Findings of a new study of online music piracy shows that popular music site Spotify's policy of offering free music downloads is an effective way to convert pirates into customers that pay. The policy was formulated by Spotify CEO Daniel Ek.
However, the study commissioned by the European Union’s Joint Research Centre says Spotify's policy has worked at the detriment to other platforms that assists users to obtain music legally.
The report’s head researchers, Joel Waldfogel and Luis Aguilar, say that on a weekly basis they counted the amount of times tracks from 8,000 artists were purchased online globally and obtained illegally through other ways such as torrent sites. They compared those numbers to Spotify's streaming data which showed that for every 47 Spotify streams, the service prevented one illegal download.
The report says, “This piracy displacement is consistent with Ek’s claim that Spotify’s bundled offering harvests revenue from consumers who – or at least from consumption instances – were previously not generating revenue."
But the report adds that services like Spotify have “a negative effect on other legal methods of obtaining music". The study found that for every 137 Spotify streams, the amount of digital track sales on legal download platforms such as iTunes, is reduced by one. This means that when the disparity in revenue per stream and download is taken into consideration, the overall effect of a service like Spotify is almost neutral.
“Given the current industry’s revenue from track sales ($0.82 per sale) and the average payment received per stream ($0.007 per stream), our sales displacement estimates show that the losses from displaced sales are roughly outweighed by the gains in streaming revenue,” says the report.
“In other words, our analysis shows that interactive streaming appears to be revenue-neutral for the recorded music industry.”