Turn It Up: Spotify Clicks Play On The Music Industry

As an over-enthusiastic subscriber, “Follow me on Spotify” is a polite request I make of all acquaintances and a forceful demand of anyone even minimally connected. But no, this article is not intended to be a shameless plug aimed at expanding my social-musical network. Please, 70 followers are plenty. Instead, my near-obsession with Spotify has all but compelled me to go backstage to determine both the factors that have contributed to the streaming platform’s extraordinary success as well as how its growth is inextricably linked to the revitalization of the music industry.

Spotify’s development follows a troubling period for the music industry. While the tech-boom brought with it many winners, it was detrimental for artists and label corporations; the rise of the internet led to a proliferation of pirated music and services like iTunes encouraged listeners to abandon complete album purchases in exchange for single, 99 cent downloads. Indeed, according to the Recording Industry Association of America (RIAA) the music industry’s revenue plummeted 66 percent from $13.7B in 1998 to a mere $6.87B in 2015.

Though the internet certainly took its toll on the music industry, the rise of streaming platforms like Spotify are recovering some of these losses. In the first half of 2017, marking the second year of consecutive growth, retail spending on music rose 17.7 percent, 62 percent of which was attributed to an increase in paid subscriptions to streaming services. While revenue is still far from its peak in the ‘90s, the uptick in paying listeners warrants a sense of optimism.

That Spotify is responsible for the bulk of this growth is clear: Over the past two years, the company has added 65 million active users, leading to today’s total of 140M. Similarly, paid subscriptions are up 200 percent from 20M to 60M over the same period. More so than Apple Music and other competitors, listeners are grabbing their headphones (or stylish cordless earbuds) and tuning into Spotify.

The Swedish-based startup’s success can be attributed to a number of factors. Most significant is the fact that it was one of the first to arrive on the on-demand streaming scene. Back in 2008, the company revolutionized the music industry by offering an on-demand music library; this allowed listeners to choose a specific song which provided more user-control than services that only allowed them to select a genre or artist. Since then, many other streaming services have had to play “catch-up” in order to compete with Spotify.

The company’s careful attention to its playlist features has also attracted many users. Subscribers can select any number of songs from Spotify’s library and add them to a customized playlist that they can share with other users as well as on social media. Additionally, the platform offers thousands of employee designed playlists reflecting various genres, moods, and settings. Perhaps the most impressive feature is Spotify’s “Discover” playlist which implores an impressive algorithm that adjusts itself to a user’s taste and suggests songs and artists that are in line with his/her interests.

The streaming platform might also owe some of its success to a factor beyond its own control: The rising rate of music consumption. According to a study conducted by The Nielsen Company, the average person listened to 23.5 hours of music a week in 2015 and 32.1 hours just two years later, an astonishing 36 percent increase. While the correlation between music listening and the availability of streaming services would naturally be positive, if demand for music is simply higher today than just a few years ago irrespective of the growth in streaming platforms (hypothetically, this could be due to better artists, a stronger interest in relaxation etc.) companies like Spotify could expect significant revenue growth.

Because of Spotify’s unique service and impressive features, it has garnered much interest from the music-listening community, consequently improving the viability of the industry as a whole. But its impact is not limited to the demand for music; Spotify’s growth is positively affecting artists as well.

Despite an initial reluctance to participate in streaming platforms, artists are recognizing that Spotify’s grip on the music industry can hopefully increase their profit margins. Not only does the accessibility of the service negate much of the incentive for listeners to pirate music, but the royalties paid by Spotify can also strongly contribute to a performer’s career. Roughly 70 percent of the company’s 4 billion-dollar revenue will go towards royalty payments for its various labels and artists. Though per-stream compensation figures are still low and the company must continue to support its performers, with a growing number of users—especially paying subscribers—artists can expect to earn more from their music.  

Spotify is also taking steps beyond royalty payments in order to promote its artists. This past October, Spotify introduced a program known as  “Rise”, which aims to discover up and coming performers and promote their work through advertisements, concert announcements, and by placing their music in high-frequented playlists. Furthermore, in an effort to provide artists with helpful music data, the company recently launched a new app that makes it easier for artists to stay on top of listener demographics and song popularity.

Despite all of these achievements, there are still areas in which Spotify could improve. For example, though the company posts consistent revenue growth, it is still operating under significant losses due to its high royalty expenses. To turn a profit, the company will need to find a way to either lower costs or increase subscription prices without deterring customers or label corporations. As the streaming platform looks to IPO in the coming months, adjustments to its business model are expected.

Revolutionizing the industry and sparking excitement among listeners worldwide, Spotify is giving music enthusiasts something to sing about. As it looks to expand even further, it can be confident that its product is one that will continue to attract much attention and certainly more subscribers—it only remains to be seen whether this influx of customers will help put me over the 70-follower line.