Spotify and YouTube Are Just Killing Digital Music Sales

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David Paul Morris / Bloomberg / Getty Images

Since the iTunes Store launched in 2003, digital music sales have been viewed as the music industry’s saving grace in the face of declining physical album sales and rampant online piracy. Now, with a deluge of  music streaming services letting fans listen to songs for free, the digital download may be going the way of the CD and the cassette tape before it.

U.S. digital track sales decreased for the first time ever in 2013, dropping from 1.34 billion to 1.26 billion, according to Nielsen SoundScan. CD sales also continued their ongoing decline, dropping 14 percent to 165 million. Digital album sales were stable, staying at 118 million sold last year. Meanwhile the number of songs streamed through services like Spotify, YouTube and Rhapsody increased 32 percent to 118.1 billion.

The rise of streaming has been swift. Spotify just arrived on U.S. shores in the summer of 2011, but it has become a lightning rod for controversy thanks to a chorus of artists who decry that paying musicians a fraction of a cent per listen is unfair. Make no mistake, though: this model is the future. Both YouTube and Beats Electronics are planning to launch paid streaming services early this year, and the French company Deezer is expected to bring its popular service to American shores soon. Even Apple, the king of digital sales, has dipped a toe into the streaming space by launching the Pandora competitor iTunes Radio.

(MORE: Here’s How Much Top Musicians Are Making on Spotify)

“What we were thinking about was having full track download sales somehow replace the lost revenues from the rapid decline of physical [sales],” says Larry Miller, a music business professor at New York University’s Steinhardt School of Culture, Education and Human Development. “What wasn’t so widely anticipated five or six years ago was that full-track download sales would begin to decline as rapidly as they have this year, especially given how nascent the streaming services still are.”

It’s not clear whether this shift toward streaming will help or hurt the music industry in the long run. Digital downloads were a logical continuation of the business model that generated fat profits for record labels in the heyday of physical music stores. In some cases, with no manufacturing or distribution costs involved, a hit digital album could actually be more lucrative than a physical CD. Beyonce’s new surprise album, for instance, sold almost 830,000 copies in its first three days available exclusively as a $15.99 iTunes download.

Despite some successes, digital downloads were never really able to stop widespread online piracy, which tanked music sales for more than a decade. Miller says the only solution was to develop a platform that was “better than free” and provide users benefits they couldn’t get through illegal downloads. Enter Spotify and others, which offer services that are simple to use, boast comprehensive music libraries and won’t leave a nasty virus on a music fan’s computer. As these startups have grown in popularity, piracy has dwindled. Peer-to-peer filesharing networks, which Napster and all its ilk popularized, have dropped from 31 percent of total North American Web traffic five years ago to less than 10 percent today,  according to broadband equipment company Sandvine.

However, the music industry’s core problem—that lots of fans just don’t want to pay for music—remains an issue. Most people use the free, ad-supported version of Spotify, and the company recently expanded its free offering to mobile devices. The most popular platform for listening to music among young people is YouTube, which is almost entirely free. If these businesses can convert lots of free users into paying subscribers, artists, then record labels and the companies themselves will be awash in money. A premium subscriber to Spotify, Rdio or Google’s streaming service spends $120 per year on music, or enough to buy about 12 digital albums. That’s plenty to sustain the industry.

(MORE: Spotify Offers Free Music on Mobile Devices)

But if users refuse to migrate from free options, the music industry may regret the year it made digital downloads obsolete. “Until we’re able to change the denominator—the number of consumers who are interacting with these services—then the fundamental economics just don’t work,” Miller says. “Having said that, I’m bullish on the fact that we are going to get there, that we are going to effectively deliver these services to hundreds of millions or even billions more prospective music fans.”

22 comments
RuiFRibeiro
RuiFRibeiro

The major problems labels have with Internet services providing music is that they are loosing the control as the middle man. Indeed, I agree it costs a lot to promote some dimwit to the general public, however nowadays indie music has a shot to arrive to the public without bending over and selling their soul and firstborn to the media moguls.

