Spotify Takes Second Place for Most Record Label Revenue Generated

One of the many things that record labels have said in the past is that because physical record labels have fallen, that means file-sharing is killing the industry. The reality has been that sources of revenue has shifted and the fact that Spotify has now become the second largest source of revenue for the record labels is simply further evidence of this.

Note: This is an article I wrote that was published elsewhere first. It has been republished here for archival purposes

Business Insider is noting that Spotify has become the second largest source of revenue for the record labels. The number 1 source is still apparently iTunes, but one Spotify investor says that if growth of the company continues like it has been, Spotify will become the number one source of revenue in two years:

“iTunes is way up here,” our source said, gesturing up high, “and everyone else is way down here.”

At this year’s SXSW conference in Austin, early Spotify investor Sean Parker said: “If we [Spotify] continue growing at our current rate in terms of subscriptions and downloads, we’ll overtake iTunes in terms of contributions to the recorded music business in under two years.

I think that this just further cements the fact that people consume music differently now. One of the themes I picked up during my analysis of file-sharing studies was that the sales of physical albums has been so frequently used as a benchmark for how the industry is doing. In more recent years, total revenue was also used to say that the industry is somehow suffering from file-sharing (which is misleading because, as the studies have noted clearly, the unbundling of albums and people buying singles rather than whole physical albums could also explain the decline in total revenue).

While revenue may very well be down for record labels, the cost of distribution is also way down. Gone are the days where the primary and almost exclusive source of revenue is the physical CD. The industry isn’t totally depending on using a factory to burn and stamp CDs, stuff them in jewel cases, ship them in pallets via truck to numerous stores separated by thousands of miles and hoping that people would physically drive to the stores after seeing the music video on MTV and buying the album. Now, the market growth is available right in the home thanks to an Internet connection. It’s simply a matter of uploading the music digitally to a server so that people can stream the music or purchase the digital copy of the song. The process is substantially more streamlined and efficient for everyone involved.

Drew Wilson on Twitter: @icecube85 and Google+.

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