Within the last decade, we’ve seen streaming platforms become a multi-billion dollar industry — effectively upheaving the mechanics of the music business and cannibalising formerly-popular alternatives to online listening. This includes peer-to-peer file-sharing platforms and other popular music marketplaces (such as iTunes, Soundcloud and Bandcamp).
With a total of 418 million users worldwide, Spotify is currently the leading platform in the music streaming space. However, it has also been the subject of abject scrutiny by recording artists in more recent years — mainly due to its reputation for taking massive cuts from musicians and not granting them the lion’s share of their revenue.
Amid the momentous breakthrough of NFTs within the last year, we’ve seen an explosive demand for crypto assets — with some of the most popular creations coming in the form of cartoon apes, axolotls or buggy-eyed felines. However, these art forms have also taken the shape of music products — with a growing list of recording artists already having generated sizeable revenue streams from selling their work as NFTs.
Audius, a decentralised and community-run music streaming platform that runs on the Ethereum and Solana blockchains, has already been hailed by Rolling Stone as a viable rival to Spotify. But will it eventually catch up to the likes of music streaming’s current kingpin? As part of our ongoing “vs” series, let’s take a look at the current business models of both Spotify and blockchain-powered Audius — with regards to how each platform is currently adapting to meet the needs of both artists and listeners in our transition into Web3.
Spotify’s model: familiar, but flawed
According to a recent market research report, Spotify currently holds a 31% market share in the music streaming industry. It’s hard to deny its colossal force in the music world, with over 418 million global users and 180 million paying subscribers worldwide. Spotify has also been hailed as the music industry’s proverbial liferaft after the business endured years of low sales following the reign of online music piracy.
CEO Daniel Ek founded Spotify in 2006 — a time when peer-to-peer file-sharing services (such as LimeWire) and illegal music downloading was still at large. Ek claims that the dynamic of music piracy highlighted a huge gap within the music industry — one where he saw that fans essentially had two choices in terms of music consumption. In his eyes, they could pay $15 for a CD or pay zero dollars to access all of the music in the world. What if users could pay the same price to (legally) have access to both?
Ek has commented on this conundrum: “What would happen to the music industry if you all of a sudden combined the power of advertising as a revenue model, the power of subscription as a revenue model [and] the power of a la carte on top of that as a revenue model? The three of them on a base of the 3 billion people around the world that are interested in music ought to be larger than the music industry’s ever been.”
Today, you’d be hard-pressed to find a friend, colleague or peer who doesn’t love Spotify. The app’s sophisticated algorithms, custom playlist-building software and access to just about every major artist’s discography have incentivised music lovers everywhere to happily deal with intrusive ads or pay small monthly subscription fees (the latter service contributing towards 91% of Spotify’s total revenue).
However, despite its widespread success, Spotify has also faced significant backlash over what’s become of its revenue streaming model — including a notoriously low royalty rate that has infuriated both independent and seasoned musicians alike. Current clauses in place mean that major record labels currently take between 50% to 80% of artists’ total revenue, leaving them with less than half of their total income before the rest is clawed away by managers and distributors. Based on this model, session musicians and smaller artists typically receive nothing.
Within the last year, up to 150 of some of the biggest names in music — including Paul McCartney and Kate Bush — have signed petitions and joined efforts in calling for new legislation to “put the value of music back where it belongs — in the hands of music makers.” Independent artists and music fans alike have also joined in the ruckus, organising a series of protests (called ‘Justice at Spotify’) in front of the company’s various offices across the globe.
To boot, the aftershocks of the COVID-19 pandemic have particularly brought this injustice to light. As the music industry’s thousands of artists spent nearly two years unable to tour and effectively cash-strapped, their revenue generated from music streaming platforms (or lack thereof) has suddenly been given much more weight. At the end of 2021, Danish investment bank Saxo predicted that in 2022, we would see music NFT platforms begin to seize market share away from more traditional, centralised streaming models. Has a worthy adversary risen to the fore to make this forecast come true?
Will Audius’ model give musicians more power?
Co-founded by computer scientists Roneil Rumburg and Forrest Browning, Audius is a community-owned and artist-controlled music streaming platform that runs on the Ethereum and Solana blockchains. Unlike the more restrictive model of Spotify, Audius aims to be a place where music artists can freely distribute, stream and monetise their work.
With its open-source, decentralised framework, Audius is promising to be the next Spotify or Soundcloud in the blockchain world — only with an approach that will better democratise the music industry by placing more control and revenue back into the hands of artists. It plans to achieve this by eliminating intermediaries (such as record labels or centralised streaming platforms like Spotify) and ensuring that musicians receive no less than 90% of total music sales revenue. Based on their business model, the other 10% gets allocated towards any node operators that support the network.
Artists can choose how their content is monetised on the Audius platform — with options ranging from being able to offer content and streams for free, offering users a one-time payment to unlock all of their content and offering their work as NFTs. They’re also able to maintain sole ownership of their music by generating timestamps of their content, which are secured by a network of decentralised node operators.
Any music artist or creator can also upload their music to Audius and monetise their content — there are zero requirements for users to be signed to a record label or even to have a large online following. What’s also notable is that all users — not just musicians — are rewarded with the platform’s $AUDIO token for meeting in-app milestones, such as ranking on ‘top five trending playlists’ or lists of ‘weekly trending tracks’. Through this approach, both artists and fans are encouraged to make active contributions to the network and participate in the ecosystem’s community efforts.
