Down The Stream: Spotify and Rdio

Spotify

Music streaming certainly seems to be a formidable combatant against illegal file sharing and P2P users. The cloud-based streaming service Spotify has been much in the news for the past year. Created by Daniel Ek, Spotify was only available in the United Kingdom, Sweden, Norway, Finland, France and Spain when it was first launched, but has successfully spread to the Netherlands and continues its attempt to break into the German, Chinese, and American markets[1].

Spotify’s business model operates through subscription fees and advertisement investors. The company generates revenue through multiple price tiers, which include:
• Free streaming for twenty hours per month with advertisements
• Free unlimited streaming with advertisements, but only with a special invitation code
• 4.99 euro per month for unlimited streaming without advertisements
• 9.99 euro per month for a premium service, which includes no advertisements, mobile applications, and offline usage.[2]

In regards to the premium service, Spotify has mobile applications available for iPhone, iTouch, and Android, which conveniently thrust users’ music playlists straight to their fingertips. In offline mode, premium subscribers have the opportunity to sync up to 3,333 tracks to their computer’s hard drive, which are then accessible even when disconnected from the Internet. With premium features such as these, Spotify clearly strives for a expedient and versatile listening experience.[3]

Spotify’s interface resembles that of iTunes, and it is incredibly user-friendly for making playlists and searching for artists/songs. Users can also upload the music from their iTunes library or hard drive to the streaming cloud. With social networking being arguably the most prevalent contemporary phenomenon, Spotify cleverly incorporates Facebook and Twitter features. Users can connect with their Facebook friends and Twitter followers on a live feed, sharing the latest music updates and suggested artists and tracks. Users of Spotify have quite an actively involved experience.

As far as quantifying Spotify’s success is concerned, the information provided by the company is limited. In April 2009, Spotify announced its one-millionth user, and claimed to accrue 40,000 new users per day.[4] By the end of 2009, the company grew to over 6 million users, with 50,000 newcomers joining the service every day.[5] Annual revenue exceeded a staggering 10 million euro ($14.1 million). As 2010 commenced, Spotify revealed that it had roughly 250,000 actual paying subscribers.[6] By the end of the spring of 2010, Spotify increased its paid subscribers to over 320,000, with over 7 million users.[7]

Spotify’s Competition and its New Target Markets

So what competition would Spotify face in the United States? Internet streaming services such as Grooveshark, Napster, and MOG pose threats. Grooveshark offers advertisement-free streaming for $3 per month. In addition, Napster provides unlimited music streaming for $5 per month.[8] Finally, MOG proffers music streaming along with mobile applications for $15 per month. After conversion rates, most of these business models are cheaper for the consumer than Spotify’s, but lack many of its features most notably the offline service options.

Regardless of Spotify’s competition in the United States, the company still aims to tap into the American market. For over a year, the company has fought to successfully extend its services but has continuously hit brick walls when negotiating licensing deals with labels. Spotify is without a doubt a very popular service in its operating countries, but the company continues to find difficulty monetizing their product. Because of this detrimental factor, the US speculates that the business model is not profitable enough. Moreover, to use Spotify, whether on a computer or a phone, one must download an application, rather than stream music on the website itself. This limits Spotify’s expansion into other territories beyond computers and phones, such as in automobiles, televisions, gaming systems, and DVR units.[10]

On that note, however, Spotify did recently sign a deal with TeliaSonera, a television service in Sweden and Finland. Within those two countries, premium subscribers are able to stream music from their television sets in their living room.[11] Spotify also recently developed a “homepage takeover” ad that stretches across the entire computer screen, in an attempt to sway free users to upgrade to an advertisement-free subscription.[11] Thus far, on an international scale, Spotify has been successful in bestowing avid listeners with a large selection of readily available music.

The Birth of RDIO

In lieu of Spotify’s inability to enter the US, a promising new music streaming service, RDIO, has entered the music industry. Founded by Janus Friis and Niklas Zannstrom, creators of Kazaa and Skype, RDIO is now available to the public in the United States and Canada as of August 2010.[12]

Operating on a very similar model, RDIO’s price tiers include:
• Free trial period for 3 days, then the user must upgrade
• $5 per month for unlimited streaming on the Internet
• $10 per month for both online streaming and mobile applications (on iPhone, Blackberry, and Android)[13]

The music-streaming site provides users with a user-friendly interface for making playlists and searching for artists/songs. RDIO scans the computer’s iTunes library and makes suggestions to the user based on their musical preferences. Moreover, it has social networking features, in which users can review and share music with their friends. All things considered, a casual observer might begin to notice some distinct similarities between RDIO and Spotify’s features. Although RDIO does not seem to bring anything entirely new to the table, perhaps the company will perfect the features already provided by other music streaming sites.

Since RDIO has only been in existence for about a month, the company has not yet provided the public with numbers regarding its user/subscriber count or monetary profit. RDIO has signed agreements with the Big Four major labels, as well as the Independent Online Distribution Alliance, The Orchard, Ingrooves, Finetunes, and Iris.[14] However, the grand opening might have been a bit hasty in that, negotiations with independent music label, Merlin (Arcade Fire, Vampire Weekend, et cetera), had not been completely finalized. This action led to a some-what turbulent web launch with Merlin accusing RDIO of not understanding or respecting what consumers really want.[15] As it appears in all cloud-based cases, RDIO and Spotify’s main obstacles come in the convoluted task of licensing the music used in their libraries.

All discrepancies aside, both companies are leading the parade towards perfecting an “all inclusive” cloud-based web platform. In fact, RDIO was rated the Number 1 Best Start Up Company of 2010 by Billboard Magazine last May, and Spotify is concurrently hogging the news headlines in its European turf. Both services are reshaping the industry as we know it and are sure to contribute to the way music aficionados approach the mediums of listening to music.

By Nick Susi

References

1. Music & Copyright – December 10, 2009
2. Music & Copyright – June 2, 2010
3. Music & Copyright – October 15, 2009
4. Music & Copyright – April 30, 2009
5. Music & Copyright – December 10, 2009
6.Music & Copyright – January 27, 2010
7.Music & Copyright – June 2, 2010
8. Music & Copyright – March 24, 2010
9. Music & Copyright – July 14, 2010
10. Music & Copyright – June 16, 2010
11. Digital Music News Blog – April 7, 2010
12. Billboard Magazine – August 21, 2010
13. Billboard Magazine – August 21, 2010
14. Billboard Magazine – August 21, 2010
15. Digital Music News Blog – August 10, 2010

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