The Swedish Experiment: Spotify Helps Recording Industry Make Lots Of Money

from the in-the-pirate-bay's-home-country dept

We've mentioned before that Spotify shows how providing consumers what they want can really have a much stronger impact on "piracy" than any enforcement initiative. Both Spotify and The Pirate Bay started in Sweden, and both got tremendous penetration in the Swedish market. But as various studies have shown, infringement of music dropped drastically in Sweden as the service became more popular. A new report looks at the Swedish recorded music market, and found that it's up an astounding 30.1% in the first half of this year, due almost entirely to Spotify. Digital music now accounts for 63.5% of all music sales, and streaming services (mainly Spotify) represent 89% of all digital music sales. MusicAlly notes that streaming may be cannibalizing downloads, but the massive growth in streaming is more than outweighing the decrease in downloads.

This even has the labels (who, yes, have an equity position in Spotify -- more on that in a bit) talking about how they're making more money than they have in a long, long time, thanks to Spotify:

“We’re back to the same revenue levels as during 2004, and if the development continues in the same way we’ll be back on turnover similar to those during the “golden days” of the CD in just a few years,” says Universal Music Sweden’s MD Per Sundin.

“We’ve seen massive change in music consumption, where music fans are now listening to more music than ever, in an entirely legal environment. This means that revenues are increasing all the time, and artists get paid every time their music is played. Our artists get significant revenues from Spotify, which is our biggest income source for Sweden. A positive side effect is that we’re investing a lot in new talent.”

Mark Dennis, CEO of Sony Music Sweden, makes the same point: “One of the most gratifying consequences of this is that it gives us the opportunity to sign more artists, and record more new Swedish music than ever. In fact, for most of our artists, streaming music now represents the majority of the revenue.”

Now, I've learned to take any claims from the major labels with a grain of salt, and there are some clear issues with Spotify. People have complained that the deals favor the majors so they get a larger cut than the indies. That's definitely a problem. Others insist that Spotify doesn't pay enough -- but multiple studies keep finding that, on a per listen basis, Spotify actually pays quite nicely. There may still be significant issues with how the labels pass that money on to artists, however.

The point of this isn't to say that "Spotify" is the answer. There are, clearly, some questions about that particular service. But it certainly shows that there are solutions that very effectively compete with free, and as they grow, they can certainly help make significant money for the copyright holders. Spotify, of course, had a head start in Sweden, and the adoption rates there are incredible. However, the point is pretty clear: let new services like Spotify grow and thrive and effectively compete with free, and they will do so -- and the business issues seem to pretty quickly sort themselves out. Obviously having even more competition would be a good thing as well, as competitors will keep trying to offer something even better (and put pressure on Spotify to advance as well).

In the end, though, Spotify is a classic case of giving the public what they want, rather than what the industry wants them to have. And yet, in doing so, it's also now providing massive revenues for the industry -- even as people continue to insist that such a result is impossible.

Filed Under: digital music, piracy, sweden
Companies: sony, spotify, the pirate bay

Is There Any Merit To Neil Young's Plan To Improve The Quality Of Digital Music?

from the the-(record)-needle-and-the-damage-done dept

Neil Young has been unhappy with the state of digital audio for a while, and he's made various overtures about fixing it. Now, some trademark applications found by Rolling Stone suggest his plans are in motion, though details on those plans are scarce. The only real clue comes from a tangential mention in an unrelated press release:

A press release issued last September by Penguin Group imprint Blue Rider Press, which is publishing Young's upcoming memoir, may have revealed the working title of Young's entire project. In addition to the memoir, says the release, "Young is also personally spearheading the development of Pono, a revolutionary new audio music system presenting the highest digital resolution possible, the studio quality sound that artists and producers heard when they created their original recordings. Young wants consumers to be able to take full advantage of Pono's cloud-based libraries of recordings by their favorite artists and, with Pono, enjoy a convenient music listening experience that is superior in sound quality to anything ever presented."

But does Young actually have a new idea? There are already lossless formats like FLAC that some audiophiles swear by, not to mention uncompressed formats like WAV and AIFF. But there is theoretically room for improvement: most uncompressed digital audio is sampled at a rate of 44,100 Hz, but some pro studio equipment can record at twice that, and technologies like DSD can go much, much further. Moreover most consumer audio consists of 16-bit samples, which could be bumped up to 24-bit. So on the technical side, there is the potential for new formats to popularize higher-quality digital audio. Who knows if that's what Young has in mind.

