Why More Than 200 Indie Record Labels Just Bailed on Spotify for Cannibalizing Their MoneyMario Aguilar11/19/11 9:00amFiled to: Musicstreaming musicstreaming audiospotifyRdio141EditPromoteShare to KinjaToggle Conversation toolsGo to permalink Music distributor STHoldings just pulled its collection of more than 200 record labels off of subscription music services. Like, all of them. Quoting one label, "Let's keep the music special, fuck Spotify." What do those fighting words mean for us? Advertisement UK-based STHoldings says it is removing 238 labels off Spotify, Rdio, Napster, and Smify by request. All but four of its distributed labels specifically requested off of Spotify. STH accuses streaming services of "cannibalizing" their digital revenue, and cited a study commissioned by the music business association NARM, which revealed the not-so-startling news that people who use subscription services are less likely to buy physical or digital music. STH says their undisclosed internal numbers confirm NARM's findings.That streaming hurts sales might sound obvious, but it's a bigger deal than you think. First of all, from what we've seen, the study doesn't say enough to justify STH's actions. It essentially reports survey responses about people's discovery habits and how likely they are to buy music. The report's findings indicate that people who stream don't buy as much, but doesn't disclose any actual sales or revenue data. Perhaps more importantly, Spotify reps told MusicAlly that the study was conducted before Spotify really took off. The market could be completely different now. (Update below) Advertisement But forget the study for a second—it's a smoke screen—let's cut through the spin and invective to some important realities about music, the people who love it, and the business that needs to thrive to support it.STH's revocation of its catalog from Spotify sucks for the fans who use the subscription service, but it's not that surprising considering STH represents homegrown independent labels. The company mostly distrubutes music in niche electronic music genres, but it could just as easily be a tiny label that produces indie rock in Seattle, backpack rap in New York, or blues in Memphis. These labels and their artists earn their keep—or sometimes merely their subsistence—by selling physical and digital music to devoted fans all over the world. These labels need to sell records to survive, and unfortunately Spotify only pays a pitance per stream. If a label doesn't have the reach of a major it's not going to make anything using the service. Remember, this is coveted music for a good reason. It's the good stuff. Advertisement Sponsored But even if STH lives in a niche, its apprehension is indicative of the big questions that remain about Spotify, and the future of digital music. Music costs time and money to make, and its creators—artists, labels, and their employees—need to make money or the present system will collapse. It's not just a problem for label executives but also also for the aspiring singer/song writer touring in a station wagon, and your favorite local band.Regardless its millions of users, Spotify is a still gamble that offers labels an alternative at a price—sacrificing immediate revenue on the off-chance that the service will get sufficiently large to pay off in stream fees and global exposure. Major labels, like indies, have always been skeptical of this pitch and only really signed off because the business of selling physical music is irrevocably broken. Obscure music nuts and Top 40 fans alike love Spotify because, $10 a month grants them access to an immense catalog—virtually every track one could ever want. It's an unbelievably good deal. Spotify has gotten a lot of attention because it is a great deal for users and has "actually convinced people to pay for music." Benefits to users aside, this last bit is spin, and there really isn't evidence yet that what artists and labels are making from streaming even comes close.Wired reports that Spotify responded by saying such claims are misinformed:Revenue per stream totally misses the point when considering the value generated by Spotify. The relevant metrics are: 1) how many people are being monetized by Spotify; 2) who these people are (usually young people previously on pirate services which generate nothing for artists and rightsholders); and 3) how much revenue per user Spotify generates for rightsholders.But like every other entity in the equation, Spotify doesn't provide us with real data we can use to make a judgement for ourselves. Advertisement Remember that just because you found a legal way to get all music you want, doesn't mean the artists and labels that make it are getting paid. If they can't get paid, they've got to get day jobs like the rest of us. A few hit makers will always be alright, but this question jeopardizes the amazing breadth of good music for too many people who care too much. STH might be the first to take a hard stand against streaming, but you can bet the battle's just begun. [STHoldings, NARM, Wire, Digital Music News, MusicAlly, and Wired]Update: November 19, 2:20pm We heard back from the NARM about its music industry study, and it turns out that we were right that the initial report we heard sounded a little fishy. Apparently Digital Music News misrepresented the results of the study. Even though STHoldings cited the faulty Digital Music News report, it doesn't change anything about why the distributor and its labels want off Spotify. Advertisement The statement from NARM fwiw:Paul Resnikoff's citing of Spotify in this story is incorrect; no specific access services were named in the NARM/NPD report, and in fact Spotify had only just launched in the U.S. when this survey was conducted. There are many different types of music access models, and licensed services such as Spotify, which do pay royalties for the music on their services, are an increasingly important part of the mix of digital retail options for consumers. 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