Spat over Spotify highlights debate about streaming services

Spotify is the future. Spotify is the enemy. Spotify doesn’t pay enough. Spotify is music’s best bet for revenue growth.

Since it arrived in the United States from Sweden in 2011, Spotify has been cast as both hero and villain in the music industry’s continuing debate over streaming music. It has been hailed as a potential savior through its two-tiered “freemium” model that would gradually lure listeners away from piracy. Yet Spotify’s per-stream royalty rates have also terrified many artists and songwriters who are already worried that each new step in music’s digital evolution is simply devaluing their work further.

This debate has been humming along inside the industry for years. It recently reached a much wider audience thanks to the decision by Taylor Swift, one of music’s biggest stars, to remove her entire catalog from Spotify. Calling Spotify and other streaming outlets like it “a grand experiment,” Swift told Yahoo in an interview last week: “I’m not willing to contribute my life’s work to an experiment that I don’t feel fairly compensates the writers, producers, artists and creators of this music.”

Even without Spotify, Swift sold nearly 1.3 million copies of her latest album, “1989,” in its first week on sale, making it the fastest-selling album in 12 years and giving a talking point to critics who believe that Spotify, for all its hype, is not necessary for success.

In response, Daniel Ek, Spotify’s chief executive and co-founder, posted a statement on Spotify’s blog defending the service’s business model and updating some of the company’s key statistics. Spotify has now paid $2 billion in royalties back to the music industry, he said, and it continues to grow quickly, with 50 million users around the world, 12.5 million of whom pay for monthly subscriptions.

“All the talk swirling around lately about how Spotify is making money on the backs of artists upsets me big time,” Ek wrote. “Our whole reason for existence is to help fans find music and help artists connect with fans through a platform that protects them from piracy and pays them for their amazing work.”

Spotify’s defense has long been that it is preferable to piracy, both for listeners and the music industry. Users of its free version can listen to any song they like, and in return hear advertising that generates royalties. Once listeners are hooked, Spotify’s theory goes, they will be enticed to pay $10 a month for its premium version, which eliminates the advertising and adds other perks like higher audio quality and full access on mobile devices.

Part of Spotify’s pitch to the music industry has been that its royalties – as low as 0.6 cents per stream, according to the company – will accrue to significant levels as the service grows and as people listen more and more. Yet the company has been criticized by artists who believe that its rates are simply too low, and also argue that the ubiquity of streaming music – on Spotify as well as other services like Pandora, Google Play, Beats Music and Rdio – has contributed to a rapid decline in sales.

In the first half of 2014, sales of CDs and downloads were down 14.6 percent, according to the Recording Industry Association of America. At the same time, streaming services like Spotify, Pandora and YouTube have been growing quickly; for the first half of 2014 they were up nearly 28 percent in the United States.

In his post Tuesday, Ek also took issue with some of the numbers in the debate, calling it a “myth” that Spotify’s royalties are too low to support artists. Payouts for “a top artist like Taylor Swift,” he wrote, “are on track to exceed $6 million a year.”