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Spotify Is Broken: The Lie Of ‘Feels Like Free’

April 12th, 2010 | 49 Comments | Categories: New Music Strategies |

One of the big questions hanging over Spotify for me has been ‘do premium plays pay more than Spotify Lite plays?’ – I.E., do I get paid more if someone with a premium account plays my tunes vs. someone using the ad-funded version.

It stands to reason that the person with the premium account is paying more to listen, so surely you’d imagine that’d be reflected in the royalties?

At SXSW this year, the CEO of Spotify was giving a talk, I asked the question about royalty rates via Hugh Garry and apparently they are distributed evenly.

This is, as far as I can see, Spotify’s MASSIVE mistake. A deal-breaking, game-not-changing, screw-up of gargantuan proportions.

Here’s why.

The people best placed to promote Spotify are artists. We can link to it from our sites, we can provide links to it when we release new music, we can blog about how great it is and share music by our peers via the links.

If we push it, it becomes the place to find our music.

Spotify needs premium accounts for it to work. At the moment, their strategy for getting people signed up is to annoy the shit out of you with adverts until you capitulate. So you get irrelevant adverts that provide no value at all to the user, and therefor no value to the advertiser. Ergo, the amount paid per advert is likely to go down not up, killing the ad funded model. If I was an advertiser there’s no way I’d bother with Spotify. ‘Can you pay to produce an advert that we’re going to use to annoy people into paying not to hear it?’ no thanks.

So what would work? Spotify’s (and the other streaming services) best chance of success is if artists see it as a viable alternative to selling individual albums and tracks digitally. If it becomes that, the amount of traffic will go up and all that listening will be happening in a discovery environment, so more music will be heard by more people.

They could also make way more if the ads were something other than anti-value annoyances to be got rid of. There are loads of ways of making ads work in this setting – referrals, targeting, favouriting, user-profiles, profit-share, in-browser special offers… all kinds of stuff that would make the ad-side of the site self-supporting. If it isn’t currently viable, then the solution is to up the level of the ads even further til it is viable. The listener needs to FEEL what their listening is actually costing.

Why? Well, contrary to what Gerd Leonard has been telling us for years, ‘Feels Like Free’ is not the answer. It never has been and never will be. Free is, in fact, better than ‘feels like free’. I’d rather make my music free to download, no strings, and be rewarded in gratitude than have some weird filtered, taxation-based payment mechanism for it where people are left thinking music has neither cost nor value because there’s no tiered pricing, no opportunity to ‘pay what you like’, no thought about the value over and above the experience that access is via a portal and detached from the artist…

Listening to ads is a form of payment. We all know that. If the ads don’t cover it, then it’s a lie to keep that system going by subsidising those listens from people who are actually paying – people who are quite explicitly paying a subscription rate that puts a distinct value on their listening time. To not divide those up is to say that the value of both listens is the same. It isn’t.

  • Spotify Lite is a limited but hugely useful discovery platform. If you have the kind of life where Spotify Lite is ‘enough’, then you weren’t about to pay £10 an album for CDs anyway. You’re probably the kind of person who listens to the radio and buys the occasional compilation. Certainly not the kind of person for whom £120 a year for Spotify premium is workable.
  • Spotify Premium is an alternative to buying music. It’s also, when you look at how long people spend listening to music, a great model for paying a sensible amount per listen. If – and only if – it’s not being used to prop up a broken ad-funded ‘feels like free’ bullshit model.

If you want me to pay £10 a month for music, let me allocate where that £10 goes by choosing what I listen to. Make that £10 count, make it mean something. Cos otherwise, I’m going to stick with eMusic, where I know that my monthly sub goes to the people whose music I’m downloading. I know they get a set amount per track, that they wouldn’t get if I wasn’t paying for it. Real end to end value.

‘Til then, there’s no way on earth I’ll be paying for Spotify premium, and I won’t be encouraging anyone else to either.

If this feels like a deal-breaker to you, and you already have a premium account, you might want to consider cancelling it, and emailing Spotify to tell them why. Or better yet, blogging about why. Let’s have this discussion in public where possible.

[and before the inevitable ‘hey, I thought you loved Spotify!’ comments happen – I still think Spotify-lite is an awesome discovery tool. Spotify premium is, as yet, way too small a slice of anything to make me rethink my position on that. I don’t need to make money from Spotify-lite for its value to be realised. But the payment model that’s there doesn’t work, so the growth curve that Spotify needs to remain viable will be a seriously uphill struggle.]

