Business News Digital Labels & Publishers

Spotify reduces piracy but cannibalises download sales, EC study finds

By | Published on Thursday 29 October 2015


Spotify does reduce piracy. Yay! But it also cannibalises download sales. Boo! But ultimately it all balances out and currently neither costs nor gains the record industry anything. Umm, hooray? These are the findings of new research by the European Commission’s Joint Research Agency anyway.

The research is one of a series of reports carried out in relation to that Digital Single Market thing. As previously reported, earlier this year the EC announced plans to do more to harmonise rules and bring down national barriers within the European Union when it comes to digital services and platforms.

The Spotify report – titled ‘Streaming Reaches Flood Stage: Does Spotify Stimulate Or Depress Music Sales?’ – found that “137 Spotify streams appear to reduce track sales by one unit. Consistent with the existing literature, our analysis also shows that Spotify displaces music piracy”.

It goes on: “Given the current industry’s revenue from track sales ($0.82 per sale) and the average payment received per stream ($0.007 per stream), our sales displacement estimates show that the losses from displaced sales are roughly outweighed by the gains in streaming revenue. In other words, our analysis shows that interactive streaming appears to be revenue-neutral for the recorded music industry”.

“Revenue-neutral” – the two words everyone has been waiting to hear, I’m sure. Though the report also notes that “additional work would be helpful to provide more confidence in the answer”, the study mainly focussing on music industry revenues in 2014.

It adds: “Revenue generation from recorded music is shifting rapidly from the sales of individual tracks (and albums) to bundled sales of streams. As this transition continues, understanding the relationship between streaming and sales will be crucial to both our understanding, as well as the operation, of the recorded music industry”.

Of course, the hope is that as streaming services attract more customers, the revenues gained will both offset and exceed those lost by the decline in physical and download sales. Though the report warns that there may be further hurdles ahead, including some “arising from the fact that music rights holders do not negotiate royalty rates collectively”.

“Even if piracy were eliminated, the competition among labels would tend to reduce rates”, the researchers write. “Evidence [in the report] is at least suggestive that when particular songs are aired, they sell more than when they do not, even if music as a whole sells less when streaming exists. In such an environment it is easy to envision a prisoner’s dilemma in which rights holders are better off charging low rates and getting their particular songs aired, even though they would be better off still if they all withheld their music from streaming services”.

The report notes as an example Merlin’s previously reported deal with Pandora, under which Pandora “will recommend Merlin artists over those not affiliated with the consortium in exchange for paying Merlin’s musicians a lower royalty rate”.

So, the simple answer is that there is no simple answer. But, hey, if you want to know how revenues from digital music are carved up as they work their way through the system, may I once again recommend CMU Insights’ report for the MMF, ‘Dissecting The Digital Dollar’.

You can read the full Joint Research Agency report here.