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Does Spotify stimulate or depress music sales?

Joint Research Centre of the European Commission published working paper about Spotify, whether new streaming services better than permanent downloads and whether they can displace pirates. Many formulas and calculations but main question is not answered. Here is the some interesting things from paper.

Streaming music services have exploded in popularity in the past few years, variously raising optimism and concern about their impacts on recorded music revenue. On the one hand, streaming services allow sellers to engage in bundling with the promise of increasing revenues, profits, and consumer surplus. Successful bundling would indeed translate some of the interest in music not generating revenue through individual track sales – unpaid consumption and deadweight loss – into willingness to pay for the bundled offering. On the other hand, streaming may displace traditional individual track sales. Even if they displace sales, streams may however still raise overall revenue if the streaming payment is large enough in relation to the extent of sales displacement.

It was made use of the growth in Spotify use during the years 2013-2015 to measure its impact on unpaid consumption and on the sales of recorded music. Researchers have found that Spotify use displaces permanent downloads. In particular, 137 Spotify streams appear to reduce track sales by 1 unit. Consistent with the existing literature, this analysis also shows that Spotify displaces music piracy. Given the current industry’s revenue from track sales ($0.82 per sale) and the average payment received per stream ($0.007 per stream), researchers’ sales displacement estimates show that the losses from displaced sales are roughly outweighed by the gains in streaming revenue. In other words, this analysis shows that interactive streaming appears to be revenue-neutral for the recorded music industry.

Since 2010, the number of active Spotify users has grown from 15 to 60 million world-wide. While some observers hail streaming as the salvation of a recorded music industry dogged by piracy, others raise alarm about low payments from streaming services and displacement of permanent downloads. Musician disclosures of royalty statements from streaming services led the New York Times to question \whether these micropayments can add up to anything substantial.”

There are two distinct types of streaming music services, interactive and non-interactive. The interactive services, such as Spotify, YouTube, and Deezer, allow users to choose which song they will hear. Non-interactive services such as Pandora do not allow users to choose the particular songs they hear, but Pandora does allow users to create narrowly tailored stations (consisting of songs similar to a seed song or artist).

While sales stimulation is sufficient to demonstrate a positive impact of streaming on revenue, a negative impact of streaming on permanent sales – sales displacement – is not sufficient to demonstrate that streaming reduces revenue. To say this another way, streaming services present bundled offerings that allow the seller to collect revenue in circumstances that generated no revenue under a la carte selling.

Spotify is better viewed as a form of bundled sales than as a promotional channel. Bundled sales of zero marginal cost products hold the promise of raising revenue, consumer surplus, or possibly both. Whether Spotify raises music-industry revenue depends on whether the additional revenues from streaming offset the reductions in revenues from permanent downloads. While we find evidence that Spotify displaces piracy, the new revenue generated through streaming payments (coming from formerly pirate consumers, buyers, or individuals that used to forgo consumption) is roughly offset by revenue reductions from the sale of permanent downloads.