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49 Comments so far ↓

  • Wulf

    That would be a great solution and certainly the kind of thing that would probably encourage a listener like me to stump up for the monthly subscription deal.

  • Mike Arthur

    I cancelled my Spotify premium account, they asked me why so I linked to this post 🙂

  • Badlydrawnboyo

    Hi Steve. I pay for Spotify Premium. I do listen to new music that way sometimes — mostly finding out whether I want to buy something or not — but more often than not I use it to listen to stuff that wouldn’t in any case be supporting new artists. Old punk songs where most of the band are addled or dead from drug abuse. Americana where the artist is either too old to know any different or has moved on to a fourth new line-up. Oh, and (whisper it) Iron Maiden. Stuff I’ve forgotten. Stuff that influenced new bands whose records I’ve bought. Sometimes, if I’ve got a bunch of mates round, we waste hours with ‘guess the intro’ or ‘did you ever hear their first album?’.

    I’m not going to go out and buy those records because I don’t want to listen to one band 20 times, I want to listen to 20 bands once. It’s not, so far as I can see, and either/or thing. I still buy music that’s keepable. I can’t imagine anyone is Spotify-only, premium or not. It’s like TV — I have box sets, a licence for BBC, a set-up that allows me to see Youtube on my telly and a subscription to a sports network. It’s a mix.

    • Steve

      Simon,

      those are all good reasons – I think Spotify premium does provide a good service for people whose listening is largely to back-catalogue stuff. You know what you’re looking for, you look for it, listen, don’t have to put up with the ads, can listen on your phone etc… It’s a useful service. It just doesn’t provide any connection between you and the artist, and doesn’t make any link between what you’re paying for and the music.

      In a sense, you’re the part of the Spotify userbase that makes most sense in the current debate – legacy catalogue has minimal value in ‘real’ financial terms, but great cultural value. The only reason anyone thinks it *should* still be a viable £10/album commodity is because of the amount of money wasted in the production/distribution/marketing of those albums first time round. If the stats were reversed and 9/10 albums on major labels recouped, the thinking would be a lot different – but the debt burden that artists bear makes them think that their work has to keep earning, if only to one day pay off the crappy-term mortgage they took out to make the record in the first place…

      • Badlydrawnboyo

        Sure. Strikes me that one interesting ‘free’ model might be a service that, instead of an ad every three songs, played you a new band that cited your existing listens as influences.

        Although I guess that would be a record company friendly model, since they’d be the only ones who’d pay for that kind of promotion.

        There are ways of making that happen currently though. Since my Spotify listens appear in last.fm, I can take their recommendations for stuff I haven’t yet heard.

        Mind you, Tim Everleigh listens send you to the London Gay Man’s Chorus. Which is an interesting jump.

        • Steve

          Simon, that first suggestion is genius – especially if there was then a link to buy it (at a lot less than 79p to capture the impulse buying market), and that the Spotify cut was profit share rather than ad money.

          There are some awesome mash-ups of Spotify/Last.fm etc – that’s why it’s impossible for an artist to see the value of Spotify purely in terms of streaming revenue – discovery and sharing often don’t end up with you spending money at the point of discovery.. I’ve never bought anything through Spotify links, but I’ve heard things there that I’ve got and bought, without any trackable connection… they’re missing a whole load of valuable metadata thanks to the blunt instrument of their advertising/subscription/7Digital-sales tertiary funding approach.

  • Jim

    Funny to see this post whereas here in the States the hype over Spotify is huge simply because we don’t have it. The service itself looks great, I know I have long since run out of room on my iPod, and being able to stream music in my car (my main need) would be utterly fantastic. I have looked through all the music streaming services here one after the other, and the all fall short so far.

    Rhapsody limits how many computers/devices you can use.

    Grooveshark has an ugly interface, hard to use in my opinion.

    LaLa is so close because it does what I need in web browser, it matches music to my catalog, identifies what I own, and i can stream it ANYWHERE unlimited. LaLa just doesn’t have a Mobile version 🙁

    Spotify seems like a good fix and a great option for music, so it is really disappointing to hear that overall compensation for artists is still not balanced.

  • Nath

    I’m one of the evil people: I’ve bought a grand total of one CD since signing up to Spotify Premium. And that was the new (at the time) Grizzly Bear album, because it’s not on Spotify.

    In that time I’ve discovered more new music than at any point in the last decade. I’ll listen to one song on the radio and within five minutes I’ve got the whole album on my phone to listen to whenever I’d like. And it costs a tenner a month. A quick check shows that in the last month I’ve downloaded eight new albums onto my phone. For a tenner.

