Solving the Spotify Problem

Our dogs woke me up at 5:30 a.m. this morning. Again. So, over some early coffee here’s a thought I’ve had for a while. I am tired so expect a few typos. Hugs, hope you are well. — Alex

As a music fan I am stuck both loving Spotify and loathing it. I’ve been a Spotify user since before it was officially available in the United States, and have happily paid the company for longer than I can recall. The service is easily among the most high-value products that I buy each month, and it’s among the cheapest.

It’s not hard to see why consumers are flocking to streaming. It works everywhere. The price point is attractive. And the fear that many music fans had about streaming music instead of owning it have mostly gone away thanks to playlists. If Spotify eventually dies, so long as I can export my playlists, my music collection will live on.

Streaming is not going away. The economics are too good for major labels for it to die. Variety reports that RIAA data — an odd thing to trust, but here we are — indicates that some 83% of American music revenue in 2020 came from streaming. Here’s the chart:

Powering that huge slice of the American musical revenue pie is a steadily-growing number of subscribers to streaming audio:

The streaming economy has meant a growing domestic music industry (9.2% growth in 2020, per the RIAA), a business that for some time looked bleak. Spotify’s model effectively solved piracy, and remade the musical world in its own image in a single move. There’s no going back.

But while streaming can prove attractive for major acts and labels, it doesn’t work quite as well for smaller labels. That’s a problem as I listen to quite a lot of modestly obscure stuff.

Let’s say that I discover a new band that I quite like. For example, I’ve recently become enamored with a group called Lorna Shore. Their music makes my soul happy and my heart full. Here’s a sample. When I was a kid, I would have gone to Borders or the local campus bookstore, or similar to buy a CD of their tunes. I turn 32 this week, in case you were trying to guess my age.

I would have paid something like $13 or $16 for that record. And I would have played it quite a few times. I know this because this was my life. I bought Less Than Jake records at the campus bookstore. I bought Christian rock CDs earlier in my youth at the Christian bookstore. I saw my first Metallica promotional material at a Borders, back when St. Anger came out. I remember scanning CDs at a little in-store kiosk, just so that I could pay a sample from the disc to get an idea what I was listening to.

I love music precisely as much as I did then. But when I consume roughly the same amount of Lorna Shore today, the band doesn’t do as well. It’s unlikely that I will stream their music enough times on Spotify to generate the same amount of revenue as my buying a CD would have, back in the day.

Here lies the conundrum in the streaming world: For major acts, often consumed via the radio in prior eras, streaming can be a great way to monetize listeners, including individuals who might not have purchased the music in question in the past. For big bands and famous singers, the growth of streaming revenues indicates a future when they might have some of the best economics in the history of music, provided that their contracts treat them fairly. They probably don’t.

But for smaller bands, less-known rappers and the like, the model can be a bit shit. Streaming incomes haven’t replaced physical music sales to the same degree as with larger artists, and so I am stuck paying what feels like too little to Spotify, contributing less than I should to the bands that I adore. Sure, I listen to lots of mainstream stuff. But I doubt that the fine lads at Lorna Shore are ever going to strike a true geyser of Spotify money.

Partially this is my own fault. I could buy a vinyl of their tunes. And I do that sometimes. I bought the last Fit for an Autopsy record on Vinyl simply because after seeing them play live once, I was utterly hooked on their music.

But I don’t always do that. And in the last year it’s been nearly impossible to support bands via concert attendance. I did pay to attend a number of virtual concerts, but I was still taking more than I was paying back. I also buy some band merch. But, again, I still spend less than I probably once did, or would have.

One way to solve this issue would be to have Spotify raise its prices. If it did, it could boost its per-stream rates, and then smaller bands might find thesmelves in better shape.

Sadly, Spotify can’t charge me more. It would like to, I reckon. But Apple can afford to subsidize its competing music service, so Spotify has to compete on price or risk its entire business. This means that Spotify cannot pay out more per stream that it currently does. (Don’t get too mad at Spotify, it’s gross margins hover at around the 25% mark, a slightly high but not egregious figure for what it provides. It’s hardly taking half, and is accruing to itself less than Apple takes from its application marketplace.)

The streaming company is trying to solve its inability to raise prices by offering originals and exclusives. It’s a bit of the Netflix model, but inside of Spotify. However, as Spotify can’t attack its supply in the same way that Netflix has — can you imagine the row if Spotify signed acts to exclusive deals? do we even want our music platform companies taking certain musical groups, in effect, private? — I doubt that it will enjoy similar success in the effort.

The only way that I can think to solve the problem that we’ve outlined — streaming is great, streaming has taken over, the model doesn’t work incredibly well for smaller musical groups and more obscure genres, and that Spotify lacks the pricing power required to make its per-stream revenues more attractive — is to let me choose to pay more, and to groups that I choose.

Micro fan subscriptions, in effect. Spotify should build the ability for its users to choose to support a particular group, individual artist, podcast, or label, with a regular payment. A sort of Patreon inside of Spotify itself.

I would pay a few dollars each month to a number of groups that I could not live without. Doing so would shake up the streaming model. Lorna Shore would attract a good number of subscribers, myself included, driving a regular stream of income apart from what it currently generates from mere listens. And Spotify could take a nice 10% cut of the money for its troubles. The payment economics would be fine, as Spotify already makes a single charge to my card, and already distributes the money in pieces to different groups.

There are problems, of course. Record contracts are longitudinal. Most likely would not be re-written to account for this feature. But smaller labels and smaller acts likely would be able to move more quickly. And it’s those groups that would find the most marginal benefit from the concept, regardless.

Other issues exist. But streaming was impossible before it was experimental, and it was experimental before it began to grow, and it slowly grew before it took over. Streaming was a revolution. How about another?

I want to be a good citizen of music, and I want to keep using streaming platforms. And I am tired of hating a service that I love.