Selling Musicians Down The Stream

Noting that Pandora and Spotify are running annual losses in the tens of millions, Galaxie 500's Damon Krukowski wonders why they're in business at all:

The answer is capital, which is what Pandora and Spotify have and what they generate. These aren't record companies– they don't make records, or anything else; apparently not even income. They exist to attract speculative capital. And for those who have a claim to ownership of that capital, they are earning millions– in 2012, Pandora's executives sold $63 million of personal stock in the company. Or as Spotify's CEO Daniel Ek has put it, "The question of when we'll be profitable actually feels irrelevant. Our focus is all on growth. That is priority one, two, three, four and five."

He goes on to write that he has "stopped looking to these business models to do anything for me financially as a musician. " Eliot Van Buskirk has a different view:

Damon claims that Spotify co-founder and CEO Daniel Ek mainly wants it to grow because that way, he can sell his shares — in other words, that Spotify is more of a finance play than a music play. But as the head of indie label consortium Merlin told in an exclusive interview, he thinks it’s worthwhile for indie bands and labels to put their music on Spotify in part because it’s growing — as is the number of users who choose to pay for it, which is ultimately the number that determines how much musicians, labels, songwriters, and publishers are paid for the music streamed there.

If all of the music fans who listen to free online radio and buy five or so downloads per year were to suddenly start paying $120 per year for Spotify, Rdio, or any other streaming service, that would not only grow those services; it would also represent a significant uptick in money spent on recorded music in general. It’s not happening suddenly, but many argue that it is happening.