    I listen to music at home (Spotify), while travelling (Spotify on iPhone) and in work (Spotify). Why do I need to ‘own’ music?

    • Steve

      Nath,

      🙂 FWIW, I don’t think you’re remotely evil. Spotify premium makes loads of sense. If they were paying properly, I’d probably sign up too. Even as it is, all the music on there is on there willingly (I could withdraw mine tomorrow if I wanted to, but I’m actually rather happy that people are listening to it, discovering it and sharing it on there…)

      It’s a great idea. It just doesn’t make sense for musicians to push it, and will fall down if they can’t get enough people to sign up… I hope they fix it, and make it as revolutionary as a few tiny tweaks could…

  • Howlin' Hobbit

    Jim brings up where I think Spotify breaks down (from the artist’s persepective).

    Since it’s the *world wide* web, if you have the hope of being discovered by more listeners, putting one’s songs on a service that says, “sorry baby, wrong country!” to just about anywhere there’s a possible market (i.e. not just the USA) seems sort of counter-productive.

  • Nils

    Do you have a link to Ek’s response because I’ve heard differently here in Sweden as to how the ad vs. premium money is split?

    Also from your quote: “If you want me to pay £10 a month for music, let me allocate where that £10 goes by choosing what I listen to.” – You are allocating your money, the artist you listen to will be more popular so he gets more money compared to the others. That’s at least they way I’ve heard it.

    • Steve

      I was told via twitter – I asked Huey to ask whether or not that was the case, and the message came back that in answer to the question, he said they were paid the same.

      It would be very interesting to know if the situation has either a) changed or b) is different in Sweden…

      As for the allocation – the royalty that gets distributed for any of my plays is tiny. It’s there, but it’s small. It makes a lot of sense in the case of Spotify Lite, which is as I’ve argued before, is an alternative to radio, but it doesn’t in any way reflect the investment of someone paying £120 a year. There’s no way that the inftrastructural cost of that person using the service can soak up the rest of it – if you listened non-stop to Spotify, the entire royalty would barely reach a couple of quid. (I’ll have to do the calculation at some point…)

      So it still completely breaks the relationship between money invested in ‘music’ and the amount the chosen music/musicians get from it… It’s also fairly easily fixable.

  • Simon

    Hi Steve,

    I think this is an interesting analysis but perhaps flawed because it is argued from the artists perspective rather than the labels. I’m assuming that it is the labels who do the deal with Spotify in the vast majority of cases and that’s how Spotify have managed to get such an extensive back catalogue online so quickly.

    I think Spotify (or something like it, as well as the iTunes model) actually offer the best way for the traditional music industry to progress if it’s going to get away from feeling sorry for itself over piracy.

    I’m actually happy to pay for Spotify as it gives me access to a huge back catalogue of all types of music.

    As such I don’t think your criticism really has much force. I don’t think this is a deal-breaker. Yes, it would be good if individual artists dealt directly with Spotify to get royalties but if you think that your average consumer is going to be overly concerned about this I think you’ll be mistaken.

    Just my thoughts,

    Simon

    • Steve

      Simon,

      I’m not sure what capacity you think labels should be acting in, if not in the best interests (cultural/creative/financial/etc.) of the artists the represent… If it’s bad for artists, it’s bad for labels. And if it is good for labels but not for artists, then it needs to change. Any money paid in royalties will go to the rights holders. In the case of almost all music on labels, that’s the label, the publisher and the artist, in varying percentages depending on the deal, and whether or not the record has recouped.

      There’s no need in the industry for anything that’s not win/win. There’s no need because the alternatives are so simple.

      As for whether I think consumers will care, that’s not really the point. I didn’t argue this as the ‘voice of the masses’. I argued it as an explanation of how Spotify is perpetuating a myth about the relationship between art and value. It’s not about charging for it or not charging, it’s about there being a correlation between the currency and the value. That currency doesn’t have to be money. There are lots of non-monetary currencies at work in the music ecosphere.

      I for one am convinced that I’ve lost nothing to ‘illegal file sharing’, and have gained massively from my audience getting excited about my music and sharing it with their friends. Whether they send spotify or last.fm links, email MP3s or rip CDs for their friends is neither here nor there. It all does me good.

      I don’t think people using Spotify are evil – I don’t even think that they should delete their accounts – I do think that there is a MUCH better business model for Spotify, a way of making the ad-funded model work as a stand-alone, and a way of making the subscription part of the service mean way more in terms of connecting artists and their audience.

