Will Spotify save the UK music industry?

logoSpotify is cool, but i think we need some back of envelope calculations to determine whether its business model can sustain a music industry of the sort we’ve been used to in the UK over the last 50 years. Otherwise all the hype is a bit meaningless…

Headline – the music industry is making less money

Prove it…

Record sales are declining:

2005                 2006                 2007                 2008
£1,856m          £1,623m          £1,379m           £1,289m     (1)

Sales are declining:

2005                  2006                 2007                 2008
179                      177                   159                     156

(in millions of units – ‘album equivalents’ (1))

The causes?

I‘ll save that for another post!

 

What can Spotify contribute?

a) How many subscribers would Spotify need to save the UK music industry?

How many subscribers at the current £10 per month rate would Spotify need to make the equivalent amount of UK record sales in 2008?

-> £1,289m / £120  per subscriber per year = 10.7 million subscribers

Hmm that sounds like quite a lot considering that the BBC have 25m licence fee payers (enforced by law!) And doesn’t even take into acount that Spotify might want to take a cut themselves to make a profit, and may just possibly need to pay for all that bandwidth.

b) How about just the difference between the 2006 & 2008 totals, which is £300m?

£300m / £120 = 2.5 million subscribers

Not such an absurd number, but still quite high. Considering Spotify has 4 million UK  users in total though…that’s kind of interesting.

For comparison, Sky have 9 million subscribers.

So how close are Spotify to either of these totals?

Spotify curently have 4m UK subscribers, and ‘less than 10%’ are paying (2).

If we guess 5% are premium subscribers, that makes 200,000 subscribers raising £24m.
Quite a lot of money, but only 1.8% of the big number, (£1.3bn), and 8% of the £300m.

Oh, that sounds bad then

Well, it is if we want to rescue the UK music industry entirely, but it could make some contribution and certainly be able to sustain itself as a business.

(If it’s received $50m in funding from the Asian billionaire La Ka-shing, then my estimate of subscriber turnover of £24m even at the current numbers sort of makes sense. Not that I know much about investing in start ups..)

Note: I’ve discounted revenue from ads as I assume that to be negligible.

Royalties – the unknown

I wonder if Spotify pay royalties to composers, song-writers and artists at the same rate as other digital services? As an artist I make 56p on an iTunes song sale, but only 0.01p on a Rhapsody stream of the same song. I would expect Spotify, as a streaming music service to pay out on the Rhapsody type rate. Which is actually quite a small number and not great for the industry on the face of it..

Still, like anything, it’s all about the volume so the trick is to have millions of songs streamed or bought to generate the proper cash for the artist/label, so the normal method of buying popularity through marketing will need to continue.

Summary

What have I shown? At the very least that Spotify isn’t (yet) the complete solution to the music industry’s declining revenue, but could be a useful part of the mix. The only question is whether low-royalty paying streamed music cannabilises other music sales to such a degree that artists decide it’s not worth their while to be included on such services and the available library goes down.

On a slightly separate note, I can’t help think that the future of music distribution must eventually disappear properly into the cloud so that any piece of recorded music made in the last 100 years is available to listen to on a whim. Millions of people carrying around their own duplicate of the exact same file is really lame.

 

Oh, and I’ve got two invites for Spotify accounts, if anyone needs em.

 

(1) http://www.eraltd.org/_attachments/Resources/yearbook.pdfhttp://www.bardltd.org/content/stats.asp

(2) http://mobile.reuters.com/mobile/m/FullArticle/CTECH/ntechnologyNews_uUSTRE5A10YD20091102

 

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3 Responses to Will Spotify save the UK music industry?

  1. Looptron says:

    Couple of things… sales are not equivalent to profit and digital distribution is cheap – besides, value is often linked to scarcity and that doesn’t apply to something that can be copied identically by anyone. Also, historically speaking, the “record industry” is an odd blip related to available technology – professional musicians existed (and survived) long before and will continue to exist after. Performance and publishing is were the money’s at. The record companies had monopoly on a distribution chain for a while, but that chain is accessible to everyone now. Which is good. If you wanted to play back music you *had* to buy from them and the mark-ups were huge. And probably always unsustainable, frankly – all those sales pay for layers middle-management bonuses.

    Now that monopoly has gone power is back with the promoters. Which means lazy musicians like us can’t just expect to get paid (much) for playing something once for other people to play back whenever they like any more – the novelty has worn off so we gotta get out and play in front of people. And if they hear us on Spotify or elsewhere on the interweb for free and like it they’re much more likely to shell out on a gig ticket.

    Or something. Not sure I actually made a point there.

    Tiu know.I probably spend more money on gig tickets and music than I ever had.

  2. Looptron says:

    Damn. iPhone keyboard got the better of me again. :-)

  3. oliolioli says:

    Yo, cheers for that.

    I largely agree with you. I wasn’t really worrying about profit as such, or what happens to the revenue once acquired, just the total sales volumes possible from something like Spotify.

    I know some people think the ‘freeloading off the internet and going to several gigs’ model will support the wide range of music we’re used to, as well as the associated industries of studios, sound engineers, record labels, et al – and they might be right – but I might need to do some more back of envelope calculations to see if that’s really true!

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