Business Week: Spotify Doesn’t Sound So Great to Some Artists

January 5, 2012

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 (NFLX). 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 (VIV:FP), Sony Music Entertainment (SNE), 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.

Courtesy BusinessWeek:

Posted by Ted • Thursday, January 5, 2012 .