That, however, leads to the bigger question: is there really a market for such a format? The digital audio debate has been raging for years, and it has a lot of contours—not just the strengths and weaknesses of digital and analog formats, but also changing approaches to sound engineering and the debates over loudness, audio compression and overprocessing. While some audiophiles insist they can tell the difference, blind listening tests have proved they rarely can. For the average listener, convenience, selection and price surely trump such a negligible (and possibly undetectable) quality difference—and since it sounds like Young hopes to develop a proprietary, cloud-only format, I'm guessing those other factors aren't high priorities. Moreover, since most people are listening to their music on earbuds and other low-definition systems, the quality bottleneck exists much further down the line than the file format—and since an increasing amount of music is recorded with consumer tools like GarageBand that operate at the standard sampling rates for uncompressed AIFF/WAV files, there's another bottleneck above the file format too. Though, in theory, these factors are part of what Young wants to change with his push towards higher quality—and there may be some potential in that direction over time as bandwidth and storage space increases, and even some sort of immediate market among audiophiles. But it's hard to see what he could offer that existing formats don't already provide.

I know some people will insist that digital audio sucks, and that they can tell the difference—but frankly that's a meaningless assertion if they haven't done a controlled test. There are simply too many biases to account for. But even if it is a real problem for some people, it is likely to be a very small niche market, not a cultural sea-change like Young seems to envision. Some of his proclamations about the effect of music sound eerily close to Prince's insane ramblings about how audio interacts with the brain, which is hard to swallow. Music may create transcendent human experiences once it's inside your head, but your ears are still made of flesh and bone, not magic. And evidence suggests that most people's ears can't tell the difference.

Filed Under: digital music, flac, neil young, quality

Digital Music Has Only 'Failed' If You're Not Paying Attention

from the think-bigger dept

Apparently Forrester music analyst Mark Mulligan told the press recently that "digital music has failed," which seems like an incredibly short-sighted statement. Mulligan's a smart guy, and while we've disagreed with him in the past, I'm hoping he really said that because it's a good line to feed the press, rather than because he had any actual belief in it. The fact is digital music has been a massive success for those who know how to use it. Digital music has allowed musicians to go from nobodies to stars. Digital music has allowed artists to connect with fans they never would have reached before. Digital music has allowed artists to massively expand their fan bases. Digital music has allowed artists to cut out unhelpful middlemen and route around gatekeepers. Digital music has meant more music is being produced, released and available today than ever before. How you can consider that a "failure" is beyond me.

The only way you can possibly consider it a "failure" is if you think the only purpose of digital music is to sell it and it alone. But that's not the case.

Digital music has allowed many artists to make plenty of money through other means. Ignoring all that and focusing so narrowly just on the sales of digital music alone is like saying that telephone switching technology was a failure because it put phone operators out of work. If that's what you're looking at, you're measuring the wrong thing. Yes, digital music sales haven't replaced the decline in CD sales. But anyone who thought it would was delusional from the beginning. But digital music isn't a failure. Not by a long shot. It's been a huge success for all sorts of folks in the music industry -- and especially for musicians and fans. It may have been a failure for a few big record labels, but mainly because they made the same mistake, in thinking that the answer was to focus solely on digital music sales, rather than the larger picture.

Filed Under: business models, digital music, mark mulligan, music

Once Again, Betting On Digital Music Sales Is A Mistake: Digital Music Sales Flat

from the focus-on-more-important-areas dept

We've suggested in the past that the recording industry was fooling itself in betting on digital music sales as a serious way to replace its revenue stream. As we've pointed out just selling music is not a very good business, but still there's been some fool's gold in the fact that digital music sales have been growing. We warned a year and a half ago not to get too excited about this, and now Nielsen is reporting that digital music sales have stalled out and will be flat this year, rather than growing. None of this means that there isn't money to be made or smart business models. In fact, we're seeing that musicians are making more money than ever. It's just that they're doing it by relying on other business models beyond just selling music.

