Spotify Dropped from over 200 Labels

Posted: November 20, 2011 in Random News
Tags: , , ,

The music streaming service Spotify took a hit today after over 200 labels, which all fall under the distributor STHoldings dropped their agreement. The main article can be read here:

To be completely honest, I am unsure of what to think of this development. On one hand, losing over 200 labels is a terrible precedence. If other labels agree with this distributors rational for dropping suit, and follow their lead, this could usher in a domino effect. STHoldings, being only one independent European distributor, lack the capacity to do any real damage, but if the larger American labels find their claims to be relevant, and follow suit, this could effectively kill Spotify. Granted, this is only a hypothetical scenario, and as with any hypothetical, its quite possible that nothing of the sort will happen.

Spokesman from the distributor say that continuing doing business with Spotify isn’t financially beneficial. They claim that their decision to drop the contract is due to the streaming services inability to meet acceptable levels of revenue, as well as the negative impact that the service has on the distributors sales. Clearly, without access to their financial data, I can not speak to the voracity of this claim.However, anecdotal evidence suggests that their may be merit to these claims. Thinking about these transactions logically, one might expect sales to fall off for users of the service. Considering that most people already paying for access to their favorite songs would be unlikely to purchase those same songs simply for the pleasure of owning them. The distributor would have had to expect that revenue gained from Spotify would offset these losses, but if the distributor is to be believed, they clearly haven’t.

Now, this begs the question: is this an isolated incident? Is there something unique about the arrangements between STHoldings and Spotify that leads to the unsatisfactory revenue, but that doesn’t apply to most other distributors? The real danger lies in the fact that upon seeing this, many other distributors may see this and then review their own financials. If they find themselves in a similar situation, the dye would have been cast and Spotify, along with services like it, could find themselves at the event horizon.

While personally I’m not a fan of music streaming services beyond the occasional interaction with Pandora, I would hate to see an entire medium killed off. If Spotify (and others like it) are indeed doomed, the failure would be so swift that I believe we would see the end of streaming services, because we wouldn’t have a chance to take a second look at the business model, and try to make it more feasible.

An interesting quote from the article reads:

"Add to that, the feeling that their music loses its specialness by its exploitation as a low value/free commodity. Quoting one of our labels “Let’s keep the music special, f*ck Spotify"

As a Capitalist, I can surely sympathize with the distributors financial predicament, but I draw the line at their claims that music streaming services devalue the product. You don’t have to be a financial guru or music industry insider to see this claim as the nonsense it is. The “specialness” of a song is gained from access to the product, not how the product is delivered. That would be like saying that I enjoyed the book I just read a lot more because I went to the store during business hours and waited in line to buy it rather than downloaded it 2:00 AM to my Kindle when I couldn’t sleep and had nothing to do. Regardless of how you listen to your music, whether it be individual songs or entire albums, what makes the music special is the connection you feel to it, and having it on demand. Not many can argue with the fact that Spotify, along with internet radio and other streaming services are a step forward for the music industry. Not only do Spotify and similar services unshackel revenue growth previously limited by distribution networks set by brick and mortar outlets, they provide the only digital competition to iTunes, as well as an easy alternative for those who would normally pirate their music. One thing that STHoldings doesn’t seem to realize, is that many of the people who use Spotify are actually converted pirates. Getting rid of Spotify will only cause the users to go back to their original pirating ways.

Let’s face it, today it’s all about catering to your clientele, and although I’m unlikely to lose any sleep over the fate of Spotify I would hate to see the this distribution cancellation become the beginning of some sort of trend.

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