Always and everywhere listening to the song you want? It used to be inconceivable. But then came the Internet, which completely transformed the music industry.
It was not until the invention of the MP3 format in the 90s that all recorded music landed on the Internet – as a pirated copy of the once overpowering record companies. The music exchange Napster became the symbol of the new era. When the business model of the industry seemed to dissipate, the rescue came from Apple: the iPod player and the iTunes downloads for 99 cents a song convinced consumers to pay money for music again.
Finally, the legal purchase was as convenient as before only the pirated copy. The next step was streaming, in which the titles do not have to be stored on the device, but are played directly from the net. And the success of this model is inextricably linked to the name Spotify.
The start-up from Sweden, which went online in several European countries after a deal with the music companies on October 7, 2008, was far from the first streaming service. Platforms like Rhapsody or Napster, the reborn as a legal offer, have been trying to establish the model for years. The idea of accessing catalogs of millions of songs for a monthly fee seemed attractive, but was hampered by implementation issues.
Spotify was launched at exactly the right time: Apple’s iPhone paved the way for the smartphone as a ubiquitous mobile computer – and the expansion of the mobile Internet provided the constant connection. Nevertheless, the company from Sweden had to overcome many obstacles. A central issue was that founder Daniel Ek believed in a so-called “foreign” model: Spotify can be used free of charge, even if you have to take commercial breaks and restrictions on skipping songs. But there is also a payment option.
Ek’s thesis: With a free model you can first get the users on the platform and eventually convince them to pay for a subscription. The music industry, which was plagued by the trauma of escalating online piracy, did not like this approach at first.
Because the concept also meant that artists and music companies have patience and have been content for years with meager proceeds from the free version of Spotify. Musicians like Talking Heads front man David Byrne and Thom Yorke of Radiohead complained about miserable compensation for millions of calls, Taylor Swift temporarily withdrew their music from Spotify media effective.
83 million paying customers
In the long term, however, Ek should be right: Spotify now has 83 million paying subscribers with 180 million users in total. Thus, the Swedish service is the clear number one in the streaming business – ahead of Apple, which comes from the iPhone market share even without a free version to more than 50 million subscribers. Thanks to the success of streaming offerings, consumers’ overall spending on music is also growing after a many-year-long dry spell. In Germany, according to a recent study by the IT association Bitkom, every second Internet user is currently streaming music, and among the 14 to 29 year olds it is even two thirds. Five years ago, music streaming had been a marginal phenomenon in this country. At that time, just over one in ten Internet users used corresponding offers. Accordingly, it took in Germany until the market changed. Only this summer was streaming for the first time more money than by the sale of CDs. According to figures from the German Music Industry Association, services such as Spotify Plays, Apple Music and Tidal posted an increase of 35.2 percent to 348 million euros in the first half of 2018. The streaming came with a market share of 47.8 percent. At the same time, business with CDs collapsed by 24.5 percent to 250 million euros. In Sweden, the home of market leader Spotify, streaming has been the highest revenue area since 2012, and in North America since 2015.