Taylor Swift's withdrawal of her song catalogue from Spotify over royalty payments made some people question the future of streaming music. Not Sony.
The shift from ownership to access is a foregone conclusion for the company. In four years, streaming and subscriptions will account for 60 percent of the music industry's $8.2 billion in revenue, Sony forecasted today. That's more than triple the 18 percent now.
Where Sony and Swift agree is that people should pay for music. The popularity of free songs on services like Spotify and Pandora is the reason why streaming revenues so far have failed to offset the declines in CD sales and downloads. Sony estimates one paid subscription is worth as many as seven free music streams. For every one of Spotify's 12.5 million paid customers, four pay nothing.
Getting people to pay up is the music industry's major challenge, Michael Lynton told investors at a briefing in Tokyo. He heads Sony's entertainment business. It’s a no-brainer from the business perspective: subscriptions mean recurring, predictable revenues. It may offer a profit margin that beats those companies used to get at traditional brick-and-mortar stores, Lynton said.
“What it all really comes down to is how much value is the music company and the artist getting from the different consumption methods,” Kevin Kelleher, the chief financial officer at Sony Music, said at the briefing. “Taylor's reaction was on the advertising-supported streaming models.”
Swift, who has criticized streaming as a cause of declining album sales, didn't comment on the reason for leaving Spotify. She had already declined to give the service her new album, “1989,” the biggest release in the past two years, topping heavy hitters such as Beyonce, Coldplay and Lady Gaga.
To be sure, Swift's beef with Spotify is more than just an argument over the economics of ad-supported services. The 24-year-old musician has questioned the very practice of giving away music for free.
“Music is art, and art is important and rare,” she wrote in an op-ed on Wall Street Journal's website in July. “Important, rare things are valuable. Valuable things should be paid for.”
Spotify's Chief Executive Officer Daniel Ek defended the company, saying enticing people with free offerings is the foundation of the business model that made possible a $2 billion payout to content creators since its inception. An artist like Swift could earn more than $6 million this year, he added.
But when all is said and done, Sony has yet to start its own streaming service. It does have a stake in Vevo, a video-hosting service which offers music videos from Sony Music and Universal Music Group. Vevo’s revenue is advertisement based.