Spotify Isn’t Killing Record Sales

But it isn’t saving them either.

Lucy Nicholson / Reuters

Technology, as anyone with a phone or computer can attest, has made it easier than ever for artists to get their music to their audience. But it’s also created some huge dilemmas when it comes to how talent and their record labels get paid. What’s the net effect?

A new paper from the National Bureau of Economic Research takes a look at the streaming services, sales, and unpaid downloads in order to figure out whether, all told, these services are helping or hurting the music industry.

These streaming services—Spotify, Apple Music, Tidal, and Pandora—represent a compromise of sorts between the music industry and those providing music via the Internet. Instead of buying an entire song or album, users can just pay a flat rate, queuing up the songs that they want to hear whenever they want. Or users can pay nothing, but must endure interruptions from advertisers. Either way, the services cut down on piracy and provide both websites and record labels with some cash. That makes them a better option for the record industry than having music pirated, in which case they would make nothing, but a worse option compared to buying tracks outright. (The royalties per stream are significantly less than what pure sales bring in.) Overall, the Recording Industry Association of America reports that revenue from streaming services grew to nearly $2 billion in 2014 from about $0.5 billion in 2010.

To find out how streaming platforms impact record-industry revenue, researchers took a look at Spotify, a streaming service which started in 2006 but enjoyed substantial growth after 2011, once it became available in America. The service has more than 75 million users, and around one-quarter of them shell out $10 a month for premium access (which cuts out commercials and allows users to play songs offline). The other 75 percent generate revenue for the company through ad exposure. The company then pays artists, record labels, producers, and others a cut for allowing their music to be included in their offerings.

Luis Aguiar and Joel Waldfogel, the authors of the NBER study, find that, at least in the case of Spotify, streaming brings virtually no financial gain to the industry, but it also prevents losses. When looking the top songs each week and calculating how much rights holders were paid, researchers find that streaming usage increases music-industry revenue thanks to the ability to convert those who were either downloading illegally or not listening to tracks at all. But those gains are pretty much offset by streaming’s displacement of permanent track purchases or downloads.

But that doesn’t mean that this is the end of the story. While streaming has grown in popularity, the business model still struggles to attract paying customers. Tidal, the streaming service started by Jay Z and a gaggle of other celebs, has only recently broken the 1 million subscriber mark. Apple Music has managed 6.5 million paid subscribers, though it remains to be seen if those numbers will hold once people realize that their free trials have automatically converted. The ongoing challenge of getting people to actually pay for music on the Internet means that to make money, platforms must generate adequate ad revenue, and then also be able to pay out enough to attract top artists. The latter issue is one that received lots of attention when America’s favorite red-lipped songstress, Taylor Swift, scolded Apple for plans to withhold royalties during the three-month free trial of its new streaming music platform, writing, “Three months is a long time to go unpaid, and it is unfair to ask anyone to work for nothing. I say this with love, reverence, and admiration for everything else Apple has done. I hope that soon I can join them in the progression towards a streaming model that seems fair to those who create this music.”

Swift got her way, but that doesn’t mean that music sales will ever be as simple, or as lucrative, as they used to be.