The launch of Spotify in the U.S. has been one of the most talked about secrets in the music industry in recent history. Hearing of its success in Europe, U.S. consumers couldn’t wait for the service to launch and record labels and music publishers readied themselves to be able to pounce once their competitors risked entering into licensing deals with Spotify.
With so much at stake it’s hard to decipher who’s likely to win and who might walk away with nothing as a result of this new European music service. So far, Spotify has licensing deals with all four of the major labels, many independents, and offers self-promotion services for individuals through third parties like CDBaby, Record Bay, and Tunecore, among others.
Unlike its online predecessors (iTunes and eMusic), ad supported radio stations (Pandora), and subscription based rivals (Rhapsody), Spotify provides streaming music three different ways: free access (ad supported), ad free desktop access at $4.99, and limitless multi-platform access for $9.99. Offering tiers of service is one of the ways Spotify differentiates itself from the others and catapulted it to the number one slot among digital music distributors.
Having 10 million subscribers when it entered the U.S. market in July didn’t hurt the company either. Since that time, Spotify has shaken up the music industry, forging a recent partnership with social media giant, Facebook, potentially opening its 15 million song list to Facebook’s 800 million active users worldwide. Plugging right into a population predicated on sharing will undoubtedly speak volumes for the company’s subscription services.
Subscription-based music was out of vogue for a while with the introduction of iTunes but now it’s back and gaining popularity, thanks in part to Spotify and its growing subscription base, a phenomenon analysts attribute to a change in media consumption, in general. US consumers seem to be getting more comfortable with the subscription model, a practice popularized by pioneer Netflix. According to James McQuivey of Forrester Research, “to thrive, media product strategists must shift to a model in which paid content is more virtual than physical -- and more rented than owned."
Having a bundled, one-price option (using Spotify’s premium subscription) gives users unlimited music, ad free, to their computers and mobile devices. It also enables them to listen to music offline as Spotify offers to sync any playlist, making it available whenever the listener desires. Its premium service has enhanced sound quality as well, streaming at a bit rate of up to 320kbps.
While the fremium model seems to be working for Spotify (the company already has 250,000 new subscribers in the U.S.), one has to wonder whether it’s good for rights holders over the long term. The jury’s still out on how much artists, composers, labels and publishers can earn on the use of their musical content through Spotify. In fact, at this point it’s impossible to predict the true return for rights holders given early statistics. According to recent numbers, advertising accounts for 29% of Spotify’s revenue whilst ad-based users (free users) account for 90% of the user base; conversely, 10% of paid subscriber users account for 71% of revenue. What isn’t clear is how much money will be distributed between the various rights owners, taking into account the sheer number of artists, tracks, and advertisers who make up this online ecosystem. According to Mike McGuire of Gartner Research, “Without some way to get the consumer committed (to paying), no amount of advertising subsidization is going to make the online music model work.”
Since consumers are now accustomed to getting what they want, when and where they want it, one has to find a model whereby consumer needs meet the long term interests of rights holders. Spotify, like other service providers, will be tasked with balancing those numbers out fairly while, at the same time, figuring in a profit for itself. With so many players in the game, the concern is that the value of content will be diluted for rights owners as it is streamed along with millions of other songs and all for a fixed cost.
Does Spotify – and others who will almost surely follow suit – purport to provide a sustainable online model over the long haul where music can be legally and profitably enjoyed by the hungry consumer?
No one can say for sure, it’s a gamble for everyone involved.
About Counterpoint Systems
Founded in 1987, Counterpoint Systems is the world leader in software solutions for rights management, royalty accounting and product licensing for the music, media, and brand licensing industries. The company’s specialized software products employ the most sophisticated and up-to-date technologies and its dedication to research and development ensures that Counterpoint keeps pace with changes in legislation and industry practices. Counterpoint Systems’ extensive client list includes 20th Century Fox, BMG Rights Management, Concord Records, eMusic, Mattel, MTV Networks, National Geographic, NHL Enterprises, Paramount Pictures and The Beanstalk Group.
Counterpoint Systems is headquartered in London and has offices in Los Angeles and New York. For more information, visit http://www.counterp.com.