      Labels are just a conduit, a mediator, a bunch of middle men, and their presence or not changes not one bit of this.

  • Jim

    One Thing that sucks is that to a point spotify has to play to the major labels because they are the ones who yell the loudest.

  • Sigurdór

    Thank you Steve, for your spot on analyzing as always.

  • Dean Whitbread

    “annoy the shit out of you with adverts until you capitulate. So you get irrelevant adverts that provide no value at all to the user, and therefor no value to the advertiser.”

    One correction: Clearly, this is not a strategy, it’s a failing…

    I use Spotify Premium and while some things about it really annoy me (gaps appearing between tracks in playback!!!!!) this missed opportunity isn’t an issue for me, and I’m a writer who gets paid music royalties. If I want to buy something I buy from eMusic or the label or the artist direct.

    But the entire royalty collecting edifice behind Spotify – PRS, PPL, the BPI et al is all so badly organised, ineffective and corrupt that changes like this wouldn’t make a bean of difference to most people anyway. Even if Spotify adopted your model, the hard-working net savvy artists will only make a tiny fraction more than they don’t now.

    Using the internet to make money directly from music is a myth, mostly, unless you have the marketing, radio play, TV, press. Where I 100% agree with you is that it’s useful for growing audience, generating goodwill and organising your fanbase.

  • Greg Collins

    As a premium user I’m pretty much a ‘back catalogue’ listener though I will dive in and listen to stuff unknown to me when it it recommended by someone on, say, Twitter. Discovered a couple of good contemporary bands that way. Spotify’s “If you like this… you’ll like this too… ” recommendations rarely work for me btw.

    But, as ever, Steve, a thought provoking post from the artist perspective.

  • jforbes

    Came here via Helienne Lindvalls blog on the Guardian.

    Sorry but I think you are wrong on a number of points

    The people best placed to promote Spotify are the listeners/fans/consumers – and spotify will live or die by the service it provides to them, not artist endorsement.

    “If you have the kind of life where Spotify Lite is ‘enough’, then you weren’t about to pay £10 an album for CDs anyway. ”

    Well I use ad funded Spotify to listen, but I also spend a £100s pa on CDs / downloads. Spotify is only a small part of my listening and just doesn’t offer a service that is worth £120pa to me. I’d rather spend that money elsewhere.

    I do agree though that they need a way f better targeting advertising and think should expand the social media side to allow them to do this.

    • Steve

      jforbes,

      as users we talk about it. As artists we can make it the focus of where people find our music. A lot of the new music services that I’ve found online have been through artists sending me there to hear/buy what they do. I know that’s the case with a lot of the people I’ve turned onto Spotify – it’s been by them hearing me talking about it, and taking it seriously because my music is there.

      If the user experience was crap, no amount of artist promo will make it work, but if they want *free* advertising, it’s artists given them exclusives or pointing to it as the main channel for listening that would pitch it as a true alternative.

      Re Spotify Lite, I think you’ve missed what I was trying to say – I didn’t mean ‘enough’ in relation to spotify premium, I meant people for whom Spotify lite is their only place to listen to music. The point being, I guess, that the industry isn’t losing music buyers to Spotify lite. It’s radio listeners that are switching – they are analogous experiences, whereas Spotify premium is closer to being an alternative to CDs, if you’re willing to adjust your listening habits to maximise its benefits…

      I’m in the same position as you – Spotify premium just doesn’t offer me £10 a month’s worth of value at the moment, largely because most of the music I love is on my iPod, for which there isn’t a version of Spotify – the sound quality on my phone isn’t good enough to switch to that just for Spotify, when all the other music is already on my iPod.

      • jforbes

        Steve

        You may hear about music services from other artists, but that could because they are also your friends / colleagues. I think fan to fan word of mouth and media coverage has a far bigger role in promoting Spotify that artist endorsement.

        Does anyone have Spotify ‘lite’ as their only source of music? Must be a few I suppose, but I’d have thought a small minority.

        Just on the difference between a paid play and a free one. I’m guessing as a ‘free’ user the more I listen the more ads I hear that means more revenue for spotify? Whereas with a paid user the ‘all you can eat’nature of it means the more they listen the more the fixed amount of money has to be spread around. So perhaps the fixed payment model isn’t as unfair as it seems.