While Audius is comparatively quite new to the game, some of the industry’s biggest hitters have already recognised its potential. Popular artists such as Deadmau5, Skrillex, Disclosure and Weezer have already released songs via the site. In September 2021, the platform also announced a $5 million funding round — all of it led by major music celebrities and industry professionals. Amongst the artist investors were Katy Perry, Nas, The Chainsmokers, Jason Derulo, Steve Aoki, Pusha T and Mike Shinoda of Linkin Park. Other industry leaders also joined the effort — including seasoned executives and representatives from labels including Sony, RCA Records and J Records.
Martin Bandier, who served as chairman and CEO of Sony/ATV Music Publishing for over a decade, commented on what drew him in: “Songwriters need more avenues for revenue, and this model should also help expedite payments for their music as it streams across the world.” He continued: “The blockchain is enabling entirely new revenue streams for artists and creators, like NFTs, social currency, and curation. Audius is not only using the blockchain to add potentially significant revenue streams for artists, but it also allows them to cooperatively own the platform itself.”
Does Audius present a promising alternative?
According to several online users, Audius’ interface might not yet feature the same complexities or cleanness we see on Spotify — particularly its Premium subscription service. At the time of writing, Audius’ user base is also a mere sliver when compared to that of Spotify (or even its main competitor Apple Music) — with only 6 million users currently under its wing. However, with mounting support from some of the industry’s most prominent leaders and the growing adoption of NFT technology, many reputable figures in the music business have voiced their support for a platform that promises new and improved revenue streams for artists.
In a recent statement, hip-hop veteran Nas has voiced his belief that blockchain technology “might be the most important technology to ever hit the music industry.” He’s also highlighted its benefits as a DAO, commenting on the fact that “everyone who uploads to Audius can be an owner.”
“You can’t say that about any other platform,” he continue.
Co-founder Forrest Browning has also elaborated on the continued development of the music streaming platform, noting that he plans to incorporate more easy-to-use crypto features into the app’s framework. “We see ourselves as the onramp onto blockchain tech for less technical users,” he recently commented. “Most people don’t realise it, but every single person that signs up for Audius actually has a crypto wallet created for their account. That enables us to build some really cool crypto features the mainstream is talking about — NFTs, etc. — without all the extremely complex process of downloading and setting up extra apps.”
In 2021, Audius also announced a major partnership with TikTok — one which would allow its artists to upload their music to be used in TikTok videos. By extension, artists are also able to link their TikTok following back to their Audius profile.
Audius is also looking for ways to make its platform achieve better sustainability targets, donating to help offset its carbon footprint. One way the Audius team has tried achieving this goal is by shifting its ecosystem to Solana, a more energy-efficient blockchain. According to one representative, Solana’s “low-cost, faster and more environmentally-conscious blockchain will help the firm create an accessible gateway to onboard users into the Web3 ecosystem.”
One of the biggest criticisms of Audius is that unlike Spotify, which works closely with record labels, the platform allegedly cannot police copyright violations due to the lack of a central operator. Some users have voiced concerns about the potential for pirated material to be uploaded, leading to worries about copyright infringement. However, Audius has responded to these concerns by announcing the development of a community arbitration system, based on a network of neutral, third-party arbitrators, that will vote based on moderation cases and copyright claims.
Will Spotify enter the Web3 space?
Back in 2019, Spotify CEO Daniel Ek commented on the potential of blockchain technology while speaking about their now-defunct cryptocurrency project, which was then launched in collaboration with Facebook (now Meta). He said: “I think cryptocurrencies and blockchain are obviously two of the biggest buzzwords you can have today. And for me, I don’t think technology in itself is that interesting. What I do think is interesting is what we can do with that technology.”
Within the last month, Spotify has unveiled job postings for roles that focus on Web3-related projects — evidence that the platform plans to integrate blockchain technology and NFTs into its greater business model.
The first reported job opening is for a senior manager of Innovation and Market Intelligence, with a call for someone who has expertise in emerging trends — “especially as it relates to creators, Web3 and other technologies.” The company has also sought out a senior back-end engineer who can help “uncover the next growth opportunity leveraging new technologies, like Web3.” The latter candidate is poised to work with the company’s experimental growth team, for its non-Premium offering.
Other Big Tech companies, such as Twitter, YouTube and Instagram, have also jumped into the Web3 fray — with plans to implement NFTs into their ecosystems at large. With new rivals such as Audius showing impressive backing and a promising early business model, Spotify seems to be on the right track by hiring more Web3 experts and repositioning its focus(es). However, whether we will see the streaming service host a music NFT marketplace or create different types of revenue streams is still yet to be seen.
Final thoughts
We’ve already highlighted how blockchain technology is finding its way into various industries, as its ability to offer more robust security, transparency, affordability and even energy efficiency are becoming more understood across different sectors.
While Audius might still be in its infancy, its trajectory shows great promise — the platform’s recent integration with social media giant TikTok is a significant step forward, as it may allow the platform to connect established music artists with TikTok’s user base of over 1 billion people. As a platform built on self-governance, it also means that new features will be built on the platform based on how its community votes.
However, what’s even more notable about Audius is that it doesn’t just provide an opportunity for artists to earn a stake in the company — it provides a model where listeners can too. While Spotify only allows users to pay a subscription fee to access music (with questionable allocations, to boot), Audius is presenting a framework where top community users can earn tokens for essentially the same functionalities.
Given its recent positioning, it seems likely that we will see Spotify adopt a framework that will allow musicians to see greater rewards. In an age where creators have clearly grown tired of Big Tech bureaucracy, it appears that any type of model that will allow artists to have greater control over their work is no longer just a request — it’s become a necessity.