Napster paved the way for streaming-reliant music industry
Spotify has been Godsend for music lovers across the world, especially given its ability to machine learn your music taste and push stuff that you didn’t know existed but you would absolutely love. But little is known about how Daniel Ek, its founder, was inspired by an equally loved online music service called Napster. If you were in your late teens or early twenties at the turn of the millennium, it is highly likely that you would have been bitten by the Napster bug which suddenly opened up the whole world of music at the click of a mouse button. Here’s the backstory to Spotify’s rise from Napster’s ashes from Quartz’s Daniel Kopf who very honestly admits to striking a deal with his father to “buying the album if he downloaded more than three songs from the same album on Napster” and eventually failing to honour the deal. Whilst Napster triggered the fall in music industry revenues from $21bn in 1999 to $7bn in 2014, Spotify may have given a ray of hope with revenues now recovering to $10bn in 2018.
“Napster was a company with a popular software in search of a revenue model, one it would never get the chance to find.
Napster was eventually shut down in 2001 due to lawsuit by the Recording Industry Association of America, the trade group for the US music industry. A US court found Napster was facilitating the illegal transfer of copyrighted music, and was told that unless it was able to stop that activity on its site, it would have to shutdown. Napster couldn’t comply.
From the abyss, Spotify appeared. Daniel Ek, the co-founder and CEO of Spotify, has said that Spotify, launched in 2008, is a direct byproduct of his love for Napster, and his desire to create a similar experience for users.
Daniel Ek, the founder of Spotify says “he thought he could create a “better product than piracy” by making streaming so fast that you wouldn’t even notice the loading time. He would avoid the trap that Napster fell into by getting music labels to agree to have their songs on his platform. To fund operations and licensing costs, he would sell advertising between songs (subscriptions were not originally part of the model), making music “free” like on Napster, but his program would be even easier to use and less likely to give you a computer virus. He thought his company would help save a declining music industry, and help people “discover better music.”
The authors of the 2019 book Spotify Teardown, an academic examination of rise of Spotify, say something very different happened. The book, written by a group of Swedish media studies professors, historians, and programmers, contends that Spotify was simply an opportunistic application of a technology that Ek developed, rather than effort to save the music industry.
Though it may not have been Ek’s intention to “save” the music industry, his company might have done so by showing the viability of streaming. Because some of the revenue from streaming companies is sent on to labels, the music industry has finally started making money again. From a nadir of about $7 billion in revenue in 2014 (in 2018 dollars), US revenue rose to almost $10 billion in 2018. That is still less than half of the money the industry was making in 1999, but it’s progress nonetheless.”