Music streaming services are wonderful for the
consumer as music has gone from the rate of $1 to $1.50 per song to a
subscription rate of $5 to $15 per month. However, there is a struggle for
streaming services such as Spotify and Apple Music to turn a solid profit from
this currently, which in turn snubs the artists on their potential profits from
certain streaming services. Streaming services have increased in popularity
exponentially from year to year, as Business Insider claims 75% of the US
consumption of music is from streaming. With so much of the country leaning on
this service, how is it that some streaming services aren’t generating enough
revenue to stay afloat?
To put it simply, the companies just don’t know how
much royalties are going to be paid out, which is how the artists get paid for
their music on the streaming sites. With the flat rate of $1 per song,
companies knew how much they would get from an individual sale and how much
would be given to record labels, artists, etc. But with this new format of
getting music, companies are having to give out royalties on a “per-click”
basis. Since it is unknown how many clicks are going to occur per day, week,
month, etc. then streaming companies are somewhat left in the dark while
artists are benefitting heavily. “In 2017, specialist finance startup Sound
Royalties pledged to invest $100m in artists and songwriters over the next two
years without taking any rights ownership” (Music Business Worldwide). This is
becoming increasingly more popular as artists are able to fund a concert tour
or album creation, and in exchange the companies funding the artist receive nothing
but royalties. However, nothing has been done yet to encourage the streaming
services to continue on this music path.
“Spotify posted net
losses of €394 million ($461.4 million), which is more than twice
the €188 million ($220 million) that it lost in the same period in 2017.
Its operating loss, €90 million ($105.7 million), was also 14 percent
higher than in the same period in 2017 — mostly because of a cash expense
related to its New York Stock Exchange debut and higher-than-anticipated accrued
social costs, the company said” (The Rolling Stone). That being said, with more
subscriptions comes actual profit for Spotify. This isn’t necessarily
guaranteed though as they haven’t turned a profit since launch in 2008.
Questions:
1. Do you believe Spotify will eventually turn an
actual profit, and if so when?
2.
Is there another way streaming services could go
about generating revenue in order to stay afloat for longer? What would you
suggest?
3.
Would financially backing the streaming services
similar to how companies are financially backing artists work out? Why or why
not?
Citations:
Great post! I too am doing my blog about music streaming services, just slightly different focus. I'm not sure Spotify will ever turn a profit, but it doesn't need to in all honesty. All the major record labels own percentage of stake in Spotify, so as long as Spotify is the vessel for consumers to get their music that eventually leads to ticket sales, Spotify will be able to get away with operating at a loss simply seen as a marketing cost for these labels.
ReplyDeleteI will be talking about this in my blog as well, but streaming services could makeup for the losses by introducing a kickstarter or bandcamp model by allowing listeners to directly contribute money to artists through the interface while taking a small percentage the way a venue takes a percentage of all merchandise sales at a concert.
I like this idea of having a kickstarter or bandcamp model, but do you believe this would be that beneficial for a company at such a large scale? I don't believe many people would give money to high profile artists as they have so many other ways to generate revenue. This seems to work with sites such as Twitch because in a way it is like paying a professional athlete to witness their ability to perform at such a high level. However, people are already paying for streaming services and see how their favorite artists blow through money like it is nothing, so it doesn't seem as realistic.
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