Filed Under: business models, digital music

What The IFPI Report Left Out: Its Own Study Showed That File Sharers Do Buy

from the well,-look-at-that dept

We already spent a bunch of time debunking many of the claims in the IFPI's new "Piracy Bad!!!!" report. But the folks over at TorrentFreak have dug up a bit more info. Apparently the research for the report was put together by Forrester, and the underlying research showed that when it comes to the growth in digital music sales, those who partake of unauthorized file sharing are also the best customers of authorized digital music. No, this is not saying that file sharing automatically leads people to buy, or that all file sharers buy. Obviously, that's not the case. But it does suggest that demonizing those people might not be the smartest thing.

But the IFPI report doesn't mention any of that. Instead, it claims that people file share for one reason and one reason alone: because it's free. If that were the case, though, then why would any of those who partake also buy? And why would they be the industry's best customers for digital sales? It seems like the IFPI should be embracing them to see how it can get them to choose to buy more -- but instead, it totally ignores what its own researchers found, insists that it's just because content is free, and then spends most of the report demonizing its best customers and asking governments of the world to kick those people offline.

Filed Under: buyers, digital music, file sharing, ifpi, study
Companies: ifpi

Growth Of Music Digital Sales Is Slowing Down

from the false-hope dept

In the presentation I did last year at the NARM event, one of the things I noted was that people who were pinning their hopes on the music industry making a revival through digital sales of songs were betting on a false hope. They were betting on the idea that they could just take the old world (Tower Records) and move it to the new world (iTunes) with a digital facelift. Doing so ignored the reality of what the internet does and allows. The internet doesn't just let you take a store and move it online. It changes nearly every aspect of the creation, promotion, distribution and business models around music. Yet, this was a point that I got a lot of pushback on. People still insisted that selling music files was going to be "the thing" that worked. They might want to check that assumption. Reports are coming out, noting that while digital music sales are still growing, the pace at which they're growing is slowing down, in some cases drastically.

Now, you can't expect massive growth forever. At some point, every growth market begins to mature and saturate and the growth rate slows down. But, digital music sales are still a relatively small market. It seems much wiser to focus on the markets that actually have much more potential than the one that tries to just recreate the old world by applying artificial scarcities.

Filed Under: digital music, music, music sales

Congrats, RIAA: Chilling Effects Have Killed Interest In New Digital Music Startups

from the nice-work! dept

We've noticed that pretty much every single new and innovative digital music startup that pops up eventually gets sued by the record labels. The labels seem to view this as a part of basic negotiations -- and, in fact, many of the lawsuits have ended in partnership/equity deals. But, those deals tend to be suffocating. Given that (likelihood of getting sued or getting a deal that makes a profitable business impossible), is it any wonder that entrepreneurs are shying away from any sort of digital music startup these days, in favor of opportunities with no obsolete gatekeepers demanding huge chunks of whatever revenue they might one day make?

At a time when the recording industry needs innovative startups more than anything else, the record labels and their oppressive lawsuits and deal terms have basically scared off exactly the people who create those businesses.

Filed Under: chilling effects, digital music, entrepreneurship, lawsuits, startups

EFF Challenges Another Bogus Online Music Patent

from the taking-them-down,-one-by-one dept

The EFF's patent busting project continues, as it's filed a challenge against an online music patent held by a company named Seer Systems. The challenge includes plenty of prior art, including some published by the patent holder in a book, long before the patent application was actually filed. It's great to see the EFF continue to try to mow down these patents one by one, but it's worth noting how slow and cumbersome this process has been. The EFF first announced its patent busting project more than four years ago. And, while the program has had successes, it's been very slow going. If it takes this long to bust such obviously bad patents, just think of the trouble dealing with ones that aren't quite as obviously bad.

Filed Under: bogus patents, challenge, digital music, patents, prior art
Companies: eff, seer systems

CD Duplicator Buys CD Baby; Recognizing A Digital Future

from the changing-times,-changing-business-models dept

Lots of folks who follow the music space are aware of CD Baby, who has helped independent artists sell their music for years. It basically was a one stop shop for many independent artists, getting their music available in a variety of different places, for either download or physical CD sale. Earlier this week, the company was bought out by Disc Makers, the aptly named company that manufactures CDs and DVDs for independent musicians and filmmakers. The two companies had worked together as partners for many years. Still, what strikes me as most interesting about this is that Disc Makers clearly is recognizing that relying on the physical disc reproducing business to keep growing is a likely to be a losing bet. So, it appears to have come up with a decent plan for positioning itself for the changing market. If only other businesses were willing to do that.

Filed Under: cds, digital music, independent music, mergers
Companies: cd baby, disc makers