        • Steve

          JForbes,

          fan to fan is already happening. It happens based on people just talking. That’s a given. Media coverage happens because of that. The value added is what’s actually in the service. The fans can’t talk about stuff that’s not there, and letting people know about what’s there requires artist engagement with it. Those exclusives for premium subscribers require artists/labels to allow that, to see the value in it – so either Spotify do deals where some people are promoted that way in exchange for a fee/extra promo OR they build an environment in which musicians feel like the premium service is in their best interests, at which point a large majority of musicians would probably make their music avaialable there first to capitalise on that. Which gives the users more great stuff to talk about, and Spotify a whole load of great content they haven’t had to pay extra for. Win/win.

          Yes, I do know people who have stopped buying CDs and are using Spotify lite. They grumble about the ads, and eventually if the level of ads gets intrusive enough, they *may* be convinced to subscribe. Probably not at a tenner a month, and also probably not without trying the other services that are either already out there or emerging… Spotify for many people is currently the only game in town (I’m surprised at how few people talk about We7 in this context…) They exist. I’d be interested to see numbers mapped for that against numbers of subscribers – who, despite the raw figure of 300,000+ subscribers, are still a relatively small percentage of users…

          However, your point about ad users accumulating payment is a crucial one – thanks very much for making it. I’d missed that as a key element in any of my posts on the subject. It’s why making the ads more valuable is vital. Because as an ad view is better targeted, has better click through potential, is more relevant, better integrated into the service, the value of it goes up all round. At that point, Spotify lite *could* become more valuable to Spotify than the subscriber base. Would be interesting to see the numbers. I’d love to know of currently Spotify are covering the cost of ad-driven plays with ad revenue. My hunch says ‘no way’ if the payment figures are indeed as they say a lot higher than the initial payment.

          But again, what we hit on is the rather distasteful veil of secrecy that they have over their accounting procedure.

          Thanks for your comments – most helpful. For me, the conversation here has come down to ‘do I want to be on an ad supported service at all?’ Which is an interesting question I’ll be pondering over the next few days. Fortunately, whichever way I choose, I don’t think too many people’s Spotify experience is going to be affected 😉

  • Adrian

    I occupy a kind of “in-between” position… I use Spotify Lite as my main method of listening to music I don’t already own on CD or mp3, but then I also regularly click their “buy this album” button (I find far more this way than I would by browsing Amazon etc). So the artist thereby earns a bit more, simply by having their music on Spotify (mind you, it’s still only coming through 7Digital, so let’s not get our hopes up too much!)

    I’ve been seriously tempted to upgrade recently, mostly because the ads are starting to cross the pragmatic/annoyed line for me, but also partly because it seemed like a positive way of putting something back into the digital music world. As it turns out, the latter reason isn’t actually valid, so I’m now undecided again.

    Oh, and I *love* the idea of having snippets of suggested new bands played at you instead of adverts. That’d make a great middle-ground deal… less annoying than the regular adverts, but cheaper than Premium. Either way, I agree that the royalty situation shouldn’t be standardised for all flavours of Spotify.

  • Chappas

    I’m a person who uses Spotify as my main and only source of music.
    I never used to pay for any music until the mobile app for this came out. I downloaded everything illegally. I listen to too much music to make paying for albums or tracks financially viable. Each week i’ll add about 20+ songs into my playlists, covering almost all genres of music. But generally i don’t tend to like more than 4 or 5 songs by one particular artist so buying an album is out lf the question. & 20 tracks a week @ 80p is £64 a month, i simply can’t afford that. So paying £10 a month for all the music i want is simply fantastic 😀
    Although, for the time i was on the free version a good portion of the adverts were music related, not sure how it’s been the past few months though.

    • Steve

      Chappas,

      sounds like Spotify fits you perfectly. That’s good. It’s also interesting that you saw being able to listen to music as a viable and (cash-valuable) alternative to owning it. Your a cloud-native, if you will… given that your access to all the playlists/saved stuff etc. will disappear if you stop paying…

      Do you have certain things you go back to time and time again? Regular listening? Or is the internet like a big ole clever radio station where you’re changing all the time? Are there songs that you know all the words too, or any albums that mean more to you that others? I’m really interested in how access to ubiquitous music has changed the way we listen…

      If you’ve got a last.fm account, I’d love to see your listening stats 🙂

  • Joe Buck

    “At SXSW this year, the CEO of Spotify was giving a talk, I asked the question about royalty rates via Hugh Garry and apparently they are distributed evenly.

    This is, as far as I can see, Spotify’s MASSIVE mistake. A deal-breaking, game-not-changing, screw-up of gargantuan proportions. ”

    That’s not how it works. Not nice to ask your loyal readers to cancel premium subscriptions based on an incorrect fact.

