Streaming Reaches Flood Stage: Does Spotify Stimulate or Depress Music Sales?

35 Pages Posted: 26 Oct 2015 Last revised: 2 Mar 2023

See all articles by Luis Aguiar

Luis Aguiar

University of Zurich - Department of Business Administration

Joel Waldfogel

University of Minnesota - Twin Cities - Carlson School of Management; National Bureau of Economic Research (NBER); University of Minnesota - Twin Cities - Department of Economics

Date Written: October 2015

Abstract

Streaming music services have exploded in popularity in the past few years, variously raising optimism and concern about their impacts on recorded music revenue. On the one hand, streaming services allow sellers to engage in bundling with the promise of increasing revenues, profits, and consumer surplus. Successful bundling would indeed translate some of the interest in music not generating revenue through individual track sales - unpaid consumption and deadweight loss - into willingness to pay for the bundled offering. On the other hand, streaming may displace traditional individual track sales. Even if they displace sales, streams may however still raise overall revenue if the streaming payment is large enough in relation to the extent of sales displacement. We make use of the growth in Spotify use during the years 2013-2015 to measure its impact on unpaid consumption and on the sales of recorded music. We find that Spotify use displaces permanent downloads. In particular, 137 Spotify streams appear to reduce track sales by 1 unit. Consistent with the existing literature, our analysis also shows that Spotify displaces music piracy. Given the current industry’s revenue from track sales ($0.82 per sale) and the average payment received per stream ($0.007 per stream), our sales displacement estimates show that the losses from displaced sales are roughly outweighed by the gains in streaming revenue. In other words, our analysis shows that interactive streaming appears to be revenue-neutral for the recorded music industry.

Suggested Citation

Aguiar, Luis and Waldfogel, Joel, Streaming Reaches Flood Stage: Does Spotify Stimulate or Depress Music Sales? (October 2015). NBER Working Paper No. w21653, Available at SSRN: https://ssrn.com/abstract=2679691

Luis Aguiar (Contact Author)

University of Zurich - Department of Business Administration ( email )

Rämistrasse 71
Zurich, CH-8006
Switzerland

Joel Waldfogel

University of Minnesota - Twin Cities - Carlson School of Management ( email )

19th Avenue South
Minneapolis, MN 55455
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
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University of Minnesota - Twin Cities - Department of Economics ( email )

271 19th Avenue South
Minneapolis, MN 55455
United States

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