Taylor Swift is one of very few artists who still sells enough albums in both physical and digital forms to be able to dictate her own terms with the music industry.
The "Shake it Off" singer recently flexed those muscles by pulling her music from Spotify and greatly limiting its use on Rdio. That helped make her 1989 album the first album to sell one million copies this year. By eliminating the option for fans to hear her new album in totality without purchasing it, Swift forced people to buy it.
If I had streamed the new album, it's impossible to try to speculate what would have happened. But all I can say is that music is changing so quickly, and the landscape of the music industry itself is changing so quickly, that everything new, like Spotify, all feels to me a bit like a grand experiment. And I'm not willing to contribute my life's work to an experiment that I don't feel fairly compensates the writers, producers, artists, and creators of this music.
Swift can afford to lose whatever revenue she would receive from Spotify, but other artists without her dedicated fan base face a trickier proposition. Spotify, and services like it, can bring a less established artist new fans. The revenue from those new fans listening on the streaming site may not put much money in the artist's coffers, but it may sell some concert tickets down the line. That forces musicians to accept a system where they are poorly compensated for their songs, but still need the system.
Because her fans would find a way to hear her music if she released it on eight track, Swift has the ability to say that she should be paid for her music. As she told Yahoo Music:
Also, a lot of people were suggesting to me that I try putting new music on Spotify with "Shake It Off," and so I was open-minded about it. I thought, "I will try this; I'll see how it feels." It didn't feel right to me. I felt like I was saying to my fans, "If you create music someday, if you create a painting someday, someone can just walk into a museum, take it off the wall, rip off a corner off it, and it's theirs now and they don't have to pay for it." I didn't like the perception that it was putting forth. And so I decided to change the way I was doing things.
In taking her music off Spotify, Swift is not only striking a blow for other artists who can't speak up, she's also putting another chink in the armor of a business model that's not working.
Spotify isn't working?
Spotify, which launched in 2008, says it has more than 50 million active users, and 12.5 million of them are subscribers paying $120 a year. (Nearly 16 million users had played a Taylor Swift song in the past 30 days, Spotify said last week.) It operates in 56 markets worldwide. That seems good, but Spotify is stuck in a failure loop, where the more customers it adds, the more money it loses.
Though the music services have been operating with the idea that with a certain scale, they will become profitable, that does not appear to be the case. In addition to the evidence presented in the chart above, a research report issued last November by Generator Research found that the streaming business model is "inherently unprofitable." Generator put the blame largely with major recording labels, according to a Digital Music News article.
Spotify said in a Nov. 11 blog post responding to Swift's actions that it's trying to fix a broken system and fairly compensate artists. "Today, people listen to music in a wide variety of ways, but by far the three most popular ways are radio, YouTube, and piracy -- all free," it said in the blog post. "Our whole business is to maximize the value of your music. We don’t use music to drive sales of hardware or software. We use music to get people to pay for music. The more we grow, the more we’ll pay you."
Swift is ahead of the curve
Though it's impossible to know how many extra albums Swift sold (and will sell) because of removing her music from Spotify and parts of Rdio, it's safe to say it was at least some. With the music business struggling, every dollar matters, and smaller artists who have dedicated fan bases are likely to change their relationships with streaming sites in order to maximize album sales.
To survive, Spotify and the other streaming services need to find a model where artists are fairly compensated and customers and/or advertisers pay enough that the business can at least break even. Swift has proven that music -- at least her music -- has value, and that people will pay for it if that's the only way to get it.
Daniel Kline owns shares of Apple. The Motley Fool recommends Apple, Pandora Media, and Yahoo. The Motley Fool owns shares of Apple, Pandora Media, and Yahoo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.