Ever wondered how that music app in your phone can provide you with a plethora of songs? The music industry is one that has experienced the most tumultuous trajectory in terms of technological advancements and also economic viability. “Change is the only constant”; the oft used cliché couldn’t possibly be applied in a better context than the music industry. It has traced an interesting journey from the gramophone in the 50s and 60s, audio cassettes in the 90s, floppies in the 2000s to the pen drives and finally digital platforms that we see now.

But with streaming on the rise, sales of CDs and downloads, the most lucrative formats, are plunging fast. So far in 2017, the market for single-track downloads is down almost half of what it was three years ago. There is an argument that believes that all changes in the music industry are in fact disruptions, innovations that have changed the face of the game through creative destruction. For example, the idea that one can enjoy music without physically buying a copy of an LP, was once unimaginable.


On the other hand, the legality along with its ethical code is an entirely different ballgame. For example, it is undeniable that torrents and digital downloads have revolutionized our consumption of music; however, this doesn’t change the fact that they’re illegal. They provide extremely tough competition to record labels and legitimate streaming services like Spotify, Apple Music, Deezer, Tidal (paid), YouTube, Sound Cloud etc (free). Torrents and other digital downloads provide ‘no conditions apply’ music at the risk of malware. This, as it seems, is a risk consumers are willing to take. According to a landmark study by the Institute of Policy Innovation, the U.S. economy loses $12.5 billion in revenue annually, not to mention 71,060 estimated jobs due to music piracy.

Legitimate sources of music have always been challenged by illegitimate sources such as pirated CDs and in their newest form, torrents. What is the incentive for an average consumer to consume music from streaming services on the other hand? They provide ad interrupted free music from licensed artists; and consumers are required to pay a fee for enjoying ad free music. This is not preferred by many consumers for obvious reasons. The current lot of online music streaming services includes Spotify, Apple Music amongst some other emerging players. While Spotify enjoys the largest number of subscribers translating into the largest market share, the real question remains whether it employs a viable economic business model.

On the plus side, the industry is finally showing signs of fragile recovery from the relentless decline caused by piracy. Along with this, considering the drop in album sales, more money is flowing into the online music streaming industry as artists are looking to list their music on these services due to their legitimacy and relatively large number of subscribers. Streaming comprises 63% of the market, and the success of subscription platforms like Spotify and Apple Music have turned the fortunes of the entire industry around. Due to the rise of paid subscription services, streaming revenue rose by more than 60% in 2015. Over 100 million people worldwide pay for a music subscription (Spotify alone has 60 million). “Deals are being made, there are negotiations taking place and money is being exchanged,” Mark Mulligan, head of the media and technology analysis company MIDia Research, said. This rise can be attributed to consumers looking for reasonable ways to consume varied music legitimately.  “In the end, iTunes’ success was that it gave people a convenient way to choose between [legitimacy] and piracy,” Legitmix founder Omid McDonald told Billboard.

Source: PriceWaterhouseCoopers Global.

However, despite rapid growth in users and revenue, Spotify and Apple Music aren’t making a profit, primarily because of large licensing payments to record labels. “No streaming music service is making a profit and it’s really difficult to see that any of them will do anytime soon, the margins these services operate on is really wafer thin,” Mr Mulligan said. Experts suggest that the only solution for this conundrum is raising the premium fees that customers pay. This is where the crux of the problem lies.

Torrents are able to provide customers with the best of all worlds considering they have negligible overhead marginal costs and a flourishing and considerable advertising revenue along with revenue from malware distribution. So in the case of illegal digital downloads, consumers enjoy multiple benefits such as a one time only, permanent download which means ad uninterrupted music. The only hindrance here is the pop up advertisements from the selected website of download. Streaming, in general does not allow ‘free downloads’ and often plays audio/video advertisements in between musical pieces (in the switch process) if you aren’t a paid subscriber.

There is an argument to be made, however, from the perspectives of artists like Taylor Swift and Adele who pulled their music from Spotify on grounds that they’ve been ripped off of millions of dollars in royalties. Emerging artists don’t end up getting represented on these platforms because they aren’t associated with top notch producers. So where is the money going? Industry experts suggest that it depends on who the artists concerned are. There is a general perception that the album release of a marketing dream like Taylor Swift will tend to have higher success irrespective of the platform because she has been able to conquer even traditional ones like physical albums, all this notwithstanding the popularity of her music. Whereas, a relatively un-established indie singer will find it difficult to popularize their music on even the most innovative of platforms. This automatically entails that the sort of ‘monopoly power’ of an artist decided whether they can afford to pull their music off the streaming service or remain satisfied with status quo earnings, which is something most new artists end up in doing.

This inherent conflict is being addressed by these streaming services through deals with record labels. For artists who are new on the scene, streaming sites are definitely an important avenue. The challenged for them, however, is that as streaming services are making deals with recording giants in a bid to diversify their music options and legally enlist chart topping tunes on their service, their work has been sidelined because they lack the backing of good production houses. Another large avenue of money loss is the click fraud- the use of automated digital bots to “click” on payment-generating links and steal money by pretending to be consumers which has long been a problem in the online advertising industry.

Fraudulent “streams” of fake artists bilk money from real artists, so big chunks of your monthly subscription fees may not be going to your favourite bands, but totally anonymous strangers who write code, not music. Streaming services lost as much as $7.2 billion from fraudulent traffic in 2016, according to a study by the Association of National Advertisers.

Going forward, the music industry needs to incentivise legitimate distribution of music by persecuting illegal websites and download portals. It needs to reduce on the levels of impunity and eliminate all distribution through pirated means. While efforts to do the same are in progress, stricter laws needs to be enacted and implemented to capitalise on the full potential of the innovative forum of online streaming. In the realm of online streaming, fair payments and royalties need to be transferred to artists to improve song and subscriber databases and ensure a harmonious functioning of these entities in the music industry ecosystem. While we advocate and hope for these changes, let’s tune into some soulful music!


-Aishwarya Gawali



Links for further reading:



5 Facts About the Economics of Various Streaming Services

The Economics of Streaming: Full Stream Ahead?


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