Online music streaming is a hot topic these days. After enjoying some time as the uncontested king of the music streaming industry, Spotify is now about to face what seems to be its most intense competition yet. Where Beats Music and Google Play tried and failed to unseat the premier streaming giant, Jay-Z’s recently released service Tidal and Apple’s incoming Apple Music hope to succeed.
As more and more companies seek to find ways to capitalize on the streaming model, it is becoming certain that this is a major step in the history of music consumption. But for many artists and businesses, this is a step taken unwillingly. It is widely feared that streaming could crash the music industry and spell disaster for performers and CEOs alike.
How did we get here and what needs to change in order to make this development more agreeable? A foray into the history of music streaming attempts to find out.
The Radio and the Jukebox
While one of these is a relic of the past and the other seems poised to become one, the jukebox and the radio were revolutionary when they came out. The experience of selecting or being treated to uninterrupted playlists of recorded music was a game changer for producers and listeners of music alike. And it was just as controversial as online music streaming is today.
Many record companies initially pulled their catalogs from such services because they weren’t getting much of the profits and feared that their own sales were also in danger. After a re-negotiation of copyright law, most of the parties involved felt accommodated. Radio as we know it was able to continue on — except that the US remained one of the few developed countries in which performers received no compensation for radio play on the grounds that it functioned as advertising for them.
But some radio plays resulted in no royalty checks at all: piracy was already alive and well, as a community of broadcasters across the country shared unlicensed tracks with listeners.
It would be several decades before the next major development came in music streaming, with the inception of the Internet. Napster launched in 1999 and quickly became the fastest growing business ever. It still holds the record over companies including Google and Facebook.
Although peer-to-peer music sharing already existed on the web, Napster made it easier than ever before and introduced the concept of a massive online marketplace for free MP3s into the mainstream. While it predicted the success that other streaming services would have in the future, it also shared in the difficulties. Record companies were not interested in legitimizing the service because they couldn’t find a way to make it profitable and the company was soon nearly out of funds.
Artists were split over whether or not to support the service: Chuck D of Public Enemy crusaded in favor while Lars Ulrich of Metallica fought to have it taken down. Many performers didn’t have any clear response, some commenting publicly in favor while their labels quietly attempted to have their music removed from Napster. Despite a late attempt to save the service with a subscription model and licensed music, Napster was ultimately crushed by lawsuits for copyright violation just two years after it was founded.
MusicNet was the music industry’s answer to Napster, launched around the time of the company’s collapse. After paying a monthly subscription fee, users would have access to around a million legally licensed songs. The fee prevented the service from ever becoming a dominant force in the market, though, and many artists did not support MusicNet because of appallingly small royalty checks. While record companies took 91% of the profits, performers earned a fraction of a penny per play.
Some artists preferred to take the free distribution of their records into their own hands. In 2006 Quote Unquote Records established itself as “The First Ever Donation Based Record Label”. The next year Radiohead released their album In Rainbows online in a “pay-what-you-want” model, though they canned the experiment after three months. The “pay-what-you-can” model has remained somewhat popular through services such as BandCamp, which functions as an online store for smaller artists.
Pandora Radio launched in 2004 with the goal of using algorithms and a complex song sorting program to create optimized personal radio stations. It functions on a very unprofitable freemium model, which has 95% of users listening for free with ads, and only around 5% actually paying $10 a month for uninterrupted streaming.
Their particular brand of streaming is especially difficult to profit from due to complex copyright laws which require them to pay an unusually large amount of royalty fees. Legal issues regarding royalty rates and payments has seen Pandora spend a lot of time in court since its launch. But even with these large royalties, artists are still seeing very little return from the service. In 2013 Pandora tried to get legislation passed that would cut the artists’ royalty checks even more, resulting in an outcry from the musical community.
In 2011 Spotify launched in the US, after several years of growing in Sweden. It was far from the first service to attempt to successfully do what MusicNet had failed to do: create a legitimate Napster-like music streaming service. Nevertheless, it was the first to truly succeed in the US.
Using records of its success curbing piracy rates in Sweden to sway American record labels, Spotify saw licensing agreements snowball as companies joined in and competitors feared falling behind. At first both parties were pleased: piracy decreased in the US and though the company was not turning much of a profit, the industry was still hopeful that a way to better capitalize on the service would appear.
However, as the miniscule royalty checks continued to appear in musician’s mailboxes, support diminished. Taylor Swift pulled her music from the service, and parts of Radiohead’s catalogue were removed, years after their first foray into music streaming. Artists and labels began demanding that Spotify assert the value of music and defend the livelihoods of its partners by switching to an exclusively subscription-based model. But CEO Daniel Ek continues to assert that such a switch would simply send the masses back to the illegal downloading services which they had left for the free model.
Royalties aren’t the only concern. For many, the shift away from ownership of music is alarming by itself. With all songs based in a remote cloud, Spotify may even have less function as a promotional tool than free downloads, since the latter at least gives fans some degree of ownership and investment in the form of hard drive space. Nevertheless, music streaming continues to grow and many companies are invested in seeing it continue.
So the Race Begins…
Beats Music launched in 2014, hoping to counter the artist-exploiting reputation of Pandora and Spotify by closely affiliating with musicians themselves. It also had no free model, meaning higher profits. The main marketing point was in expert-curated playlists, claiming that the human touch of their selections would offer an experience that couldn’t be matched by the algorithms of competitors. After an unimpressive launch the service was retooled into Apple Music, releasing June 30.
Google threw their hat into the ring with Google Play Music, which promised to pay artists greater royalty rates and utilize Google’s ubiquitous web presence and Android devices to create an unparalleled unified experience. While it has enjoyed some success, the service certainly hasn’t unseated Spotify.
Jay-Z recently purchased a relatively unknown music streaming service called Tidal, re-branding it as an artist friendly elite subscription-based service with high-quality audio and exclusive content.
Only time will tell how this music streaming race will play out. But the questions that executives are facing are the same as they were at the inception of recorded music. From radio to Pandora and Napster to Tidal the question of how to reach a balance between the desires of consumers, artists and record labels continues to polarize the music industry.