spotify are miniscule compared to the checks once given to artists for CDsales in the 90’s” (Carver, 2016, p. 4).
All of thesearguments might explain why it is a common belief that artist make less moneythan before with the rise of streaming platforms. Butanother important element to mention is that streaming platform did notparticipate alone to the fall of physical sales. Before the creation ofstreaming platform, consumers use to pay to download music instead of buying CD’s.Mike King, the vice president for enrolmentmanagement at Berklee College of Music said in an interview that “the averagedownload consumer spends 60$ a year while an average premium subscriber pays120$ 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 musicindustry since 1973 in the context of a study on the sharing economy. The musicindustry was already starting to collapse since the launch of iTunes in 1998. Therevenue due the physical sales went from 28 billion dollars in 1998 to 7billion dollars in 2013.
The digital download revenues were also decreasing since2003 and so is the value of the music industry. However, it could start catching up with the subscriptions revenues generatedby the streaming market. This means that the streaming industry helpedremonetize the music industry.
Platformslike Spotify can also be considered as disruptive because they lower theindustry’s barriers to entry. Indeed, artists have always been able to write andperform their songs alone. But other skills need the support of the recordlabel professionals and involve some important costs : recording costs,manufacturing (or pressing), promotion costs, shipping costs and warehousingcosts digital services pay. Butwith the creation of these digital streaming platforms, musicians are able torecord their songs themselves without any advanced materials, on their computerand learn how to edit it. They can promote it on social media without anyspecialized skills and add it to online music stores orstreaming platforms.
The cost ofdistributing 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 byadopting a “do-it-yourself”approach (Bockstedt et al., 2006, p. 18). Moreover, when an artist takescare of the process of music distribution through the Internet, he or she can minimizetheir cost and keep most of their revenues instead of only getting a smallmargin of it.(Bielas, 2013, p.
24).This also equilibrates thebalance of power between records labels and artists that are now alsoentrepreneurs (Hracs, 2012). The idea that record labelsare the one that exploit the artist’s intellectual proprety was defended byJared Welsh a famous music lawyer (Marshall, 2015, p.
7). Some records labels likeWarner tried to create their own music marketplace but at the opposite ofstreaming apps like Spotify, the choice of songs offered were too limited andthey couldn’t gain enough market share (Bielas, 2013, p. 26). Some researchers at the oppositebelieve that artist should think in a more patient way with long-run vision. Artists should see streamingplatforms like Spotify like an addition to other type of revenues (live salesor physical sales) (Marshall,2015, p. 10). One type ofadvantage of these types of digital firms is their market reach. Anyone with acredit card, a phone and an internet connection anywhere in the world candiscover new musicians and their songs on the app.
This has a positive impactof live ticket sales and consequently on their revenues (Carver, 2016, p. 7). Another type of indirect benefit canoccur if the artists know of to promote their new pre-release streams on theplatform. The famous singer Justin Timberlake used this streategy to promotehis new album 20/20 experience. As a result, the songs were streamed 7.7million times, he sold 980 000 copies during the first week and became one ofthe most played songs in the radio (Swanson,2013, p. 222).
BradSanders, the Digital Content Manager for Secretly Canadian Distribution arguesthat those royalties payments may keep increasing with time. He also defendsthe idea that Spotify helps the fight against digital piracy and is anopportunity like any other to monetize music (Swanson,2013, p. 218). A provisional answer to the research question would be thatdigital 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 researchthat compare an artist revenue before and after the digitalization processwould be needed.. cThis paper has a main goal to show this extent to which streamingplatforms like Spotify did influence the artists’ revenues. This serves as anexemple of how can a digital firm that participates in the sharing economy, affectone important actor in an industry.
Therevenues received directly from the apps may be inferior to the ones comingbefore from physical sales. But on the other hand, it allowed their increasingpopularity which lead to bigger live ticket sales thanks to a better market andadvertisement contracts with brands . This technology creation had as a first adisruption effect on former business models, like the supply of physical sales whichimpacted negatively the artists’ revenues.
It also impacted negatively anothermajor actor record labels that are way less needed for the artists to thrive inthe industry. By reducing their cost of distribution and getting higher independence,artists are now able to create with digital platforms opportunities to createprofits . – More hypothesis – How is it sharing economy?- Explain the technology Alstyne, M.
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