    I’ll be back with more feedback in a bit.

  • Joe Buck

    Part one of my more general response:

    “The people best placed to promote Spotify are artists.”

    Sorry, but I have to disagree with this. The users have always been the core for promoting Spotify. Sure it helps to see Radiohead publish a Spotify playlist or Moto Boy saying he loves Spotify, but with the invite only system the promotion of Spotify has been done by the users. If you love a new service you will tell all your friends about it. It’s very simple.

    “If we push it, it becomes the place to find our music.”

    You are one lucky artist if all your listeners go to you first to get their fix. I can only see a tiny, tiny percentage of all Spotify users acting like that.

    “Spotify needs premium accounts for it to work. At the moment, their strategy for getting people signed up is to annoy the shit out of you with adverts until you capitulate.”

    This is not correct. Sure it could be one very small part of strategy, but not a very convincing one. From day one you had to pay for premium to get rid of the ads. But you also got exclusive pre-listens of certain new albums and a chance to win tickets to concerts and other artist events. Also, don’t forget the free travels with Spotify premium. I know of people studying in Canada and Japan and still using Spotify premium with great quality.

    Then came more premium features like High Bitrate (320 kpbs instead of the regular 160 kpbs) and of course Spotify Mobile for the Iphone/iPod Touch, Android and Nokia.

    “So you get irrelevant adverts that provide no value at all to the user, and therefor no value to the advertiser.”

    Spotify will have targeted ads eventually and in some places they have started with that. Your faulty over-generalization of ads in Spotify is not very helpful when it comes to debating this issue. Yes, there are annoying ads, but there are also regular audio-ads, banner-ads and lots of promotional music ads.

    • Steve

      Joe,

      thanks for commenting. Do you work for Spotify? Are you paid by them? A declaration of interests would help to put your comments in context.

      Please explain the royalty structure if it’s not what I said it was. I’m more than happy to be proven wrong. I WANT Spotify to get this right, but it was reported directly to me from someone listening to Daniel at SXSW that the royalties are flat across the system. If they aren’t, everything changes.. Please explain it, with some numbers.

      As for artists promoting the system. Without music, Spotify is gone. If Spotify becomes majors-only, we have a two tier industry. Again. Spotify users inviting their friends gets them into Spotify lite. Spotify Premium has two types of users – those who buy it for convenience (there are lots of those) and those who do for reasons of economic ethics – they pay because they want both the extras (no ads, better quality) AND they want to support artists. If it doesn’t support artists, it’s failing those people, and the artists. (all moot if you come back with some numbers for me…)

      If Ads don’t pay for themselves they are just an annoyance. I wonder what percentage of Spotify’s earnings are from ads and what from premium subs? I’ve no idea what it would be. Would be interesting to know, but Spotify’s numbers seem VERY difficult to get hold of.

      As for the Ads – I’ve NEVER heard or seen an ad that was useful. As soon as they start targeting/filtering ads, this all changes. As soon as they come up with more useful in browser stuff, it changes. I’m happy for it to change. Right now, it’s stupid.

      If Spotify plans to fund it self on a 60/40 split, how close is it to that now? Do you know? Will you tell us? Do you know someone who will?

      I’m happy to be wrong – I want these things to work. I do. I don’t hate Spotify. I *may* pull my music off the service, just to see what happens. I don’t need it, it doesn’t need me…

      • Joe Buck

        “Do you work for Spotify? Are you paid by them? A declaration of interests would help to put your comments in context.”

        No, I don’t work for Spotify and I’m not paid by them. I’m just a fan running a music recommendation blog. When a service miles better than the rest emerges, you will see that fans tend to be very dedicated about it…

        “Please explain the royalty structure if it’s not what I said it was.”

        No. I can’t explain it in detail. All I can say is that premium plays do count. Also, check out this interesting blog post from a small Swedish label: http://hybrism.blogspot.com/2009/12/about-spotify-vs-cash.html

        “As for the Ads – I’ve NEVER heard or seen an ad that was useful.”

        Is it the same if you watch TV? I have only used Spotify free for short periods of time and in those times there were many very useful ads.

        “If Spotify plans to fund it self on a 60/40 split, how close is it to that now? Do you know? Will you tell us? Do you know someone who will?”

        I don’t know. My guess is that they have a lot of work to do in the UK and Spain, but doing great in the other launch countries.