PattyMayonnaise
PattyMayonnaise

I don't have huge insight into the economics of music sales. But I do know huge pop stars get a huge portion of their revenue from tours and concerts. I suppose that stinks for half the artists that cant actually perform. 


I also know that huge mega stars are not hurting financially and I wish they'd stop whining about the pennies lost from paid streamers.


And I know that as a premium user of spotify myself, I shouldn't have to be punished because I was smart enough to purchase a package deal.


So in conclusion, for my $120 a year, Beyonce needs to get off her high horse to put her album on spotify for my listening pleasure. 


I don't use itunes and After purchasing all physical copies her albums I shouldn't' have to completely change my mode of listening to music for one album.


(Smaller scale artists should just be grateful that anyone is at all is willing to pay for their music. even if it is .12 cents a track. Not that you aren't talented and your music isn't AMAZING and potentially the biggest milestone in music - but. like any other industry to you have to work your way up to be valuable. 


I personally am willing to pay for anything that wows me. But most people aren't paying for names they don't know struggle of an artist. )

danosongs
danosongs

Well YouTube is my biggest driver of iTunes sales and visitors to my website. So for a small artist like myself both Spotify and YouTube make it possible for exposure I never could have had. People see danosongs in the credits of a video and then seek me out : ) Best, Dan-O

Nacatania
Nacatania

The DMCA contains a "Safe Harbor " provision which took away any responsibility for site owners for  infringing works uploaded to thier sites as long as they took them down when requested. The problem is that when one uploaded  song or video work was removed, someone else would put the same thing up.   These sites profitted from every upload,  which is why they ENCOURAGED viewers to upload these. (See details on You Tube vs. Viacom)  Song writers and publishers gave up on attempts to police thier work.  So not only did the song creators loose big time from the loss of sales,  but it taught the mass of music listeners that music is free,  and that they are entitled to hear any song or album they want any time at no cost.  On top of that, plain old piracy is still bigger than ever.  So musicians are left with no bargaining power whatsoever.  Streaming services are using their  financial positions to influence legislation to promote ultra low per song court set rates and even FORCE musicians to allow thier songs to be played at  consent decree rates, whether they like it or not.  In it's current state,  streaming will not replace other sales unless musicians are forced to provide their music against their will at rates they did not agree to. Indeed, Pandora has spent $$$ in "free speech' to make this happen.  This is nothing less than extortion, legalized.

yougoglenncoco86
yougoglenncoco86

@KS2Problema "But if users refuse to migrate from free options, the music industry may regret the year it made digital downloads obsolete. " As you can see from this quote by the author, he is not saying that digital sales will lead to the "absolute end of music as we know it". He is saying quite the opposite; buying albums and songs legally are a great revenue source for the musicians we know and love, but the problem lies within the big players like Spotify and YouTube who are destroying the integrity of music and its creators.

KS2Problema
KS2Problema

I'm a musician and a songwriter. But I'm getting sick of the IP squatting deep pockets in this business whining about every new wrinkle in the sales and distribution paradigms.


To hear the sob sisters at the big labels and publisher talk, you'd have thought digital download sales was the absolute end of music as we know it. It was a truckload of nonsense then and it's a truckload now.

That said, some of those very same big labels and publisher have been among those who cut hasty various distro and syndication deals that benefited them more than it benefited their artists. Sadly, those artists signed away their own rights to control that aspect of their careers -- to organizations which often manifestly could barely care less about artists or their rights.

And some of those deals that were cut for 'discovery' streams on Spotify Free (and possibly others using such models) probably LOOKED like they would make sense under the original Spotify US Free tier's  *original* limited-play arrangement -- a limitation arrangement that was supposed to kick in after a few months but still has not been implemented, per the last reports I've seen on that aspect.

But -- meanwhile -- other syndication entities ARE paying a reasonable amount per stream on paid subscription services like Rhapsody, MOG (soon to be Beats), and others.

