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Spotify: saviour of the music industry?

International music provider Spotify is preparing for its launch into the Australian market later this year. As a subscription-based streaming service, the success of the Stockholm-based Spotify across…

After success in Europe and the US, subscription-based music streaming service, Spotify is launching in Australia. Could it be a musical saviour? Flickr/capsun

International music provider Spotify is preparing for its launch into the Australian market later this year.

As a subscription-based streaming service, the success of the Stockholm-based Spotify across Europe and the US has challenged the dominance of Apple’s iTunes in digital music consumption. Spotify is estimated to have three million paying customers, and over ten million using its free service.

Apple and similar retailers such as Nokia, Vodafone, Telstra have until now offered the purchase of individual songs and albums linked to other services or hardware.

For Apple, there was the beauty of the “end to end” model: iTunes music delivered to iPods, iPhones and Macs, completing a healthy circle of consumption and production. Other providers, such as Last.fm and the US-restricted Pandora (internet radio libraries not yet available in Australia) are also smart in assisting your song compilations (like this? then you’ll also like this…) through digital processing of your choices.

Overseas streaming services (Rdio, Rhapsody and Pure) operate differently in offering songs through “cloud” services, although “ownership” of songs becomes a problem.

Spotify has some important differences to its existing rivals: it offers a free subscription service with ads (in the UK, £4.99 per month, or A$7.71), or a “premium” service without ads (£9.99 per month).

Not everyone is a Spotify fan. Adele is among artists refusing to use the site. AAP

Part of the business model is obviously to entice fans with the free subscription, and then impressing them with the premium service. With its 2011 decision to restrict the playing of a single track to five plays, and a total of ten hours listening per month, this is certainly a big stick to go premium.

It’s also an admission that the free subscription has its limits in terms of future growth for the company. The major recording companies, who have shareholder stakes in Spotify, were not a fan of the strategy, either.

Musicians have also made their feelings known about Spotify’s returns to composers and publishers. In the UK, it’s estimated that a musician gains £0.0041 per stream. On this scale, plays have to be in the millions to recoup to the artist any serious revenue.

This has led to some well-publicised withdrawals by labels and artists (such as Adele and Coldplay) who claim that it’s not worth the effort, and that it might actually hurt sales in other areas.

Co-founder Daniel Ek has consistently argued that a presence on Spotify, even with very low rates of return, is much better than the bleeding of revenue to illegal downloading companies like Pirate Bay. This is one of the reasons why Napster founder Sean Parker has invested in Spotify, as part of the search for the Holy Grail: a digital music service that satisfies artists, recording companies and consumers.

AC/DC refuse to engage with any digital service. AAP

According to the International Federation of the Phonographic Industry (IFPI), legal downloading revenues are slowly starting to matter, with a rise in global digital revenue by 8% in 2011, although overall market sales were down. However, this slow shift to meaningful digital returns isn’t just about making it easier for illegal downloaders to become “legit”, or winning them over. It also requires greater transparency from these large aggregators of content about the true nature of their relationships with music publishers, and royalty rates.

This is a company that now has a serious footprint across key territories, but is apparently yet to go into collective profit. Yet for ease of use, the depth of its song library (over 15 million tracks), and application across everyday media, Spotify remains an attractive proposition.

It will be a major contender in the Australian market, particularly as the NBN is fully rolled out. It has also incorporated many of the features of internet radio rivals that link consumer preferences to what’s in the catalogue.

The company is now in discussions with the Australian subsidiaries of the major labels, and the extent to which it captures iconic Australian artists, past and present, in its catalogue will be crucial. AC/DC, for example, refuse to engage with any digital service, streaming or otherwise.

Let’s be clear. The recording companies have consistently failed to comprehend the shift to digital lifestyles, and their longstanding belief in consumer litigation and perpetual resort to copyright law reform has failed (and in many cases had opposite effects to those intended).

It says an awful lot about the music industry that the key IT companies have dominated legal sales mechanisms in providing affordable digital systems and a decent market share. Spotify will continue to be an interesting experiment in an industry that is still not relaxed and comfortable about the new century.

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22 Comments sorted by

  1. Gavin Moodie
    Gavin Moodie is a Friend of The Conversation.

    Adjunct professor at RMIT University

    I agree that it is noteworthy that everyone but the traditional music industry is finding ways to distribute music digitally and profitably.

    I used to enjoy Pandora when it was available in Australia and now I enjoy the ABC's digital music services, so I don't know why I would pay to subscribe to a service, but I haven't heard Spotify's pitch yet.

