Spotify Doesn't Sound So Great to Some Artists

These artists' hits don't always play on Spotify From left: Getty Images (2); Corbis (2)

By Andy Fixmer

Adele’s 21 was the biggest album of 2011, hitting the top spot in dozens of countries and garnering six Grammy nominations in November. Her latest single, Someone Like You, is playing everywhere. Everywhere except Spotify.

Adele is among a vanguard of artists including Coldplay, The Black Keys, and Tom Waits who have opted not to make their latest albums available on streaming-music services like Rdio, Mog, and Spotify, where users pay a monthly fee of $5 to $10 to listen to as much music as they want, or listen for free with occasional advertisements. Artists earn money from such services every time their songs are played, but some believe the revenue doesn’t match what they’d get from outright sales.

“I am very concerned,” says Dave Holmes, Coldplay’s manager. “Spotify competes with download stores” like iTunes, he says. He plans to keep the album released on Oct. 24, Mylo Xyloto, available only as a purchase for several months. “Like all of Coldplay’s other titles, the new album will be on [Spotify] eventually,” he says. In effect, Holmes and like-minded managers are mimicking the so-called windowing practice pioneered by Hollywood. Movie studios usually stagger the release of films, first to theaters, then on DVD, and later on cable channels and streaming sites like Netflix. That strategy maximizes revenue for movie and TV producers, says Needham analyst Laura Martin, but could be a problem for streaming sites if the practice becomes widespread in music. “It certainly hurts Spotify’s perceived value if the consumer frequently searches for songs that aren’t there, even if that represents a small fraction of titles,” she says.

It’s also creating headaches for music-industry executives won over by Spotify since its U.S. debut in July. Universal Music Group, Sony Music Entertainment, Warner Music Group, and EMI Group, the four biggest record companies, took large advance payments from, and equity stakes in, Spotify before its U.S. launch. Yet labels can’t force their biggest acts to support the site, says Ted Cohen, a former EMI digital chief. Some musicians have clauses in their contracts that give them control over digital distribution. Others just tend to get their way. “If Lady Gaga doesn’t want her latest album on Spotify, her label will listen or she may get a creative flu or miss certain promotional appearances,” says Cohen, who now advises music-focused technology startups. “A recording artist can be petulant.”

Spotify’s supporters turn to data to defend the service. Streaming services are already the recording industry’s second-largest source of revenue after iTunes, and London-based Spotify says it paid about $150 million to rights-holders in 2011, compared with $55 million a year earlier. For every album like Coldplay’s Mylo Xyloto, which manager Holmes contends would have sold fewer copies had it also been available on Spotify when it was released, there are many more albums like Drake’s Take Care, which was available on Spotify and still went platinum in five weeks. Even Coldplay’s label is enthusiastic: “Services such as Spotify are currently generating more revenue per user to EMI and our artists than the average digital music consumer generated in a world without these services,” says Mark Piibe, head of business development for EMI. The average iTunes customer spends about $60 a year, according to three senior music executives who asked for anonymity because the figures aren’t public, while a subscriber to Spotify’s top tier of service spends twice as much. Apple spokesman Tom Neumayr declined to comment.

Scooter Braun, the manager for teen sensation Justin Bieber, says the backlash-in-the-making may simply be the product of technophobia. “There were a bunch of artists who wouldn’t sell music on iTunes when that first started, and now it’s standard,” he says. “The same thing will happen with Spotify.”

The bottom line: Though streaming is the record industry’s second-biggest source of revenue, some stars withhold their music in hopes of selling more.

Fixmer is a reporter for Bloomberg News.

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Daniel Ek’s Spotify: Music’s Last Best Hope

By Brendan Greeley

Spotify founder Daniel Ek and Christina Aguilera, photographed in Los Angeles on July 8 Photograph By Art Streiber

(Corrects price of subscription fee in Europe in 10th paragraph)

“You can’t work in music. You have to find another job.”

Per Sundin’s concerned mother was on the phone. It was the summer of 2006, and both Sundins were watching a debate between Sweden’s two major party candidates for Prime Minister. Earlier that year, police in Stockholm had confiscated servers and questioned the founders of The Pirate Bay, a file sharing site that had been ignoring increasingly piqued letters from the American entertainment industry. Media piracy had become a national campaign issue in Sweden, which according to Harvard’s Berkman Center is second only to Japan in speed, price, and availability of broadband Internet access. During the debate, the moderator asked the candidates how they felt about file sharing. Both agreed that piracy was too easy, and that it didn’t make sense to criminalize an entire generation of music lovers.

It had been a bad couple of years for Sundin, who runs Universal Music in Sweden. Revenues consistently fell 10 percent per year. Between 2001 and 2008, he would fire 200 employees. Universal, where he is now, dropped from 110 to 40. He was reluctant to tell people he worked for a record label. At parties he would become angry. He asked friends whether they downloaded, whether their children downloaded. No one had a problem with taking music for personal use. “But that,” he would say, “is what we do!”

Even in bad times, the record business has its perks. To get to Sundin’s office, you pass two stands of fresh lilies, a Warhol-style photo of the My Aim Is True-era Elvis Costello, and a Guns N’ Roses pinball machine. To advance in the music industry, you evidently have to agree to hang a photo of Bruce Springsteen in your office; Sundin’s is as big as his desk and has Clarence in it, too. He tells of a major-label project in 2001 that gave a small group of consumers access to 5,000 albums, along with CD burners and color printers. “We thought you’d always need a CD,” he says. Sundin, to be sure, fought hammer and tongs to punish music piracy, but he seems almost sheepish now. “We went through an evolution,” he says. “The consumers went through a revolution.”

Worldwide revenue for the recording industry peaked in 1999 at $27 billion, according to International Federation of the Phonographic Industry (IFPI). By 2008 it had plummeted to $14 billion. That year, Universal, EMI Music, Sony, Warner, and Merlin, which represents independent music labels, each agreed to an experiment: They would give their entire catalogs to a Swedish startup run by a then-25-year-old with no experience in the music industry. That company, Spotify, entered seven European markets and began giving out invites to listen to 13 million songs, on demand, for free. “We had to try everything,” Sundin says.

At the time, the industry was pressing European countries to write laws in line with a European Union directive to stiffen civil enforcement of intellectual-property rights. Record labels had to win not only in court but also among the public. Sundin saw a demo of Spotify and laid out the case to his bosses in London. “To get legislators on our side,” he explained, “we need services for the kids.” “This can’t be true,” he thought after the demo. “It can’t be this good.”

Daniel Ek is 28 now, just old enough to have seen a slide projector and just young enough that he feels he needs to explain how a slide projector works. He is tall and akimbo-limbed—not overweight, but built like someone who spent his youth in front of a computer. Today’s polo shirt, worn above creatively stressed jeans, is green. Tomorrow’s will be red. A felt hat with ear flaps sits on his desk, a gift from a friend. He wore it once, he says, in an internal meeting. To show he meant business.

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