Taylor Swift's Spotify decision drives debate

NASHVILLE — For more than a year, popular streaming service Spotify has been playing offense in Nashville, reaching deals for early releases of music and offering exclusive content from local record labels.

But record-setting pop star Taylor Swift and her record label, Big Machine, put Spotify on the defensive this week with the decision to pull her entire catalog.

Joining Swift's ranks soon will be country superstar Jason Aldean, whose album "Old Boots, New Dirt" had the best-ever debut week for a country album on Spotify with more than 3.04 million streams. "Old Boots, New Dirt" is expected to be removed from Spotify, though the rest of Aldean's catalog will remain, according to his label.

Spotify's supporters maintain that the so-called utility model, in which music is instantly and conveniently available for fans, is the future of the industry. But in Nashville, where Spotify has made great strides, concerns remain that offering new music to the popular streaming site cuts into sales totals.

Swift's album "1989" has dominated, eclipsing 1 million copies sold in its first week. Despite being initially released to Spotify, Aldean's "Old Boots, New Dirt" still performed well and moved to the top of the year's country sales chart.

Spotify offers millions of songs to fans, who can choose what they listen to at any time. Fans can pay $5 or $10 per month to avoid commercials and gain access to extra features if they choose. Spotify then pays artists and labels based on the number of streams they generate. On its transparency website, spotifyartists.com, the company disclosed late last year that the per-stream payout for a song streamed on its service is between 0.006 cents and 0.0084 cents.

Skeptics, including prominent artists such as the Black Keys, Thom Yorke and David Byrne, say those payouts aren't enough to compensate for revenue lost by traditional sales when an album is first released. That's why many labels, including Big Machine, choose to "window" a record, which means withholding it from streaming services for three or more months after its release to drive fans to buy the music instead. On the other hand, labels have offered previews of albums and exclusive content for Spotify.

Record labels' conundrum

Jon Loba, executive vice president of BBR Music Group, Aldean's label home, declined to comment on the decision to pull "Old Boots, New Dirt." But Loba previously spoke to the conundrum facing record labels home to popular artists.

"There is a premium for 'brand new' — movies, cars, clothes, everything else," Loba said. "Why we devalue music, I don't know. I understand five years down the road — potentially — there will be enough streaming revenue to balance it out. In the meantime, how much revenue are we giving away?"

On the heels of Swift's decision, Spotify released a press statement in which the company said it hoped Swift would change her mind and join in "building a new music economy that works for everyone." Spotify has 40 million users and nearly 16 million of them listened to her music in the 30 days before her music was removed, the company said.

"We believe fans should be able to listen to music wherever and whenever they want, and that artists have an absolute right to be paid for their work and protected from piracy," the Spotify statement said. "That's why we pay nearly 70 percent of our revenue back to the music community."

'A better option than piracy'

Swift's decision was applauded by some stakeholders in the music industry, including Nashville Musicians Association, AFM Local 257 President Dave Pomeroy, who said it was "awesome that she put her flag in the ground for people valuing music."

But other Nashville music industry leaders see the Spotify-led "utility model" as a growth proposition. David Macias, president of Nashville-based Thirty Tigers, a label services company for independent artists, is one of Spotify's most vocal supporters.

"I think the utility model is a better consumer experience," Macias said, pointing out that the key younger demographic prefers streaming to downloading. "You don't have to take up storage space on your phones or computers; almost everything is available to you almost all of the time.

"It's a pretty great deal, and if this became the way that music was accessed by the majority of the consumers, then it's an economically viable way to do business. At 40 million U.S. subscribers, (Spotify) then would be generating $4.8 billion a year, and that still leaves a lot of consumers who want to consume under the acquisition model. It's also a better option than piracy."

Big Machine Label Group President and CEO Scott Borchetta told The Tennessean in February that his goal is to super-serve the music fans who are willing to spend money for a special album experience. Borchetta made the analogy that he wanted his record label — which is rumored to be for sale, according to recent media reports — to be more like Harley Davidson or Ferrari than the 1-billion-served model of McDonald's.

Mark Montgomery, founder of FLO{thinkery} and a leader in Nashville's music-technology community, said he sees value in both lines of logic — Borchetta's approach of super-serving music fans and Macias' utility strategy.

"History is a wonderful teacher, and it does repeat itself," Montgomery said. "We're back to a small, fragmented market with a lot of entrepreneurial activity. That's the future. Some of the traditional thinking is not wrong; it's actually in some ways quite right. But we get hung up hoping things will go back to the way they were, and that ain't ever coming back."