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  2. Paul Richards

    integral operating system

    The Indie bands I know are very comfortable with the current state of the industry, they can self promote from their desktop, phone and pad. No one takes big cuts and they have a good base of product to show venues when chasing gigs. They also don't have to compete with the massive concerts and get a chance to play festivals. Fans share their music around and they do what they do. Could it be better? Sure.

    Inevitably the "gatekeepers" will reinvent ways to take their "toll", but for now the landscape is running free range and the music industry has a great pool of new talent. Best of all music creativity levels are unprecedented in history.

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  3. Dale Bloom

    Analyst

    Is there any possibility of an article in The Conversation on an Australian product, or some Australian software or hardware?

    The education system does not appear to have any interest in anything produced in this country.

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    1. Paul Richards

      integral operating system

      In reply to Dale Bloom

      Dale - is the education system meant to produce music?
      From my perspective it was in the hands of multinational media corporations and some balance over the last decade has gone the musician's way. Can you explain your meaning?

      Your perspective is valuable.

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    2. Dale Bloom

      Analyst

      In reply to Paul Richards

      Paul,
      Basically every article on software or internet systems on The Conversation is on software and internet systems produced in other countries. These articles can range from iPhones to computer games to Blackberry devices to internet systems that sell music. Everything is produced in another country.

      All articles in The Conversation are written by people from the education system, and it does appear the authors of these articles have no interest in anything produced in Australia.

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    3. Paul Richards

      integral operating system

      In reply to Dale Bloom

      Dale - we have corresponded before on "The Conversation" thanks for commenting.

      It is difficult to get our heads around, agreed.
      My simplistic take is that universities produce "research" as a primary product.
      By products are education, degrees, honours degrees, PhD, Masters. etc.etc.

      This is a very thin overview, and just to illustrate why you will find little of what you want.
      Research really depends on funding so;
      ~ what is it about?
      ~ who is it for? and
      ~ what purpose or end…

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    4. Dale Bloom

      Analyst

      In reply to Paul Richards

      Paul,
      I think the issue is broader. Universities keep asking for more “federal funding”, which is actually taxpayer funding. That money has to be generated by an Australian taxpayer who is paying personal income tax, or generated by a company operating in Australia that pays company tax to the Australian federal government.

      Writing articles about software produced in another country advertises that software, but it does not necessarily generate any tax that is paid to our federal government. The more it is done by university staff, the less likelihood more tax is going to be paid to our federal government, and the less likelihood universities will get any more money.

      Importing software, equipment and books is rampant throughout the education system, and the more the education system does it, the less likelihood the education system will get any more money from either a state or federal government.

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    5. Paul Richards

      integral operating system

      In reply to Dale Bloom

      Dale - if in the course of "producing" research education is paid for by Federal Government and supplemented by fee paying overseas students the leakage of benefit will happen. Since the funding is corporate, this international leakage will benefit corporations in the form of educated employees and research going overseas. http://online.wsj.com/article/SB10001424052970204795304577220484157750936.html

      Is this along the lines you mean?

      Ok, I don't like it either as far as I am concerned neo-liberal…

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    6. Dale Bloom

      Analyst

      In reply to Paul Richards

      Paul,
      My complaint is with the number of articles on imported computer software and hardware appearing on The Conversation, and I can’t remember reading anything on Australian computer software or hardware, if there is anything being developed anymore.

      This continuous stream of articles on imported software and hardware being written by academics in our universities give free advertising to the software and hardware being produced in other countries, making it even more difficult for local Australian companies to compete.

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    7. Paul Richards

      integral operating system

      In reply to Dale Bloom

      Dale - yes agreed, I went deep instead of broad ok.

      "...number of articles on imported computer software and hardware, we gave.... "

      Why does this surprise you?

      Hardware - we sold out technology when the "mother country" closed down our space program, several attempts at technology parks seem to have floundered and just produced international success.

      The talent has gone overseas just like the international Suntech Solar Panel Corporation. Over 30 years old is relic territory for a…

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    8. Dale Bloom

      Analyst

      In reply to Paul Richards

      Paul,
      I sometimes use freelance programmers, and it is true that they can be very expert in their fields, but I have noticed that many are now asking for about $100 an hour, and that includes programmers from third world countries.

      I can’t find anyone in Australia, and I think the IT industry in Australia has basically died. It died not just from competition, but from lack of interest. All interest now is on what is being produced in other countries.

      I don’t know why schools and universities are bothering to teach application languages such as Java or C++ or PHP because very few applications will be produced in this country in the future.

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    9. Dale Bloom

      Analyst

      In reply to Gavin Moodie

      Gavin,
      Well I really don’t know why the education system is teaching students to produce games, when so many games are now free. It produces no income, and the developers of computer games pay minimal or no tax.

