Royalties:

Spotify pays $0.006 to $0.0084 USD per stream of a song to the holder of music rights (Sehgal, 2018). Yet, the holder of rights are split between the record label, producers, songwriters and artists. Through this new business model, Spotify along with other music streaming platforms are changing the future of the music industry and more broadly, the economy. Artists are no longer getting paid the thousands upon thousands of dollars for traditional CD sales and radio airplay, and has caused mass disturbance in the industry, with artists such as Taylor Swift and Coldplay purposely keeping their catalogues off Spotify (Finley, 2015).

Overall, It is understood that paying royalties is beneficial to Spotify as artists now have no choice but to stream their music, due to Spotify’s mass popularity. Yet, streaming is all about volume, and the more Spotify grows the more expensive royalties are going to become as the number of streams will also increase, and it is this growth that reveals the flaw in their business model.

It’s clear to see (Figure 4) that while Spotify’s revenue is high, a substantial amount of their revenue is used on paying royalties. Spotify spent more than $5 billion AUD on royalty and distribution costs in the past year alone (Richter, 2018).

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Long Tail of Spotify

Compared to other on demand streaming services such as Netflix, streaming music is a highly fragile industry that needs to practice different business techniques in order to remain successful. While there are core mainstream artists and genres that are the most popular amongst listeners and get the most radio play, everyone’s music taste differs significantly and Spotify’s ability to extend it’s tail and stream music that fits everyone’s tastes is one, if not the most defining factor in Spotify’s success to the current day.

The Long- Tail is a theory made popular by academic Chris Anderson, describing the ability for online businesses to reach out to as many possible markets as possible, compared to brick-and-motar businesses who face product constraints due to shelf space and inventory costs (Crawford & Fletcher, 2014).

Music stores such as Sanity may stock up to 10,000 unique titles and artists, whereas Spotify now has the ability to hold and offer millions of songs and artists in different genres, thus appealing to a boarder market. Spotify is a long-tail wonderland, users can explore genres, and subgenres and different audible tracks such as karaoke, instrumentals and podcasts. While Spotify do publicise more popular, radio play tracks due to paid promotion, millions of different tracks will become available to the user via the search bar.  While this is highly beneficial to the consumer and increases Spotify’s popularity in the market, the conversation around the long tail and its significance in consumers choice is subscribing. The top 1% of artists including Rihanna and Adele account for 77% of recorded music income in 2013 (Cookson, 2014) and the top 10% of popular artists accounted for 99% of streams in 2017 (Sanchez, 2018)

While Spotify has effectively created a long tail and this factor has helped them succeed as consumers are saving hundreds of dollars, it’s clear that while there is a need for consumers to access difference genres, a large majority of streams are coming from top artists, therefore diminishes the effectiveness of the long tail in keeping consumers with Spotify if another streaming platform arrives or the music industry changes again.