Spotify and the Rising Consumption of Music Streaming

Along with the introduction of the internet and the MP3 to society came the budding interest of digital musical consumption- a new, unregulated playing field that had consumers flocking to music pirating websites, such as Napster, Limewire, and The Pirate Bay. The new illegal platforms also made it difficult for artists and music labels to receive revenue: people were listening to their albums without paying- how could they be fairly compensated? In short, the music industry was not prepared for the sudden shift in technology, due to its heavy reliance on physical products such as CDs. In response to the growing consumer demand for more easily accessible music, Spotify was introduced to the public in 2008, providing music listeners a legal and price-friendly alternative to pirating. In the past few years, the entertainment industry has experienced a boom with streaming platforms, such as Netflix, Hulu, and Apple Music; so what actions has Spotify made in order to their leading position in a market with such strong and growing competitors as well as the looming alternative of piracy? The answer to this question can be found in the company’s special service offerings, such as personalized playlists and easy shareability with other users, as well as its partnerships and acquisitions made with record labels and their artists as well as leading music technology groups. 

In order to understand and dissect Spotify’s decisions, it is crucial to understand the background of the market and the consumers that have switched the focus onto streaming services. According to research conducted in 2017 by the Recording Industry Association of America- an influential trade organization that represents the recording industry in the United States- music listeners have shown more demand for access to music over music ownership. We have experienced a technology “revolution” where consumers simply want more access to everything they can get their hands on, which is why it is unsurprising that consumers turned to piracy. 

Journalist Stephen Witt laments in his article, “Going for a song: the hidden history of music piracy” about first learning about pirating in college, where he illegally filled his, “2GB hard drive with hundreds of bootlegged songs” in just his first semester. This created an environment where music consumers no longer had to worry about the prices of albums and instead, consumers gained access to a wide collection of music, that could last a lifetime. Witt recounts how easy it was to download hundreds of songs, but how he found it to be imperative to hide his illegal “hobby from his older friends,” stating that as record collectors, they “regarded piracy with scepticism and sometimes outright hostility” due to how they saw finding music as something to be treasured. However, after one of the biggest peer-to-peer file sharing services, Napster, was sued by the Recording Industry Association of America (RIAA), the demand for sharing service sites went on a decline, displayed by Napster’s user count going from 80 million users to none by 2002 (Knopper).

 In an attempt to take advantage of the downturn of the pirating sites and the growing consumer demand for online access to music, Apple introduced a service that would be the beginning of a solution to the issue of illegal downloading: the iTunes store. In an article outlining the history of iTunes, Rolling Stone journalist Steve Knopper reports:

“Steve Jobs, Apple's founder and chief executive, saw Napster, MP3s and the Internet a different way. By late 2002, he believed music fans clearly wanted to download songs they liked in an affordable and easy way rather than driving to Tower or Best Buy or some indie record store to buy them on $15-to-$18 CDs. But during this period, the record industry had no affordable, easy and legal option allowing this to happen.”

Steve Jobs was able to take advantage of consumer demands- gone were the days of people going out of their ways to buy expensive CDs- people could, instead, buy songs for 99¢. With a pairing of Apple products such as the iPod, iTouch, and eventual iPhone, the iTunes Store was an addition that made the process of making music more portable much easier for consumers, allowing the company to grow. iTunes quickly became one of the top music retailers, beating out both Walmart and Best Buy (Knopper). Apple paved a road for the music industry to sell music digitally- something that labels had struggled to do for years- and eventually led to the creation of streaming services, such as Pandora, Soundcloud, and eventually, Spotify. 

Technological advances have made it so that listening habits will always change; this can be seen in Stephen Witt’s article, where he recounts how his older friends would have to dig in deep into crates of vinyl to find music and how he had no idea what albums to listen to when he had gained access to a large collection of music. And while Apple offered consumers digital access to music, the cost to buy and own the music still added up, eventually leading to the creation of streaming services. After comparing the prices of the iTunes store music and streaming services, music listeners flocked towards the platforms that offered a vast library of music to users for a much cheaper, flat rate. In the Recording Industry Association of America’s 2017 midyear report, it was revealed that streaming now accounts for 62% of the music industry’s revenue, compared to the 19% generated by digital downloads.  With such a huge shift in music sales towards streaming platforms, it is no wonder that so many competitors have begun to appear in the market. However, while the convenience and price friendliness of streaming platforms is certainly captivating, what is preventing music listeners from receiving money for free from pirating sites? In other words, what has Spotify done in order to maintain customer reliance to their services and pay them for music that would, quite simply, be just as easy to get their hands on for free? 

In the Stephen Witt’s article on piracy, he mentions that while he had access to a wide variety of music through peer-to-peer sharing sites, he also discovered that he struggled in choosing what to listen to. Among Spotify’s many offerings is their recommendation services and playlist options, something that I have used myself, where their users have access to playlists created by the company and friends as well as personalized mixtapes, such as “Your Daily Mix” as well as “Discover Weekly”. Through these offerings, Spotify can differentiate themselves not just from their competitors, but from pirating sites as well; the prospect of having access to such a vast library can be daunting, however, by making these personalized playlists, music listeners can have an easier time with finding songs and artists that are closer to their own musical preferences. Spotify has successfully combated piracy through the understanding that consumers can gain access to music from all around the world for free, but piracy lacks that personalization that the streaming service can offer to its users. 

In their attempts to create more accurate recommendation systems for their users’ experiences, Spotify acquired the Massachusetts-based music intelligence company, The Echo Nest- described as a company “that does things like determine what recommendations to make to listeners for automatic streaming radio services.” Through this acquisition, Spotify was able to strengthen their recommendation algorithms, giving the company a leg up from other competitors that offer similar personalized playlists, such as Apple Music. In a blog post detailing the company’s partnership with Spotify, The Echo Nest writes that the company was started with the intentions to “fix how people were discovering music,” and through the acquisition with Spotify, they would be able to not only work towards this goal, but also tackle new challenges in the market of music streaming.

