Since its conception in January, 2000, music labels and Spotify have been at odds. Even last week, Pandora announced it would pay $90 million to settle a lawsuit over royalties for artists who recorded music before 1972. Because of a legal loophole, Pandora was able to play songs on the internet radio services without paying royalties to artists. While Pandora has been at odds with labels, they agree with labels about one thing.
They hate Spotify.
Spotify and other streaming services of its kind have been growing, effecting the music industry in different ways every year. According to Nielsen’s 2014 Report, only 257 million albums, CD or digital, were sold. This was an 11 percent drop from 289 million the previous year. Streaming, however, has 78.6 billion audio streams with 85.3 billion video views. This is an exponential increase from the previous year. The numbers clearly show that consumers are leaning more towards streaming their music, instead of buying digital tracks or albums.
While labels and artists hated Pandora for royalties, they all agree that Spotify’s music service gives consumers too many options. While Pandora allows its listeners to listen to virtually any song, these songs are picked by the service. In addition to this, Pandora breaks up these songs with advertisements. On the other hand, Spotify let listeners listen to ANYTHING they want for AS LONG as they want. Pandora CEO Brian McAndrews said during Thursday’s earnings call, “I think one of the challenges for the industry, I think, and for Spotify is how many of those teens are actually paying for it? And an on-demand model is meant to be paid for and subscribed to.”
McAndrews brings up a point. According to Spotify, there are sixty million overall active users of the service, with fifteen million paying users. Spotify offers a “freemium” option that has advertisements, but users are still allowed to listen to anything they want anytime. This freedom is hurting Pandora, and bringing up not only licensing issues, but questions about streaming in the future. In addition to this, Spotify still isn’t even a profitable. In 2011, Spotify brought in revenue of $236 million, with a net loss of $57 million.
Spotify isn’t the only company facing net loss. Pandora is too, with a net loss of $20 million in 2012. How do these companies effectively pay artists, but still make a profit? Many say that we should get rid of streaming services all together. Others say we should all just “suck it up” and agree to pay $10 a month, helping the industry go and supporting artists, with no “freemium” option.
Peter Kafka of Re/code translated Pandora’s earning’s call, and their issue with Spotify, in a great way. “Look, it would be bad if our free, not-on-demand service had to compete with free on-demand services forever. But those things are as bad for the music industry as they are for us, so we bet (we hope!) they’re going to go away.”
While it’s obvious these services aren’t going away, it’s going to be interesting to see what happens.