First and foremost, I agree that Spotify will struggle if they try to compete with other services on providing all artists.
It seems like listeners (or perhaps a subset) are listening by genre rather than by artist. I know genres and waves of music are nothing new, but with the lower barriers to creation as well as to consumption [1], we are seeing the number and frequency of new genres and sub-genres increase dramatically.
Anecdotally, I find myself using radio based music a lot more. E.g. I have a Synthwave station on SoundCloud that I listen to. I think this style is further exemplified with the popularity of sharing Spotify playlists. This is also why I think Spotify in particular are ahead -- the very people who would listen to Spotify published content are the people that already use Spotify.
In fact, I think this style better fits a lot of people who would use a streaming service in the first place. A lot of the people who want to listen to their favorite artists question the idea of paying for a subscription to maintain access to their favorite albums.
Of course, if Spotify goes this route, they are not alone. They would have to compete with services like SoundCloud and BandCamp. I think they could find success by toeing the line between major label content and indie content.
[1]: e.g. a "bedroom musician" can make their album over the course of a few weeks and then that album gets bought and listened to by someone thousands of miles away within minutes/hours of release. No printing copies, shipping, stocking, ticket purchasing, etc.
