More than 200 labels held by content distributor ST Holdings have decamped Spotify, Simfy, Rdio and Napster recently over concerns the digital music streaming services’ business models are detrimental to sales.
Most of the labels involved are relatively small. ST Holdings was bowing to pressure from its labels, it said, stating that only four of its roughly 200 labels wanted to remain associated with the services. The announcement comes just as Spotify has begun to gained popularity in the U.S. thanks to a deal with Facebook.
The frustration among its labels was due to the belief that streaming services such as Spotify “cannibalize” the revenues from the traditional methods of listening to online music, ST Holdings said. The company pointed to a recent study from NPD Group and NARM, a nonprofit trade association for the music business.
Don’t Look at Me
The study conducted by NPD and NARM was based on consumers’ reports of their online behavior and doesn’t mention Spotify specifically.
“It’s absolutely preposterous that labels would pull out of Spotify because of our report. That’s a thinly veiled excuse for other issues they may have with Spotify or other services. There’s been an issue percolating between some of the streaming services with regards to payment. That was going on before the report was issued, and it’s probably going to continue to go on,” Russ Crupnick, senior vice president of industry analysis at NPD Group, told the E-Commerce Times.
Since the study mapped consumer behavior and not necessarily the business behind the services itself, it’s difficult to see what could be done better from both ends.
“It may well be that Spotify is not contributing in a linear, measurable way to see these sales at these levels at this point. It could be a means of packaging content and presenting it to consumers that might be affecting sales. There might need to be a better effort in capitalizing on the exposure that a service like Spotify can create, so it’s more of a lack of sales tools than lack of a sales effect for the service,” Paul Sweeting, digital media analyst with GigaOM Pro and principal at Concurrent Media Strategies told the E-Commerce Times.
Instead of painting a dismal picture of the online streaming model, Crupnick said the study presents a type of consumer that takes advantage of streaming services and other entertainment options such as YouTube or the radio to listen without purchasing any content. The idea of a consumer taking advantage of the system is nothing new in the entertainment industry.
“It’s not all that different from the argument that labels made with radio years ago, that if everyone can listen to music for free they’re not going to buy sheet music or records, but it turned out that exposure on radio was the single most important factor in driving record sales. I’m not saying the same pattern will repeat, but people with an interest in selling things often react to free exposure by saying it’s cannibalistic and they often turn out to be wrong,” said Sweeting.
Digital streaming and online music stores may not be perfect revenue generators, but there is a system in place that content providers and labels can work together to mold.
“It’s awfully early to be abandoning ship. If you’re a small label, the long run can be too long, so there’s that tension, but it seems premature and panicky to run based on one data set,” said Sweeting.
The study actually reveals plenty of opportunities for content providers and labels, said Crupnick, especially for the types of companies that ST Holdings represents — smaller labels that don’t have Top 40 hits or a great deal of exposure in mainstream outlets.
“This hurts Spotify. Part of the appeal of these services is the music discovery component. You can find stuff that you didn’t know about. It’s precisely the smaller artists and labels where that could be the most valuable,” said Sweeting.
Adapting to the model, such as putting up some type of payment wall or restrictions on customers who aren’t making payments, could help the music industry.
“There is a segment of consumers who use these services to learn about music, and many of them do go on to buy, and there’s a segment that learns about music and don’t go on to buy. As an industry, we have to look at that harder and see if we can connect that. I don’t think damning the services or pulling out of them is necessarily the solution,” said Crupnick.