YouTube Enters Streaming Music Fray as Taylor Swift Drops Spotify

At first blush, YouTube’s Nov. 12 announcement of the launch of its long-speculated paid music subscription service, dubbed Music Key, and Taylor Swift’s war with Spotify seem to occupy different ends of the ever-tumultuous music-streaming space. But the two events point to the key questions facing the sector: Will a rising tide of services lift all boats? And will they scale in such a way that the artists in the ship’s galley are satisfied with their cut of the pie?

What’s not in debate is the growing indispensability of streaming. According to a midyear report from the Recording Industry Assn. of America, music streaming revenues have grown by 28% since mid-2013, to $859 million by the middle of this year.

While YouTube’s subscription launch certainly poses a threat to existing services, it could be a boon for companies that have struggled to get listeners to pony up for access.

Unlike Spotify, which offers users both a free, ad-supported tier and a paid subscription level, Music Key is entirely a paid service.

YouTube also enters this fight with a built-in advantage: The site’s video platform is already the de facto largest music streaming service on earth, with around a billion monthly visitors.

Central to Spotify’s business model is the need to convert free users into paid subscribers. According to Spotify chief Daniel Ek, 12.5 million of the service’s 50 million users are paid subscribers, and 80% of those subscribers started off on the free tier.

In theory, YouTube may well help accelerate that process if enough of its enormous user base opts into the paid tier, helping to normalize the model.

But Paul Verna, senior analyst for eMarketer, isn’t so sure. “The more these subscription services are out there, the more they push up against people’s budget limits,” he says, citing Netflix, Hulu and HBO’s upcoming standalone service as well as music sites.

Meanwhile, Swift, when asked by Yahoo to defend her retreat from Spotify, cited the low rates — fractions of a penny — that Spotify pays per play. “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,” she said.

In a long blog post, Ek shot back, evoking scalability. “Our whole business is to maximize the value of your music,” he wrote. “The more we grow, the more we’ll pay you.”

However, in order to grow the streaming business as a whole these companies must convince large numbers of holdouts to embrace the model, which is where Swift’s defection takes on added importance.

With 1.7 million copies of her newest album “1989” sold in a mere two weeks (and according to Spotify, 16 million plays on the site over the previous month), the artist represents a monstrous slice of the market, with unusual clout to dictate terms. Without her, Spotify isn’t merely lacking the substantial streams her music would provide, it’s also missing the sense of all-inclusiveness it needs to make its case that consumers can abandon the ownership model for an access one.

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