A new study shows that Spotify turns pirates into paying customers

When Spotify launched its first beta in the fall of 2008 we branded it “an alternative to music piracy.” With the option to stream millions of tracks supported by an occasional ad, or free of ads for a small subscription fee, Spotify appeared to be a serious competitor to unauthorized downloading. While there has been plenty of anecdotal support for this claim, actual research on the topic has been lacking. A new study published by the European Commission’s Joint Research Centre aims to fill this gap. In the study researchers Luis Aguiar (IPTS) and Joel Waldfogel (NBER) compare Spotify streaming data to download numbers from the 8,000 pirated artists on torrent sites, as well as legal digital track sales. Based on this data the researchers conclude that Spotify has a clear displacement effect on piracy. For every 47 streams the number of illegal downloads decreases by one. This is in line with comments from Spotify’s Daniel Ek, who previously argued that the streaming service helps to convert pirates into paying customers. “According to these results, an additional 47 streams reduces by one the number of tracks obtained without payment,” the paper reads (pdf). “This piracy displacement is consistent with Ek’s claim that Spotify’s bundled offering harvests revenue from consumers who – or at least from consumption instances – were previously not generating revenue,” the researchers add.