        “I’m happy to be wrong – I want these things to work. I do. I don’t hate Spotify. I *may* pull my music off the service, just to see what happens. I don’t need it, it doesn’t need me…”

        How many listeners do you have in Spotify and why would you even consider hurting them? Do you really want to anger your fans by actually pulling your music off Spotify? As of today I haven’t seen any stats indicating that Spotify is taking anything away from artists. There is no cannibalization and yet you and many other artists act as if it is a fact. I find it both strange and frightening to see small artists think exactly like the very big ones in this matter. If you aren’t losing money, but rather making money, what is so bad about being there? If you have stats to show that you actually lose money because of Spotify it would be great to see them!

  • Joe Buck

    And the last part:

    “So what would work? Spotify’s (and the other streaming services) best chance of success is if artists see it as a viable alternative to selling individual albums and tracks digitally.”

    Sorry to burst your bubble, but digital sales recently went down for the first time and it’s very likely digital sales will continue to go the way of the CD. Read the Lefsetz blog for more information about that.

    “Spotify Lite is a limited but hugely useful discovery platform.”

    Maybe I’m grumpy here, but what is limited about 7-8 million tracks (with some more millions still to come)? Sure, some artists have opted out and some labels (like Drag City) won’t license their artists for Spotify, but there are still thousands of good artists to be found.

    “Spotify Premium is an alternative to buying music.”

    Absolutely. I’m sure you already know that in digital music piracy is 95 percent of the market. And if people like myself go from spending zero to paying for Spotify premium every month surely that can’t be bad.

    “But the payment model that’s there doesn’t work, so the growth curve that Spotify needs to remain viable will be a seriously uphill struggle.”

    You obviously don’t understand how Spotify works which is a bit sad. Let’s take a look at Rhapsody. A good streaming service, but Premium only which means in several years the highest number of subscribers was 700.000 (based on the US as a whole!). Spotify has with it’s freemium model managed to reach 325.00 subscribers in quite a short time and the numbers will continue to increase. How can you get people to pay for something they haven’t tried out? Spotify free is the way to get people into Spotify premium. It’s as simple as that.

    However, if Spotify continues to grow there will be huge money in the ads as well. Spotify plans to get 60 percent of income from premium and 40 percent from ads.

    • Steve

      First up, stop talking about Piracy. It’s a stupid inane term. Currently illegal downloading is bigger in certain sectors that others. I’ve looked on bit torrent for loads of my indie friends, VERY few of them are there. Some of them have only had the parts of their catalogue that are no longer available elsewhere uploaded. That’s a good thing. The playing field is being leveled by people who care. It’s interesting.

      You obviously don’t understand how Spotify works which is a bit sad.

      no, clearly, I have no idea. 325,000 (I’m assuming you meant that, not 325 with two decimal places after it) doesn’t mean anything other than as a percentage of overall use, given that Spotify HAS to pay out a certain royalty on all plays.

      The value in an ad is whether or not ads can cover the cost of the number of plays. If the value per impression. If you have 10 listeners and your profits are higher than your costs, it works. If you have a billion listeners and your running costs are above your income, it’s broken.

      If you have a business model that doesn’t work for the people who give you the music to play, it also will fail, because they’ll pull out. Warner are pulling out. It will be interesting to see if others follow, or if Spotify can make a compelling case for their business model to the various stake holders. If not, there’ll be no music to stream. If they can, they’ll do fine.

      But it’s a balance. Spotify aren’t the saviours of music. They are a business, with a business model. They have suppliers and clients, and without satisfying both they will fail. I hope they don’t. I want win/win solutions for music.

      But none of us know what will happen, and anyone who says they do is a fool.

      • Joe Buck

        “First up, stop talking about Piracy. It’s a stupid inane term.”

        Please tell me what term to use for all the people consuming music for free by illegal means. I assume you have checked bit torrent on public trackers. However, most music is found elsewhere. There are loads of private music trackers and several other ways for people to get their music fix without paying. One popular method is links to Rapidshare, Megaupload and similar services. And certain file sharing programs, like SoulSeek, are better for small indie artists in general.

        Piracy can be great for sure, but it doesn’t make sense to prefer it over something legal like Spotify. Yet, several artists first complained about piracy and the fact that there were no good alternatives and when there finally exists a good alternative (Spotify) they get greedy and want loads of money immediately. Strange!

        “ 325,000 doesn’t mean anything other than as a percentage of overall use, given that Spotify HAS to pay out a certain royalty on all plays.”

