The Effect of Spotify and Pandora on the Music Industry

The music industry has had a rough patch for over a decade now.Since Napster musicians and record labels have only seen their profits decline. We switched from LP's to CD's, from CD's to digital records in mp3 form, bought from Itunes, and now there are some new players in town: Spotify and Pandora!

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  1. Spotify, founded in 2008 in Sweden, has swept the music industry from its feet. The International Federation of the Phonographic Industry announced in 2012 a rise of 0.3% in sales. It is a very small percentage but seeing as the music industry has declined for the past 14 years it is a sigh of relief for many. The question is, are Pandora and Spotify the reason behind this growth?
  2. Daniel Ek, founder of Spotify, plans on continuing his company for many years and predicts that it will change music distribution as we know it. The CEO of the rapid growing company assumes that "the music industry will stop pressing CDs within 18 months". And because old media are always afraid of new media, record shops and other CD distributors fear Spotify and Pandora. Seeing as the number of users increases by the day, CD's sales are down and threaten local record shops to go out of business. This process will make a lot of people lose their jobs, but that is inevitable, because when a new media appears on the scene you have to change in order to keep up.
  3. So how does Spotify and Pandora beneficially influence the music industry? Well, they do it through royalties. For every view (or listen) a song gets, a couple of tenths of a cent is paid to the artist(70% of Spotify's revenue goes to artists and record labels). You would think that Spotify and Pandora don't bring nearly as much money to the music industry and artists as physical CD's do, but that is incorrect. Spotify and Pandora make money off of ads that they show to the "free" users, and the fees that subscribers pay. People that used to download their music illegally and are now Spotify premium users pay more than twice the amount for music than that they used to in a year.
  4. The article above explains perfectly how artists make their money from Spotify users. It shows that Spotify has the intentions to not only make a lot of money, but also improving the music industry. It seems that CEO Daniel Ek is  motivated by ambition more  than he is by greed, which is exactly what the music industry needs.
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