Did Spotify Just Crack Music’s Digital Chicken and Egg Problem?
Did Spotify Just Crack Music’s Digital Chicken and Egg Problem?
Did Spotify Just Crack Music’s Digital Chicken and Egg Problem?

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    Last week the online music service Spotify announced that it would be granting developers access to its music library by way of an app framework. In theory, now anyone can create an app that uses all of the songs that Spotify currently offers. For perhaps the first time in the history of digital music developers can focus on actually developing new digital music business models, not on surviving negotiations with every single record label.  In its way, this might be one of the biggest things to happen to the music industry since the introduction of iTunes.

    First, a bit of background. Ever since the days of the original Napster, the music industry has faced a problem. People clearly wanted access to music digitally. To them this meant more than just reproducing the physical experience that had (up to then) defined the music industry. This meant taking advantage of what digital distribution makes possible to implement entirely different business models. 

    However, giving people this type of digital access might undermine existing analog profits.  The music industry was reluctant to back a digital music service unless it could guarantee an income stream (for labels, of course) comparable to the analog world circa 1998.  Digital music services that could not make this guarantee could not license music, and so never developed.  Without a large following they could not get music, and they needed music to build a large following.

    It was not until a huge company like Apple could promise the record labels millions of dollars upfront that the labels took a step towards embracing the opportunities that digital provides.  Intentionally or not, the labels’ caution worked to actively discourage the kind of innovation that could have produced truly new, lucrative digital business models. The labels essentially guaranteed that the only large, established companies implemented new models of music distribution. Innovative startups usually could not afford to access the music in the first place. Even if they had the money, they knew that it would take years just to negotiate deals with all of the major record labels (ask Spotify why it took so long to launch in the US).

    The result of all this is that there has not been as much innovation in the music industry as there has been other places. Also, the music industry essentially installed its own hegemon and guaranteed that no upstart would come along to challenge it.

    This worked contrary to a goal of finding ways to succeed digitally.  The way you convince consumers to pay for music online is to give them a compelling offering. The history of innovation in other parts of the internet suggest these compelling offerings are more likely to come from small startups – precisely the place that the music industry froze out.

    That is why Spotify apps may prove to be so important. Spotify has already done the work to license music from the labels. Startups with new ideas can now spend their time developing the idea, knowing that they will have access to all the music they need. The Spotify apps may prove to be exactly the type of incubator that the music industry has been looking for.

    Of course, there are still plenty of ways this could go wrong. It could turn out that Spotify does not really have the ability to sub-license its catalog to apps. Developers could be wary of building their new service on top of a potential competitor. The holes in Spotify’s library might prove to be too hard to ignore.

    But it certainly has potential. By eliminating what is by far the greatest challenge to digital music startups – convincing labels to give you a license – Spotify may be ushering in a new era of digital-music-related innovation.