      There are programmers now in other countries that would eat Australian programmers for breakfast, and they produce programs that can be used to produce income.

      The more educators in Australia use imported software, and the more they give free advertising to imported software systems, the quicker the IT industry in Australia will be killed off.

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    10. Paul Richards

      integral operating system

      In reply to Dale Bloom

      Dale - I empathise with you.
      Paying $100per hour? Whoa.
      Barristers would be pleased to net that after overheads are paid.

      Things have changed in five years if on "The Boards" you are are trawling in developed economies they are asking an hourly rate instead of price per job.

      Anecdotally;
      In the last five years I have asked telco call centre employees in Asia and they still earn more working in Call Centres. Most are from wealthy families and had the privilege of studying their passion…

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    11. Paul Richards

      integral operating system

      In reply to Gavin Moodie

      Gavin - Yes, our young and overseas students also love gaming. However how can anyone contract an overseas or local programmer if they have no working knowledge? Programming must be taught. Valid point about IT employees, we also need those to get more education in business.

      No one can become Bill Gates just programming, he quickly contracted programming out in an era when they were cheap. He elevated the skill, the developing countries have devalued it in this era and Gates has retired. Our young programmers need more eduction on business and project management than writing, in this area.

      So Dale is right about production, not the writing though. It is project management, commissioning, tendering business generally. These skills are encouraged in University, they are valuable to the neo-liberal corporations. So we circle back.

      What point is there complaining about Universities not helping Australian software makers?

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    12. Gavin Moodie
      Gavin Moodie is a Friend of The Conversation.

      Adjunct professor at RMIT University

      In reply to Dale Bloom

      Your claim that 'the IT industry in Australia has basically died' is belied by the apparent health of the games industry in Australia. Universities teach animation and other games technologies because students want to learn them.

      Student demand for computer science collapsed after many computer scientists were sacked during the dot com bust and hasn't recovered yet. Employment demand seems to be picking up and if it is student enrolments in computer science will recover soon thereafter.

      I don't see why universities or any other part of society should favour software or any other product or service just because it is produced in Australia since that would require them to reduce their own performance for the sake of propping up an industry that can't compete effectively. They should choose the product or service that suits their needs best, thus maximising their own performance and their service to society.

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    13. Dale Bloom

      Analyst

      In reply to Gavin Moodie

      Gavin
      Australia could have had an IT industry, but it is fast losing that industry. I currently get some programming done by a programmer in Egypt and another in India, but some time ago, neither India or Egypt were producing computer programmers.

      These programmers ask for high hourly fees, but they produce code so quickly it becomes economic to use them. The programmer in India has a science and maths background, and his wife has a science and maths background, and she also does QA. The husband…

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    14. Dale Bloom

      Analyst

      In reply to Gavin Moodie

      Gavin
      If we do develop other industries, most probably the equipment will be imported, and any software from PLC code to accounting software will also be developed elsewhere. It is similar to mining where almost all equipment is imported, and Australia just provides the arms and legs to operate that equipment and service it.

      Australians might think we are producers, but in reality we are simply consumers of equipment and code developed elsewhere.

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    15. Gavin Moodie
      Gavin Moodie is a Friend of The Conversation.

      Adjunct professor at RMIT University

      In reply to Dale Bloom

      True, and it is hard to imagine how it could be any different for most of the goods used in Australia. Australia will always 'make stuff' to export, but only a few things such as specialised medical equipment which Australia, by a combination of good fortune and good management, does better than the rest of the world. All the rest Australia should continue importing, which is the best for the Australian and world economies.

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    16. Paul Richards

      integral operating system

      In reply to Dale Bloom

      Dale - you are right;
      The economists overview of Australia has been as a resource sector and has not seen as a viable manufacturing centre because of logistics. There is all the issue of 3D printing and teaching industrial designers for global export of digital product 3D designs as intelectual property. Plug and play designs for of products, to be 3D printed in-situ anywhere in the world. It is not far off when AI driven hardware will write the programs for automation, develop, design and export digital 3D drawings of 3D printable products.

      Singularity is closer than most think.
      This is the issue with the Model of education we have, it is slow to respond.

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    17. Dale Bloom

      Analyst

      In reply to Gavin Moodie

      Paul,
      I’ve been involved in AI work and also equipment automation, and I think there is a difference. Most of automation coding can be condensed down to a series of if/then statements, but AI can be used to capture knowledge, and that knowledge can then be used within advisory systems for decision making. It requires good communication with the workforce to capture the knowledge and put it into AI systems.

      Australia is well behind in automation technology and automation software, but developing…

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