Spotify today made a number of important announcements, including a host of new territories and Spotify Free on smartphones and tablets.
Having a free mobile music experience is an important strategic move. When Spotify first licensed its service in 2008 there were clear boundaries between what constituted mobile and PC music experiences. So drawing a clear boundary between the two platforms made sense at the time. But now the walls have come down and consumers expect to be able to take their digital experiences with them on the go. So in order to persuade a free streaming user to upgrade to mobile they really need to be given a taste of what the mobile experience is. You might say that having free mobile streaming is table stakes for the game.
Spotify have come up with a solution that includes a host of features for free on mobile devices. Features that include allowing people to listen to music by any artist on shuffle (i.e. not a Pandora-like station of artists that sound like the artist, but just the actual artist) as well as radio and playlists. It is a compelling solution, perhaps a little too compelling. Spotify’s end game with free streaming is to create a marketing funnel for acquiring potential customers to its paid service. The only real difference between paid and free is no offline playback, having to listen on shuffle and ads. It might be that this is just too good a free experience for many consumers. But then again with YouTube available for free on all smartphones and tablets the playing field was not exactly level. So at least now Spotify can compete on even terms with YouTube.
Spotify has had to strike a new set of deals for this offering and they won’t have come cheap. The ad supported tier at the best of times was a loss leader for Spotify, that will now accentuate. But it has had to bet bigger on free in order to stimulate growth. Currently music subscription penetration across the UK and the US sits at just 6% and shows no sign of accelerating off into the sunset. Spotify accounts for the lion’s share of those consumers but is not yet in a position to announce 10 million paying subscribers. Back in May 2012 I noted that the growth rates Spotify was experiencing then suggested Spotify would be on track for 8 million paying subscribers by May 2013. Spotify has probably passed that milestone already and it will be hoping the combination of mobile enabled Spotify Free and the slew of new territories announced today will nudge the subscriber number over the 10 million mark.
Spotify, along with Deezer and Beats Music, is betting big in a high-risk game that has implications for the entire music market. Between them these three companies accounted for 70% of total money invested in digital music services between 2011 and 2013. (In total these three have raised $743 million in finance and investment to date). Not only are they sucking much of the oxygen out of the investment arena they are also leaving many investors waiting to see whether these heavily leveraged companies can deliver on their supercharged promises. If they do not then expect a major contraction in digital music investment.