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Research: Spotify displaces music piracy

A research paper prepared for the European Commission which analyses whether freemium music streaming service Spotify stimulates or depresses music sales concludes that interactive streaming appears to be revenue-neutral for the recorded music industry.

The paper- Streaming Reaches Flood Stage: Does Spotify Stimulate or Depress Music Sales? – was published by the EC’s Joint Research Centre Institute for Prospective Technological Studies which carries out economic research on information society and EU Digital Agenda policy issues, with a focus on growth, jobs and innovation in the Single Market.

“Streaming music services have exploded in popularity in the past few years, variously raising optimism and concern about their impacts on recorded music revenue.,” say report authors Luis Aguiar Wicht and Joel Waldfogel. “On the one hand, streaming services allow sellers to engage in bundling with the promise of increasing revenues, profits, and consumer surplus. Successful bundling would indeed translate some of the interest in music not generating revenue through individual track sales – unpaid consumption and deadweight loss – into willingness to pay for the bundled offering,” they note.

“On the other hand, streaming may displace traditional individual track sales. Even if they displace sales, streams may however still raise overall revenue if the streaming payment is large enough in relation to the extent of sales displacement. We make use of the growth in Spotify use during the years 2013-2015 to measure its impact on unpaid consumption and on the sales of recorded music,” they advise.

“We find that Spotify use displaces permanent downloads. In particular, 137 Spotify streams appear to reduce track sales by 1 unit. Consistent with the existing literature, our analysis also shows that Spotify displaces music piracy. 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. In other words, our analysis shows that interactive streaming appears to be revenue-neutral for the recorded music industry,” they conclude.

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