Why Taylor Swift Will Lose Her Battle With Spotify

On Monday, Taylor Swift made headlines by pulling her entire catalogue—save one song—from Spotify's streaming music service. The move shouldn't have been a big surprise to anyone following Swift's previous statements on the music industry. In a much-cited Wall Street Journal op-ed from earlier this year, she blasted Spotify and its ilk for devaluing music.

"Piracy, file sharing and streaming have shrunk the numbers of paid album sales drastically, and every artist has handled this blow differently," wrote Swift. "Music is art, and art is important and rare. Important, rare things are valuable. Valuable things should be paid for. It’s my opinion that music should not be free, and my prediction is that individual artists and their labels will someday decide what an album’s price point is."

Unfortunately for Swift, her prediction won't come true. Streaming music services like Spotify are the future of the industry, and resistance is futile.

Rock and a Hard Place

It's fitting that Taylor Swift's new album is titled 1989, because that's the period Swift likely wishes she lived in. Two years before the advent of the World Wide Web, 1989 would have indeed been a time when music labels had complete control of album pricing and distribution. There was no internet piracy then. The iTunes store, the industry's previous boogeyman-turned-savior, was more than a decade away. Fans could either pay sticker price for new releases or they could sit by their radios, and most did both. In 2014, the equation could not be more different.

Swift is correct that Spotify's existence is hurting digital downloads and physical sales. MIDiA Research, an analysis and consulting firm focussed on digital music, finds that 23% of streaming customers used to buy multiple albums a month. Now, instead of handing labels—and artists—multiple payments of $10-plus payments every 30-days, they're spending just $9.99 on a streaming subscription. In this way, Spotify is costing Swift money.

But that's really only true if we, like Swift, assume the alternative to Spotify are album sales. That's false. Instead, Spotify customers spurned by the pop goddess can simply go to YouTube, GrooveShark, SoundCloud, or any number of other on-demand streaming alternatives nearly every teenager is intimately familiar with.

The RIAA reports that streaming services grew 28% in the first-half of 2014 alone and now account for 27% of industry revenue. According to Russ Crupnick, an entertainment analyst at NPD Group, 14- to 34-year-olds—Taylor Swift's prime demographic—listen to 42% of their music using either on-demand services like Spotify and YouTube or through internet radio services like Pandora.

For labels, the choice is not between Spotify and album sales, but rather between Spotify and a host of less-lucrative streaming options. Artists might only make a fraction of a cent off a Spotify play, but they make even less on YouTube views, and nothing when users of SoundCloud or other similar sites upload songs on their own.

"It's not piracy anymore," said Crupnick when asked why most artists choose to work with Spotify. "It's that you can't create scarcity. That's really what it comes down to. Eighty percent of Spotify users are already using [internet radio service] Pandora. I realize you can't play a whole Taylor Swift album on Pandora, [but] most of the people using these services have access to multiple services. Not on Spotify? Go to iTunes Radio. Not on iTunes? Go to YouTube."

"If you say 'hey I don't want to be on streaming because I sort of object to the way it tastes,' you're kind of ignoring where the whole audience is," adds Crupnick.

And while piracy isn't a threat right now, that's mostly because streaming has made paying for music—or at least agreeing to watch some advertising—more attractive than fussing with BitTorrent.

"In some ways, artists have gotten a little bit complacent," says Mark Mulligan, long-time music industry analyst and co-founder of MIDiA. "As recently as five years ago, artists would be very concerned that if they didn't license the music they would increase piracy. Everyone has gotten very complacent about the impact of piracy because YouTube has gotten so good at competing with it." Should the music industry turn against these services, Mulligan warns, the scourge of P2P music sharing could return.

Present vs. Future

All of that said, the fact remains that Swift is a superstar and many of the rules that apply to industry as a whole don't apply to her—at least not yet. 1989 is on track to break sales records, and its success sans-Spotify shows that at least for the present, it may make sense for particularly big acts to wait a while before releasing a new album for streaming. "Ultimately, Taylor Swift's music going off Spotify is a short term tactical thing," Mulligan predicts. "It's all about selling 1989 and also selling back catalogue." That's not a long term strategy, but it can work for her in the here and now.

In the meantime, Mulligan suggests there are ways Spotify and Swift can make up. One thing the service could do is make certain albums available only to premium subscribers for a certain window of time. That could mean more subscription revenue, of which labels get a piece, while also selling albums to that subset of free listeners who decide they can't wait to hear their favorite band's latest release.

But as time goes on, and streaming makes up a larger and larger share of music revenue, boycotts like Swift's will be mostly a thing of the past. In five years "we won't be having as much of a conversation about buying things," says Crupnick. "Does Spotify maybe prevent some sales to Walmart or iTunes? We'll still have that conversation but it will be very whispered."

Read next: Here’s Why Taylor Swift Pulled Her Music From Spotify