Less than two months ago, Nyasha Foy asked, â€śIs Music Streaming Worth The Cost?â€ťÂ Well, this week, ST Holdings provided a definitive â€śNo.â€ťÂ ST Holdings, a UK-based independent music distributor of 238 indie record labels (Dub Police and Naked Lunch), withdrew all their music from Spotify and similar digital streaming services including Rhapsody, Mog, and Rdio.
An announcement from owner Andrew Parkson claims that Spotify â€ścannibalize[s] the revenues of more traditional digital servicesâ€ť such as iTunes. This means less profit for the labels and artists (and competition for Apple). Parksonâ€™s decision was bolstered by support from the labels, adding â€śthe majority do not want their music on such services because of the poor revenues and the detrimental effect on sales.â€ť Only a handful expressed their willingness to stay on those services. Parkson also relied on financial data showing a vast disproportion between the amount of ST-owned tracks consumed on these services (82%) and the impact on its overall revenue (2.6%).
It also doesnâ€™t help that NPD Group and NARM recently released a joint study denouncing Spotify as detrimental to music purchasing. Is ST Holdings an anomaly or the first of many prepared to break ranks with the new media services?Â How will this announcement affect the future of Spotify?
As Foy previously reported, Spotify has generated losses totaling $40 million in the last year alone although its membership has grown to 2 million users.Â The Swedish-founded company hoped to recoup those losses as it gained in scale and through renegotiations of licensing agreements.Â Until those numbers increase and without those renegotiations, Spotify stands to spend more in music licensing costs than they generate in revenue. At the moment, only 10% of Spotify subscribers generate about 71% of the companyâ€™s revenues.
Analysts who were expecting Spotify to become a big moneymaker one day have now run into a time crunch. It is unclear what effect the announcement of ST Holdings will have on the digital streaming model.Â Â Either Spotify has become a time bomb for Kleiner Perkins and fellow investors or the sleeping giant will reemerge triumphant, taking down Apple, Google Music and any other digital streaming service in its path. (Making a profit would be nice too.)