It might not be long before the music industry is revolutionized yet again. Although Spotify’s new feature is still in its beta if it is actually implemented it would allow independent artists to upload their music directly to Spotify, bypassing all the intermediaries that are currently needed. In other words, it would allow anyone to write or produce a song and upload it to Spotify for the whole world to hear, with little to no effort. However, the question remains: who will benefit more from this – the superstars or struggling artists of the music industry?

Over the past two decades, the rise of the internet has changed how we consume, purchase, and think about music, and with that the music industry altogether. First, illegal downloading platforms such as Napster or LimeWire leveraged the internet’s unique sharing capabilities to allow people easy (and free) access to their favorite songs. Then, Apple introduced the world to iTunes an online music store. And now, we have shifted entirely away from buying music to streaming music from streaming services such as Spotify, Apple Music or Tidal.

Although the music industry has undergone great change, one aspect remains unchanged. Record labels are still the gatekeepers of the industry. Artists need to be signed to labels in order to upload their music to a streaming service. In turn, they take a large portion of the revenue generated from the artist’s music. Alternatively, independent artists can upload their music to streaming platforms through third-party digital distributors, again, in return for rather large fees or commissions. The closeness and complexity of such streaming services, thus, restricts and discourages many individuals from sharing their music.

However, there are alternatives to get music to large audiences — through platforms that are open for anyone. A popular example of such an open platform is SoundCloud. Compared to Spotify, SoundCloud allows any artists to upload their music with one click. Consequently,  allowing some of the biggest stars of our generation to emerge, such as Post Malone, XXXTentacion or Travis Scott. Although Soundcloud has introduced per-stream-payments, given the low number of premium users the money to be earned remains very minimal. Therefore, many artists view SoundCloud as a stepping stone. Once their songs go viral, artists tend to sign to major labels and release their following projects to all streaming services simultaneously, in order to get paid sufficiently. Furthermore, on closed platforms record labels or distributors decide what music enters the mainstream. Giving artists the liberty to upload their music independently, shifts this power more to consumers.

Spotify for Artists

Given the great success of SoundCloud, more exclusive streaming services are working on open business models that include and promote more independent artists. An example of this is Spotify’s new beta feature — Spotify for Artists. In September 2018, Spotify launched a feature to their streaming service that opens the platform to independent artists (currently only available to 1000 selected artists). It allows any individual to create an artist account and directly upload their music (of course, only if the rights to the music are owned). Thus, bypassing the need for a major label or third-party aggregator. Although Spotify’s new feature slightly differs to the functions of SoundCloud, at its core both very similar. Furthermore, the feature gives artists full control and direct access to streaming information. Spotify is basically extending its platform to create a more equal-opportunity market to allow for less established artists to compete with the superstars of the music industry. 

How does Spotify benefit from this?

Because Spotify has made only a few announcements and statements about their expectations derived from their new feature, what exactly they hope to gain is unclear. However, generally opening any platform to more user-generated content has two benefits for platforms or online retail stores. Firstly, the volume of products available to consumers increases and secondly, the content is diversified (more niche products) (Barzilay et al., 2018). In the case of Spotify, its users have more artists (and songs) to choose from and a more diverse range of genres and sub-cultures. It can be expected that a more open platform will lure many artists that exclusively (can) upload their content to SoundCloud to switch to uploading their music to Spotify. It might even allow new genres to emerge comparable to the ‘emo-rap’ movement that started on SoundCloud. Currently, these movements do not offer enough potential for labels to sign and promote them, thus, opening a platform gives these sub-cultures a stage. Perhaps even creating more active, identity-based communities on Spotify (Ren et al., 2012). Furthermore, by eliminating the intermediaries (i.e. record labels) more money is left to be earned either by Spotify or the artists themselves. Thus, drastically reducing the influence and role record labels play in the industry.

Spotify can utilize the enhancement of their service to secure a competitive advantage over their competitors, it can be used as a selling point for new potential customers and it can increase customer satisfaction and loyalty for already existing customers. 

What are the risks for Spotify?

For Spotify, the risks associated with opening the platform are limited. Nevertheless, most prominently, Spotify can fail to create an equal opportunity platform. The increase in content made available to users can (1) induce a choice overload effect, where the users are overwhelmed by choices, and (2) decrease the overall quality of content. Both these downsides can introduce a Superstar effect on the platform (Barzilay et al., 2018). This means that opening the platform creates an even greater dispersion between the superstars and the struggling artists of the music industry. In other words, the already established artists receive an even greater portion of the user-generated streams, leaving less revenue to be generated for smaller struggling artists. 

However, it is disputed whether opening the platform will shift the distribution of generated revenue more towards the superstars or struggling artists  (Barzilay et al., 2018). It remains in the hands of Spotify to decide in what direction the distribution shifts. As already is the case now, through their sophisticated recommendation agents and carefully curated playlists Spotify can steer whether to promote the superstars or the struggling artists. These tools are leveraged by Spotify to control what artists or songs come to the user’s attention.

References: 

Barzilay, O., Geva, H., Goldstein, A. and Oestreicher-Singer, G. (2018). Equal Opportunity for All? The Long Tail of Crowdfunding: Evidence From Kickstarter. Working Paper

Ren, Y., Harper, F.M., Drenner, S., Terveen, L., Kiesler, S., Riedl, J. and Kraut, R.E. (2012). Building member attachment in online communities: Applying theories of group identity and interpersonal bonds. MIS Quarterly. pp.841-864.