The music industry will never be the same as it was before 1999, when Sean Parker’s original Napster flipped music propriety on its head. We got a taste of something we once craved and now seem to need: free music.
Unfortunately, it has been proven through Limewire, KaZaA and similar sites, that it is legally and economically impossible to provide free music to the masses. A few companies, however, are devoting their efforts to finding that optimal balance between accessibility and profitability, where musicians, their listeners and all the corporations in between are satisfied.
One of these well-known businesses is Spotify LTD. So far, this business has been growing rapidly, but can this internet company achieve sustainability where so many others have failed?
I personally use Spotify almost every day. I pay no fees and listen to as much music as I want. All that is required is an internet connection and the patience to wait through a 15-30 second ad every so often. On most days I have both, so I am perfectly content.
For those who want access to Spotify’s libraries without a Wi-Fi internet connection on their mobile devices, the terms change. An unlimited subscription is offered at the price of $5 per month. This is still economically friendly to the listener and boasts a highly accessible database of songs for the price of about 60 iTunes songs annually. Customer satisfaction, the most difficult and important aspect of a business like this, has been achieved.
Musician satisfaction is a different story.
The big-time musicians with their big-shot record labels are currently being paid handsomely by Spotify. The problem is the dissatisfaction of the smaller, more independent musicians who receive next to nothing for their music.
In a Wall Street Journal interview, Damon Krukowski, a Harvard professor and former drummer for the band Galaxie 500, was disgruntled when his band received a single dollar and five cents as royalty for the 5,960 plays they received on one of their singles last year. Then again, without Spotify they would not have received any money or the publicity of those 5,960 hits.
Currently, Spotify’s most threatening obstacle is its own business model.
While Spotify’s business model is as shaky as it is new, it is still very promising. According to the company’s verified earnings reports and financial statements reviewed by PrivCo, there has been significant growth in revenue. However with hundreds of millions of dollars being dealt out to musicians, labels and personnel, the company is losing money in its operations.
In 2011, 98 percent of the company’s $244,539,608 revenue was paid to the musicians and labels alone. This was an improvement from the 104 percent of revenue paid in 2010.
Under these circumstances, Spotify won’t last long, but the fact that it is expanding into new countries, attracting more subscription holders and improving their cost ratios means its potential for sustainability is definitely present. This is why Sean Parker invested $15 million of his own money in the company, is on theboard, and ushered a partnership deal with Facebook.
If Spotify management can devise ways to limit its personnel costs and increase revenues from advertisement and subscriptions through higher user traffic, it could very well be the future of music consumerism. The only problem that remains is time.
If they don’t accomplish sustainable business soon enough, it will run out of capital funds and both current and potential investors could lose hope. The result of which would be a return to YouTube videos and pirating for the country’s free music needs.