New research published by the European Commission's Joint Research Centre shows that Spotify is helping to beat piracy. The researchers examined the effects of legal streaming on torrent downloads and found that Spotify displaces piracy. However, the overall impact on revenue is neutral as streaming also cuts legal track sales.

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.

While that’s good news for the music industry, it doesn’t necessarily mean that more revenue is being generated. In addition to piracy, streaming services also impact legal track sales on iTunes and other platforms.

According to the researchers, 137 Spotify streams reduce the number of individual digital track sales by one. Factoring in the revenue per stream and download, the overall impact is relatively neutral.

“Given the current industry’s revenue from track sales ($0.82 per sale) and the average payment received per stream ($0.007 per stream), our sales displacement estimates show that the losses from displaced sales are roughly outweighed by the gains in streaming revenue.”

“In other words, our analysis shows that interactive streaming appears to be revenue-neutral for the recorded music industry,” the researchers add.

More studies are needed to see how streaming services impact the music industry in the long run, but for now it’s safe to conclude that they do indeed help to beat online piracy, as often suggested.