Why Spotify’s ‘river of nickels’ makes sense for Led Zeppelin

This post has been updated, as indicated below.

A belated arrival on the streaming-music scene, Led Zeppelin quickly shot up the charts on Spotify this week despite not having released an album of new material in more than 30 years. The service made the band’s first two albums (both from 1969) available Wednesday -- the first Led Zep releases to appear on any of the licensed music subscription services -- and within a day they were both in Spotify’s Top 25.

[Updated, 12:15 p.m. Dec. 13: Spotify made two more of the band’s releases available Thursday, and all four were in the Top 25 by noon Friday.]

That’s no real surprise. It’s Led Zeppelin, after all, not Dread Zeppelin. The real test will be how the band’s records are faring on Spotify a month from now, when the novelty has worn off.

Typically, older acts are nowhere to be found on the “most popular” lists on Spotify, Rdio, MOG and other streaming music services. The top 100 reads like the top sales charts on Soundscan or iTunes, dominated by pop, hip hop and rock, with the occasional nod to country and trendy alternative artists.

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Those services pay copyright holders most of what they take in from advertisers and subscribers on a pro-rata basis, with the most popular acts taking the biggest share of the dollars. It works out to a minuscule amount of money per song played per person -- on average, 0.6 to 0.84 cents on Spotify.

Given all that, you’d think there’s not much at stake here for Robert Plant, Jimmy Page and John Paul Jones. But label executives say older artists with a library of once-popular releases fare surprisingly well on streaming services. Although such acts aren’t likely to crack the top 100, they settle comfortably in the middle of the top 1,000, where their songs get played often enough to generate more revenue than they collect from CD sales and MP3 downloads.

A digital guru at one of the major record companies put it this way: The revenue from downloads is front-loaded, compressed into the first few weeks after a release comes out, while the revenue from streams is collected gradually over time. Put another way, the falloff over time is much more severe for downloads than streams. For an artist with a high-quality catalog, revenue from the likes of Spotify can go on and on and on.

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That sustained revenue is what’s drawing more of the longtime holdouts -- including the Eagles and Metallica -- to the streaming services they used to shun for fear of cannibalizing their record sales.

Of course, the so-called river of nickels generated by streaming services is relatively shallow because they haven’t caught on yet with the global mass market. And depending on the band’s contract with its record label, it may receive but a fraction of the royalties paid. That’s why rights holders representing multiple artists (such as the major record labels) are far more bullish on streaming services than some individual acts are.

Artists may need to capture more of the streaming royalties their music generates in order to reap much of a benefit. But it’s a mistake to compare these payouts to the substantially higher rates paid to copyright holders for downloads and CD sales. For starters, the universe of music buyers is considerably smaller than the universe of listeners, and the former is shrinking as the latter grows. And one of the beauties of a subscription service, at least from an artist’s standpoint, is that there’s no cost to discover music. People are exponentially more likely to check out an unfamiliar act or song when they can do so at no extra cost than when they have to pay 99 cents or more for the privilege.

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It seems inevitable that the music market will evolve into something much more like the market for movies, where most people pay for access to a library of titles rather than amassing a personal collection. That’s when the river of nickels becomes deep enough to be meaningful to artists outside the top 100.

Having legendary status, as Led Zeppelin does, certainly helps. Led Zep still sells more albums per year (presumably to aging baby boomers such as myself, who are struggling to improve our children’s musical tastes) than 99% of the current generation of acts. In the last five years, according to Nielsen SoundScan, the band sold roughly half a million albums annually when it didn’t have a new product, and more than 800,000 when it did.

It’s also helpful for an older act to have an event that puts it back in the headlines, as Led Zep’s exclusive deal with Spotify did this week. (The exclusivity lasts for a year, according to a source close to the deal.) The band also plans to release remastered versions of its albums in new box sets next year, complete with previously unreleased material, which could lead to another trip into Spotify’s top 25.

Climbing the charts is a good thing, of course. But even after “Houses of the Holy” and “Physical Graffiti” disappear from the “Top Lists” on Spotify, label executives expect Led Zep to generate a healthy amount of revenue from having its records on Spotify, waiting to be discovered by new fans and played again (and again and again) by old ones.
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