With one of my favorite artists -- who owns her own label with her musical partner -- pulled her stuff from syndication a few years ago. But I had discovered this duo via streaming subscription back around 2004. And I figured at the ~1.1 cents per play that my then service was reported to pay artists who control their own labels, this duo had made at last about $25 an album from my (rather incessant) plays -- as opposed to the $4-$7 they probably would have made from physical sales.

When they pulled their music, I thought, well, maybe I should just do what I would have done in years past: go to the local, beloved, independent music store and buy one or more fo their CD's, used, for $8 or so a piece. But that would have put NO money in the artists' pockets at all.

Happily, this duo must have done the math, as well, as they are now back in stream syndication after several years.

Maybe the rest of the industry will wise up to the potentials of streaming subscription -- but hopefully the labels will stop cutting deals with outfits where the label gets a good deal and the artist gets the dregs. 

But then that behavior seems deeply entrenched in labels, big and even, sometimes, small.

GeorgeJohnson
GeorgeJohnson

Spotify pays .00000012 cents per song to the songwriter AND the music publishers that they have to SPLIT.  


I suggest Joe buy a new Prevost bus at a million bucks, pay incredible amounts of money for gas, t-shirt inventory, band salaries, food, hotel, equipment, promotion, marketing, etc.  While we are at it, I'll be over to pick up your car Joe and your mom or dad's car since you love giving other people's property away.  


Copyright is how songwriters and musicians survive and their ONLY source of income and you clearly have no respect for copyright or the person who writes the song. 


When you say go get on a bus, what you are really saying is you don't give a crap about copyright, people's property, the artist or songwriter or music publisher's talent, hard work, literally years of time and $50,000 to $200,000 they put into making the album. I'd love to hear your album Joe.  


I'd love to be able to walk into Kroger and fill up my shopping cart with $400 worth of food and walk right out.


Not everybody is a singer and Britney Spears are the one per centers and nobody wants to listen to that crap anyway.  Like Britney Spears or Justin Beiber and Lady Gaga have anything to do with music.  But OTHER PEOPLE wrote their songs, not the artist, they are called SONGWRITERS and Spotify hates them, as do you.


You clearly enjoy starving songwriters just cause you can get away with it and it still makes you nothing more than a common thief, just like Sean Parker and maybe you both should be put in jail for theft and copyright infringement.  


My song is MY PROPERTY, like your car is your property.  So if shoplifting is your thing, try going to Target and walking out with a CD.


And tell your wife and kids that your current job is "little more than marketing", I'm sure she will understand you working for free all week.  Then, go get on a bus with your new album and tour.


So, song thieves, go ahead and steal all you want, but your incomes are next.  LOL!  Can't wait till your job starts paying you .00000012 per hour or per week.  Have a great day morons!

JoeRobinson
JoeRobinson

Musicians make their real money doing live performances. Brittany Spears Vegas tickets are $239 on the weekend and $139 during the week. Downloads are going to be little more than marketing.

JAGANAR
JAGANAR



dont forget that south park made light of this back in the day.


http://www.youtube.com/watch?v=Af0wXeN6_FY


could be worse, it could happen in korea where they kick the artist to the curb when they become 

unpopular .


AND MUSICIANS make less than the companies which is why we in the us are stuck with crap like BIEBER /MINAJ / GAGA instead of actual musicians who KNOW HOW TO PLAY MUSIC EVEN BLINDFOLDED

MiguelMoleiro
MiguelMoleiro

"Killing"? Doesn't they have a Ads or Payment? In case of Youtube they have the Content ID option for non-legal uploads.
Music Industries need to Review/Update their Marketing/Output.

ceefee
ceefee

@GeorgeJohnson I don't even have to ask you if you're a middling musician because all I had to do was read your post and look under it and see all the dunderheads rationalizing theft. It's amazing how so many dumbasses ramble on without doing simple math. It's not a mistake that bands sign with labels -- they still serve a great purpose for developing acts.

