Spotify: Not Out Of The Woods Yet

Spotify could be in danger of becoming just another flash in the pan music service.  Information about it is hard to track and inconsistent, and the company’s constant press releases are arguably a source of confusion. Many users find the catalog selection insufficient. Besides, there is little evidence that a critical mass of listeners will be willing to pay to stream music.  And if more people pay for a subscription to avoid the ads, the service could become less attractive to potential advertisers–a weakness in the business model.  Also, the more ads it runs, the less attractive it becomes to music lovers. In fact, granting free access to users in the hope of attracting larger pools of subscribers is probably unsustainable, as advertising in the ‘free’ version is unlikely to cover costs.  Finally, even though the company may be generating money for Sony, EMI, Warner Music Group, and Universal, its long-term benefits for artists and independent labels are less clear.

History and the US Market

Spotify is a Swedish-founded, UK-headquartered,  music service offering streaming of selected music from a range of major and independent record labels. Pirate Bay, a Swedish website that provided peer-to-peer content, was the predecessor of Spotify and allowed resources to be referenced without the need for a continuously available host—which made enforcement of copyright protection difficult. While Pirate Bay was involved in a number of lawsuits, and eventually found guilty of abetting copyright infringement, Europeans have seen Spotify, which started in October 2008, as offering a legal way forward.

In July 2011, Spotify launched its US service after delays and years of negotiation with the four major record companies.  Music can be browsed by artist, album, record label, genre, or playlist as well as by track name.  Users can register either for free accounts, supported by visual and radio-style advertising, or for paid subscriptions without ads and with a range of extra features such as higher bit rate streams and offline access to music. Spotify is funded by paid subscriptions, pop up advertisements for non-subscribers, and music purchases from partner retailers.

Currently, there are three Spotify account types: Spotify Open, Spotify Unlimited, and Spotify Premium.  The different paid subscriptions are free of ads and for the first 6 months the listening time is unlimited. However, they only allow 10 hours of listening time per month after that.  A paid  “Premium” subscription of $9.99 per month is the only account type that allows users to access Spotify on mobile devices.

Rival services Rhapsody and Grooveshark are no pushover. Spotify’s search engine seems to be lackluster and the availability of all songs on an album is, for now, arguably inconsistent and spotty . In comparison, Rhapsody has a stronger search by genre and key artists, and also recommends similar talent for discovery.  Spotify requires downloading an application to access their music library, while Grooveshark allows streaming directly from a variety of browsers. A free Spotify account will periodically interrupt a playlist with an audio ad, while Grooveshark has just visual ads. On the other hand, Rhapsody does not have a free account version and does not work in existing iTunes libraries, while Spotify has a higher streaming quality of 320k (compared to Rhapsody’s 128k).

Facebook and Song Selection

One of the reasons behind Spotify’s growth and success in Europe has been its strategic deals with ISPs. Spotify is currently the second largest source of digital music revenue in Europe after iTunes and is the largest digital music retailer in Sweden and Norway.  Digital music revenues grew by 20 percent in Europe in 2010 (though physical revenues still account for about four-fifths of total sales).  Spotify’s success was noted by the business and paved the way for a US startup and a partnership with Facebook.

The Facebook partnership is noteworthy. The idea is that members that listen to music from Spotify can share a constantly updated playlist of tracks.  Facebook friends who have access to the same music service can also play this music simply by clicking on a link to the track.  New Spotify members require Facebook accounts to log in and access the service.  Although it is early to judge the impact of this partnership on listeners, Spotify has brought Facebook squarely into  the music business.  Spotify is arguably going to become a significant music distributor, and will be in a position to make demands from music companies as well as promote particular labels, artists, and publishers to millions of Facebook users.  Facebook has more than 800 million active users and Spotify can add ten million registered users across seven countries in Europe, including the US.  In the meantime, social media continues to grow in importance for the record industry.

Spotify might be the right service for tech-savvy listeners.  However, Spotify’s logo “All the music. All the time.” is not accurate. Well-know artists such as The Beatles, Metallica, Pink Floyd, AC/DC and Led Zeppelin are absent from the service.  When compared to other streaming music sites, the pattern of omissions seems perplexing. In a recent interview, Adele’s label called Spotify one of their top digital partners globally by revenue. But Adele’s album ‘21’ is not available, while Rdio, MOG, and Rhapsody have it.

Moreover, out of the fifteen million tracks that make up Spotify’s catalog, the majority of the tracks seem to be unusual takes of known songs. There is a plethora of instrumental karaoke versions of popular songs, and many misspelled original artists’ names and track titles.  Recently, the heavy metal/hardcore label  Century Media, in partnership with InsideOutMusic, Superballmusic, Ain’t no Grave Records, Hollywood Waste and People Like You, said it will be pulling all its music form Spotify to protect its artists.  Another independent metal label, Prosthetic Records, has made similar threats; according to its label head, the income from the streaming music service is just pennies.

 In fact, Spotify may give way to a new battle line between major and independent record labels in the US. Most majors can likely press for better terms and, indeed, Spotify has focused primarily on them for the US launch. Suspicion will not be assuaged by the knowledge that company has already sold small ownership stakes to the majors in Europe.

By Zosia Boczanowski

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