Tuesday, 10 May 2011

Spotify questions

One of my students has just asked me for some info about Spotify as part of their journalism final year project.  Whenever I do this kind of thing I like to post my answers here in case it helps any other student.  The questions are outlined below and have already been answered by Paul Carr (TechCrunch) and Kieron Donoghue (ShareMyPlaylists.com)

Q: How important is Spotify to the way we consume music both now and in the coming years, does it have a longterm future and is its business model sustainable?

A: I think Spotify is quite important to the way many Brits (and some Europeans!) currently consume music in that it's been a highly visible alternative to illegal filesharing.  Its simple to use interface and clear legality is an obvious boon to the industry in its attempt to get people to pay for music, whether that's by subscribing to one of the pricing plans, following a purchase link to their partner's service (7digital) or by paying for listener's attention via the ads.  The fact they've managed to convert around 15% of their user base (1 million people) to paying for content is remarkable in and of itself when there is some much competition for attention (both legal and illegal).

Does it have a longterm future?  I think its recent announcement that it will be limiting the amount of free streaming available to listeners (down from 20 hours per month to 10) was taken by many of the freeloaders to signal the end of their relationship with the service.  However, I think it was a necessary step in their evolution - one of the common features of new start-ups is that they need to attract a critical mass of users quickly and scale up fast.  Typically this involves making short term financial losses in order to cement a market position from which to grow - in this case giving users lots of content at little cost.  They had to make the proposition to pay more valuable if they were to grow and penetrate the US market.  There were rumours flying round that they made this change in order to appease the US labels before entering the marketplace, for fear their existing provision would cannibalise the other legitimate music services that are already fairly established there (eg Rhapsody, MOG, Pandora, etc).

Their most recent announcement regarding the purchase of music bundles and the ability to synch songs to iPods and Android phones also make it a more viable threat to Apple's iTunes, especially when buying 100 MP3s for £50 - undercutting their rival significantly.  However, it remains to be seen if this will be crucial to their long term growth as iTunes will still be needed for synching videos, photos or calendars.  It does point to the seriousness of their intent.  Many people loath iTunes because it has
become too bloated in size; Spotify is an attractive alternative to managing a music collection.  It has had to adapt in order to ensure its business model can survive - there's very little profit margin in online music services due to the licensing costs involved, so services have to be versatile.

Q: Will music streaming services like this replace downloads  legal or otherwise  and hard copies of music as the most popular medium?

A: There is some indication that the industry would like to see music streaming services take the place of (illegal) downloads, but its a nuanced issue.  The industry would like to be able to compete with free services in a manner by which they are able to make a profit.  Streaming services are potentially lucrative to the recording industry, if not so much for the recording artists.  Rights deals are still lopsided in the distribution of royalties in this regard.

Also, it makes a lot of sense to keep people paying for access to content rather than paying for something they can own forever, or at least as long as the format is viable (remember Mini-Disc?!). This is often referred to as the 'celestial jukebox' - an infinite music supply in the cloud where you pay for perpetual access without having to buy the infrastructure or manage the content (this has certainly been the tone coming out of some of the industry events I've attended in the past 12 months - see http://www.themusicvoid.com/author/rob-jewitt/).

However, there is still a lot of money to be made by having consumers pay for access (Spotify) AND paying for ownership (iTunes).  Having a mixed-market proposition has significant advantages, and this is what Spotify is currently moving towards.  As for whether or not streaming services will replace ownership of files - it's difficult to judge.  There are many music fans out there who have taken advantage of digital distribution during a period in which the industry lacked a clear direction, and have amassed huge music collections stored on inexpensive hard drives.  It's unlikely that these people will shift completely to streaming services like Spotify as there are still gaps in the collection on offer due to licensing restrictions.  Of course, one of the ways around this  is that Spotify allows you to replace import your collection into their player.  As for newcomers to digital music, it might be that they will be more likely to forgo amassing large collections of digital files in favour of streaming services, but people still like to be able to do things to their music (eg. edit tracks, make ringtones, mash-ups, use them on personal projects, etc) so streaming seems likely to be just one aspect of a more varied music diet.

Q: What do you see as its major strengths, and what are its shortcomings, if any?

A: The strength of Spotify is in its ease of use and cross platform functionality (ie the Spotify Mobile service for smartphones is well executed).  Many people aren't so bothered about trying to manage 250+ GB of music data on their computer hard-drives.

The weaknesses of Spotify are tied to the limits it places on user control of the content.  When it was primarily a streaming service there was very little you could do with it other than play tracks on demand or make/share playlists.  They've altered this proposition now somewhat with the purchasing of bundles etc.  However, there are still gaps in their library (eg no albums by house musician Gui Boratto) and this is a problem echoed across other similar services, so it's by no means a unique problem.  This comes down more to licensing deals with the majors and indies.  There's also been some vocal criticism by musicians and smaller labels about the fairness and parity of the royalties offered by such services.

No comments:

Post a Comment