KS2Problema
KS2Problema

@GeorgeJohnson  - your figures are off. WAY off.  Just read the linked Time article: "Here’s How Much Money Top Musicians Are Making on Spotify"

I don't like Spotify much, I DO think they take advantage of artists (in cahoots with labels and publisher who've negotiated crummy deals 'in their behalf' even while often getting favored treatment for the labels -- but it's kind of ridiculous to exaggerate in this fashion.


Read more: Spotify Reveals Royalty Rates Paid to Artists | TIME.com http://business.time.com/2013/12/03/heres-how-much-money-top-musicians-are-making-on-spotify/#ixzz2peUU6BDc

ceefee
ceefee

@JoeRobinson Please stop parroting what you read somewhere -- that bands make money on tour. Tickets to my band's shows aren't $239 -- and we don't play in venues big enough to set up 12 merch booths in. Please realize the difference between the 1% of acts you get Ticketron email alerts from and the 99% of the rest of us who go out on the road and mostly lose our asses trying to tour.

Nacatania
Nacatania

@JoeRobinson

No, that is a lie that has been spread by the digital parasite enterprises to justify the stealing of music that they profited from.   Before the digital era, record labels would typically spend hundreds $K  or more to develop and promote an artist.  Like it or not, it takes big money to tell the world who you are, and to develop what you have to be a  real work of recorded art.  Without record sale money, there is no money to promote you - that is tell the world about your act.  So nobody will come to your shows.  If you look at the acts that are touring now,  the majority are acts that were promoted before 1999.  The small nunber  of ones that came to be after 1999 happen to be ones that somehow sold music.  There are a few genres - like pop  and country, where people still buy music.  That is why artists like Adele are moving toward country.  I wonder, if paying for gasoline became an option - how many people would pay? 

KS2Problema
KS2Problema

@JoeRobinson -- And that's for  someone who is primarily going to be lip-syncing. = D

JAGANAR
JAGANAR

@MiguelMoleiroamen dude .


dont forget that south park made light of this back in the day.


http://www.youtube.com/watch?v=Af0wXeN6_FY


could be worse, it could happen in korea where they kick the artist to the curb when they become 

unpopular .


AND MUSICIANS make less than the companies which is why we in the us are stuck with crap like BIEBER /MINAJ / GAGA instead of actual musicians who KNOW HOW TO PLAY MUSIC EVEN BLINDFOLDED

ceefee
ceefee

@KS2Problema Appreciate your comments but do you understand per your math you would have played ONE of your friend's albums (let's say 12 tracks) in its entirety 189 times to earn the band $25? That sure is a lot of plays of an album. And I have to ask you -- even if you listen to the entire album 60 times in your life (seriously, that's devotion enough), what about everybody else? They likely don't listen that much. Even a 1.1 cent rate is not that much. Not that much between a 2 person or 4 person act. And we're talking about bands that would just like to be able to afford dental work -- not mansions. 

KS2Problema
KS2Problema

@GeorgeJohnson  - Time:  "the total royalty pie is split among all rights holders based on the percentage of total Spotify streams their songs garner. But the company estimates that the average song generates between $0.006 and $0.0084 per stream in royalties." That's a range of over a half cent to nearly a cent per play. To be sure, that pie IS divided between stakeholders in the song, typically guided by prior contractual arrangements and, in the US, by statute.


Read more: Spotify Reveals Royalty Rates Paid to Artists | TIME.com http://business.time.com/2013/12/03/heres-how-much-money-top-musicians-are-making-on-spotify/#ixzz2peVi9W8N

AlexNewman
AlexNewman

@JoeRobinson exactly the truth.   I toured both USA and Australia back in the day as a minor act on a major label and broke even, plus chatted with plenty of fantastic artists and was gobsmacked by how even bigger tours end up making no money whatsoever. Sure, there is U2, Stones etc but the majority of your favorite artists and developing talent are broke.

JoeRobinson
JoeRobinson

@KS2Problema And its not like people don't know what to expect. She does dance a lot, so I can see why she can't sing. Gaga does sing and dance but she has to take breaks to give sanctimonious rants to catch her breath. I'm not sure what I'd prefer.