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How Can Spotify Shrink and Grow the Music Business at the Same Time?

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Michael Loccisano / Getty Images for Spotify
Peter Kafka covers media and technology, and their intersection, at Vox. Many of his stories can be found in his Kafka on Media newsletter, and he also hosts the Recode Media podcast.

Is Spotify shrinking the music business, by giving people a good reason not to buy music anymore?

Or is Spotify helping the music business, by giving people a good reason not to steal music anymore?


That’s the conclusion from a new study published by the National Bureau of Economic Research this month.

Economists Luis Aguiar and Joel Waldfogel looked at music sales in countries Spotify operated in between 2013 and 2015, and concluded that yes, “Spotify use displaces permanent downloads” — that is, if you’re getting your music from Spotify, you don’t need to buy it from iTunes. But they also found that “Spotify displaces music piracy,” and that the two trends balance each other out: “Interactive streaming appears to be revenue-neutral for the recorded music industry.”

The nice thing about the study is that it manages to bolster both Spotify’s main argument to the music industry for the past few years — if you don’t let us distribute your music, and get some money for it, the pirates will do it and you’ll get none — and the music labels’ primary worry about streaming — there’s no way we’re going to sell enough subscriptions to replace albums and single-track sales!

And it has the added bonus of confirming what you might think about the music business, if you had no access to sales data, but did have common sense.

The study is also timely, since the labels and Spotify are haggling over new distribution contracts — and YouTube, the world’s biggest digital music service, is about to do the same. Then again, there’s only so much haggling each side can do: The streaming services need the labels’ stuff to exist, but the labels need the streaming services, too — there’s no way they’re convincing people to buy downloads anymore.

Two other things to note: The study won’t do anything for individual musicians and content owners, who may well have seen their sales revenues continue to decline without any upside. And it doesn’t have anything to say about Spotify’s other big argument, which is that if it can get big enough, it will start growing the overall music pie for everyone in the business. But it’s hard to study something that hasn’t happened yet.

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