Spotify reached another milestone at the weekend, clocking up a million users in the UK. As I’ve mentioned in previous posts Spotify’s success lies in doing what it does simply and well, not by doing anything particularly revolutionary (advanced caching technology arguably aside). But it is imperative that Spotify doesn’t go the way of Spiral Frog. Remember Spiral Frog built up a million strong user base also. Granted, Spotify’s consumer proposition is superior, but whilst both user experiences are products of their respective times, their business models are less distinct. In short they both depend upon advertising income to be larger than license fee and technology costs. As Spiral Frog proved, having a million users is no guarantee of achieving that equation.
Spotify is probably in a much stronger position now than Spiral Frog ever was, but to paraphrase the Conservative leader David Cameron’s comment to then Prime Minister Tony Blair “it was the future once too”. Spiral Frog may look like a fundamentally flawed business model now, but the bottom line is that if it had struck a better cost to revenue ratio it would have fared much better. With a more vibrant balance sheet it’s reasonable to assume that the DRM-download model would have ultimately been shunned for streaming as user bandwidth augmented. When it comes down to brass tacks, Spiral Frog and Spotify aren’t as different as you might think.
Which all underscores how crucial it is that Spotify both successfully develops a premium (probably mobile) business and builds its ad business in a softening online ad market. Both are easier said than done. Consumers have proven for years that they’re just not willing to pay for content in meaningful numbers. Also the likes of imeem, Last.FM and Pandora have all set the standard for mobile streaming music apps to be free, not paid. With the softening ad market Spotify will not only need to think carefully about how aggressively it grows its user base but may also need to reassess some of its business relationships. Many content providers are finding themselves unable to afford their audiences growing because ad revenue is not growing as quickly as the increased license fee costs are every time their audiences listen to more music or watch more video. Which basically means many online content providers are finding themselves in the paradoxical situation of not being able to afford to have their audiences to grow. (I just wrote a report on this topic which Forrester clients can find here).
All this said, Spotify are in a better position than many to be able to navigate these troubled waters than many. They’re the right service in the right place at the right time. They’re a high profile success story that the labels will not want to fail. But it’s equally important that the rest of the market succeeds also. Just in the same way it’s as equally important that imeem’s streaming business model is as sustainable as MySpace Music’s. An uneven playing field will simply tilt the balance in favour of the bigger players. The one-size-fits-all shiny disc days are gone. The future should be all about choice, but that may yet require a little ‘behind the scenes give and take’.
Spotify CEO Daniel Ek recently told MediaWeek:
“If (an artist) gets played more, you get a bigger share. But the payout is based on what we make.”
How significant is that last sentence? Perhaps it’s usual for a music-delivery service to treat its content providers as shareholders, but I wondered if this was some kind of failsafe to prevent Spotify owing the labels millions they don’t have.
It’s common for on-demand streaming music services have licenses that incorporate fees that reflect per-stream and share of revenues.
Mark – I have been trying to contact you via LinkedIn and Forrester but having no success.
In your quest to discover new business models for the music industry, I am wondering if you have come across the website Stereofame which connect fans and bands via an music game. the site both gives away and sells music.
I’d be interested in your opinion.
94% of all music is purchased illegaly, this is the way to combat that fight, there is no point trying to train people to pay for music, it simply doesnt work.
For labels this is a great thing.
Sites like http://www.dittomusic.com put your content onto Spotify for FREE,
With the amount of traffice you get on Spotify and with the new 7digital link, a lot of people are listening on Spotify, discovering new music and purchasing elsewhere.
I am intested in buying some of your research. However, I need some more insight into the actual contents of the research. The table of contents is too high level. Is there anyway I can have a chat with you?
finaly I found what I was looking for
how did you guys found this information??thank you for your post I saw it on Google And I bookmarked it .I like. Please send me updates
thank you and have a nice day