UK cable broadband and TV provider Virgin Media and Spotify today announced the partnership deal they’ve been working on for some time. The deal will ensure that Spotify is delivered across the web, mobile and TV to Virgin customers.
On the surface this might not seem like such a big deal, but don’t be fooled, it is potentially huge…just so long as it is executed upon properly….
A Marriage of Supreme Convenience
This is a marriage of supreme convenience: Virgin Media and Spotify really need each other right now. Virgin Media has been pushing hard at delivering a truly differentiated music service for some time now. Just over two years ago they announced the holy grail of digital music: an unlimited MP3 subscription service in partnership with Universal Music (you can see my post about the announcement here). Unfortunately this was too big a step taken too soon for the rest of the majors, and Virgin and Universal were forced to back down. (For the record, the arrival of unlimited MP3 is a matter of ‘when’, not ‘if’, whatever some label execs might think.)
So now Virgin have turned to Spotify for plan B, and Spotify need Virgin just as much as they need Spotify. Spotify’s struggle to make the economics of free add up are well documented and their struggle towards profitability has raised some difficult questions about the Freemium model. Having Virgin deliver paying customers to Spotify’s door will be a major boost for the Swedish streaming service.
For years now I have been advocating a Third Way for monetizing digital music and Spotify and Virgin look like they’re about to take this very route.
Right now digital music has two options: Paid (iTunes, Rhapsody etc) and Free (YouTube, Pandora etc). Paid generates high average spend but only appeals to a minority of customers. Free appeals to the mass market but doesn’t generate enough income for rights owners nor enough profit for services.
Like it or loathe it, the Internet has made most people expect music to be free, whether that be from YouTube or BitTorrent etc. Free is of course the only way to truly fight free, but if free doesn’t pay the solution is to make music ‘feel like free’ by getting a third party to subsidize some or all of the cost. This is the Third Way of Digital Music (see graphic).
Go Big Or Go Home
Spotify have already experimented with this approach with mobile operator 3 and ISP Telia Sonera. This is potentially Spotify’s most important deal yet. But for this deal to realize its potential, Spotify and Virgin will have to hit upon heavily subsidized prices, ideally with the cost to consumer hidden entirely in some bundles. Simply offering a couple of £ discount won’t fly.
Spotify and Virgin Media have the opportunity here to set the gold standard for subsidized subscription models. Here’s hoping they seize that opportunity with both hands and kick start digital music’s most viable route to the mass market.