This extreme attention to user data and information to create personalization can also be seen through the company’s utilization data mining. In recent years, the company has received attention for its end of year “Wrapped” playlist, where the platform gives users information about what they listened to in the past year- from the songs that were most played by the user to the assortment of musical genres that users took to. While many users enjoyed this information, and find this data collection to be interesting to look back at, many others, such as journalist Sapna Maheshwari, became concerned with how “Big Brother”-esque the company was marketing itself to be. In the New York Times article “Netflix and Spotify Ask: Can Data Mining Make for Cute Ads?”, Maheshwari she addresses these concerns while also debating whether Spotify should be advertising this “personal” information to the public. While I cannot speak to the company’s advertising of their users’ listening habits, this also goes to show the extent that the company has gone to create a noteworthy and unique experience for music listeners. 

In addition to these personalized playlists, Spotify users also have access to a wide variety of other human-created playlists, emphasizing consumers’ sense of community and interaction within the platform. By simply using the platform’s search bar, users can not only discover, but also “follow” and share playlists from hundreds of different options- whether it be for special occasions, holidays, or even a rainy day- made by not only Spotify itself, but also by friends, family, and random strangers on the internet. One of the platform’s most popular playlists is RapCaviar, and with one of the highest followings of over 9 million users, any song that is placed onto the playlist is able to raise an artist’s popularity. While decisions on what songs to put on playlists like RapCaviar are made by Spotify through their infamous algorithms, not all popular playlists are made like this. 

Community building efforts from Spotify through easy shareability of  music and playlists is another aspect of the platform that allows the company to differentiate itself from other companies, such as Amazon and Apple Music. It seems that no matter how much technology or social sharing sites have changed, people always seek to share the music that their listening to- from sharing songs on Myspace and Facebook pages to following friends on last.fm. Many people love to share on social media in order to push out perceptions of themselves, so why not figure out an easy way to do that with music? One Spotify feature which allows users to do just this is the “Friend Activity” bar that sits on the side of the application- showing friends and family that follow each on the platform what they’re listening to in real time. Additionally, the application also allows for easy sharing on other social media platforms, such as Facebook, with simple and straightforward interfaces, which is something that many large businesses may also take advantage of: companies, such as Popeyes, Reebok, and BMW, have taken to the platform in order to connect with their markets and create brand awareness for themselves. In addition to creating a sense of community through easy sharing, Spotify maintains an community forum, where users can discover and share music with each other through discussion boards and a “Rockstar Program”, which is described on the Rockstar site as a program where Spotify enthusiasts that post on the forum are given extra perks for their dedication to the application. With these additions to the service, Spotify establishes itself as more than just a music streaming service; it has become something akin to a social media site and more. The company has become an expert in their offering- community and sharing- that many other of their competitors have long struggled to integrate into their own platforms. 

Aside from playlists, another offering of Spotify’s service is “free tier”, where listeners are able to listen to music “for free”, but with advertisements and other restrictions. While “free tier” service allows the company to stay competitive in an oversaturated market, many people in the music industry have expressed issue with this, stating that, even with the restrictions, music should always be paid for, and that the “free tier” should be done away with; one such artist is Taylor Swift. In 2014, the global pop star pulled her discography off of Spotify, and in an op-ed for the Wall Street Journal, stated her position on the matter on “free tier” by writing:

“Music is art, and art is important and rare. Important, rare things are valuable. Valuable things should be paid for. It's my opinion that music should not be free, and my prediction is that individual artists and their labels will someday decide what an album's price point is. I hope they don't underestimate themselves or undervalue their art (Swift).”

The significance of this event didn’t go unnoticed- as one of the largest and most successful musicians in the world, why did Taylor Swift have to complain about the “free tier” service? As an artists with millions of fans, did she really need to worry about the money? While it did seem random for the popstar to so something so drastic, many also saw her move as a stand for independent musicians, who were the most impacted by the company’s offering of the free services. 

While many people believed that Swift’s article was simply whining from an artist that grew to fame through an archaic Music Industry business model that stubbornly refused to accept the growing popularity of streaming services, many others, such as journalist, John Harris, believed that Swift was onto something. In his article, “My problem with Spotify- even though I’m a subscriber”, Harris discusses the changes that have been made in the music industry due to the addition of streaming services, such as Spotify. He asserts that these services are not dissimilar to the piracy sites that they seeked to replace, in that artists are still paid little to nothing for their music and brings up Taylor Swift’s feud as a reference of how big the debate had gotten. While many, like Harris, worried that this offering would be detrimental to the music industry, Spotify took the criticism as an opportunity to do something new. In 2017, Spotify announced that it had reached a multi-year agreement with Universal Music Group, one of the industry’s "Big Three" record labels; UMG artists would be able to place their albums exclusively on Spotify’s premium tier for two weeks- only paying users would have access to the new music. These exclusive deals allow Spotify to differentiate themselves from their strong competitors, while also working with artists and music labels towards a mutually beneficial relationship.

In conclusion, Spotify has fortified its ranking in the music industry and streaming platform market by making aggressive moves to understand and connect with its users through exclusive and unique services as well as through data and intelligence collecting methods. Much of Spotify’s success can be accredited to the company’s understanding that the music industry is ever changing and is easy to shift in new directions. By creating something more to itself than just a music streaming platform and dedicating its services beyond what its competitors and piracy offer, Spotify has been able to establish itself as a user friendly, social-media like entity, where consumers not only have access to a wide variety of music, but also have the ability to easily pick and choose what content to listen to from due to the platform’s ability to cater to user tastes.