Row over study: Does Spotify hurt record sales or not?

A new US/European study on the impact that Spotify has on record sales has lead to a terse exchange of opinions by executives in different sectors.

At the heart of the matter is the long standing debate on whether Spotify is a raw deal or helps build revenues for labels, publishers and artists.

According to the Recording Industry Association of America, revenue from streaming services grew to nearly US$2 billion in 2014 from about $0.5 billion in 2010. In January, ARIA reported that revenue from streaming services in 2014 more than doubled (up 111%) for the year to A$23 million.

What triggered off the heated discussion is a new working paper from the National Bureau of Economic Research and the European Commission’s Joint Research Centre. It is written by economist Joel Waldfogel of the University of Minnesota and Luis Aguiar of the Institute for Prospective Technological Studies in Seville, Spain.

Their study looked at countries where Spotify had a swift rise between 2013 and 2015, and countries where it’s not available. They also analysed streaming and downloading numbers from the 8,000 pirated artists on torrent sites.

Spotify began in 2006 but took off after the Stockholm-based service’s 2011 entry into America, the world’s largest music market About 25% of its 75 million users spend $10 a month on premium access.

The conclusion from Aguiar and Waldfogel was that it neither has a negative or positive effect on the music industry, but it doesn’t seem to affect the industry’s revenue.

They found that streaming services seemingly slows down piracy use. For every 47 streams, the number of illegal downloads decreases by one. But on the other hand, streaming also cuts down sales because consumers tend to listen to a song over and over than buy it.

According to the researchers, 137 Spotify streams reduce the number of individual digital track sales by one. Factoring in the revenue per stream and download, the overall impact is “relatively neutral”.

Aguiar and Waldfogel write: “Given the current industry’s revenue from track sales ($0.82 per sale) and the average payment received per stream ($0.007 per stream), our sales displacement estimates show that the losses from displaced sales are roughly outweighed by the gains in streaming revenue. In other words, our analysis shows that interactive streaming appears to be revenue-neutral for the recorded music industry.”

They do make the point that “it is not clear that revenue neutrality is an indication of success.”

Their key thrust is that record labels are not receiving any less money because of streaming. But if artists are receiving less of that money, they should blame the labels rather than the streaming services.

Among those disputing the findings and use of numbers is David Touve of the University of Virginia, Billboard reported. In his blog Rockonomic, he argues against Aguiar and Waldfogel’s estimate of 137 Spotify streams displacing one track sale as “revenue-neutral”. His contention is that the 137 streams displace a track sale that returns, on average, 0.822 cents for record labels. The net result is a gain of about 15 cents, which he insists is hardly neutral.

Touve also disputes the study’s focus on Spotify, as royalties from other streamers as Deezer, could easily overcome lost royalties from displaced track sales.

Figures from the International Federation of Phonographic Industries (IFPI) indicate that 46% of the industry’s global revenues were from digital in 2014 and grew by 6.9% to $6.9 billion. Subscription and streaming revenues are growing in their share of contribution to digital revenue. Subscription and ad-supported streaming services now make up 32%, up from 27 per cent in 2013.

Subscription services grew sizably in revenues (39%) and user numbers (now 41 million). Revenues from ad-supported streaming services were up 38.6% in 2014.

Record companies as a result are putting the pressure to get a larger cut from streaming services, and to move their customers from freemiums to paid subscriptions. But their dilemma is that consumers are prone to shifting back to pirate sites over factors as availability, access and pricing.