        If my information is correct this is wrong. But the exact deals are confidential so who knows. Anyway, most artists are greedy enough to prefer a fixed rate rather than the Spotify “share of revenue” model. Sure, Spotify will pay you less now, but eventually they may end up paying much more than that fixed streaming rate.

        It’s also worth noting again that high streaming rates is the best way to stop innovation in digital music. Just take a look at Germany…

        “The value in an ad is whether or not ads can cover the cost of the number of plays. If the value per impression. If you have 10 listeners and your profits are higher than your costs, it works. If you have a billion listeners and your running costs are above your income, it’s broken.”

        Spotify could be profitable today if they wanted, but instead they choose to expand and go for bigger markets. Certain business models need scale to work out perfectly. Many people thought that YouTube never would generate any money and now it does. Same goes for Facebook. When you reach a huge number of people, there is plenty of money to be made. Nobody cares about YouTube bleeding money some years ago because today they are doing great.

        “If you have a business model that doesn’t work for the people who give you the music to play, it also will fail, because they’ll pull out. Warner are pulling out.”

        No, Warner is not pulling out, you got that very wrong, but since they are the label most stuck in the failing business models of old you never know what they will come up with in the future.

        “It will be interesting to see if others follow, or if Spotify can make a compelling case for their business model to the various stake holders. If not, there’ll be no music to stream. If they can, they’ll do fine.”

        And all the millions of Spotify users will go back to getting their music for free. Is that what they really want? Somehow I seriously doubt it. You have to take into account what is happening to CD sales and, more recently, digital sales. Again, read the Lefsetz newsletter for more on that issue.

        “But none of us know what will happen, and anyone who says they do is a fool.”

        There are certain facts to consider about how people want to consume music today and in the future. The point now is that artists and labels haven’t done anything to create something even remotely similar to Spotify in ten years time. Artists and labels don’t innovate but rather rely on others to do that for them. This is the sad state of music business today. I’m convinced that legal streaming is going to be a significant part of how we listen to music in the future.

        • Steve

          “First up, stop talking about Piracy. It’s a stupid inane term.”

          Please tell me what term to use for all the people consuming music for free by illegal means.

          It’s music discovery, it’s listening, it’s sharing, it’s a whole lot of things. But has nothing to do with anything that could be traditionally thought of as piracy – whether perpetrated on a ship or not.

          I assume you have checked bit torrent on public trackers. However, most music is found elsewhere. There are loads of private music trackers and several other ways for people to get their music fix without paying. One popular method is links to Rapidshare, Megaupload and similar services. And certain file sharing programs, like SoulSeek, are better for small indie artists in general.

          As far as I know, there’s nothing of mine up there. I’ve looked around. If there is, I’m glad people are interested in it. Particularly because it’s perfectly legal for my music to be shared like that.

          “ 325,000 doesn’t mean anything other than as a percentage of overall use, given that Spotify HAS to pay out a certain royalty on all plays.”

          If my information is correct this is wrong. But the exact deals are confidential so who knows.

          Clearly not you. Or maybe you should publish your information. It’d be helpful. Again, I’m happy to be wrong – I don’t have an axe to grind here..

          Anyway, most artists are greedy enough to prefer a fixed rate rather than the Spotify “share of revenue” model. Sure, Spotify will pay you less now, but eventually they may end up paying much more than that fixed streaming rate.

          “Most artists” based on what research? I’ve read nothing about Spotify offering me a revenue share. I’ve only heard about them giving percentages to the big labels in exchange for catalogue. That helps me how exactly?

          It’s also worth noting again that high streaming rates is the best way to stop innovation in digital music. Just take a look at Germany…

          ‘the best way’ – you really are full of unsupported statements today. Go on, explain. Or not.

          No, Warner is not pulling out, you got that very wrong, but since they are the label most stuck in the failing business models of old you never know what they will come up with in the future.

          .

          No defence of Warner here. I have no interest in them at all. But they have said they aren’t going to pursue streaming any further (whether that means they leave their catalogue on Spotify isn’t really an issue) – because they see it not working. If the perception of the people supplying the music to Spotify is that it doesn’t work, there’ll be no music. That’s not an anti-Spotify statement, it’s just fact. I hope Spotify get it right.

          “It will be interesting to see if others follow, or if Spotify can make a compelling case for their business model to the various stake holders. If not, there’ll be no music to stream. If they can, they’ll do fine.”

          And all the millions of Spotify users will go back to getting their music for free. Is that what they really want? Somehow I seriously doubt it. You have to take into account what is happening to CD sales and, more recently, digital sales.

          …or they’ll go to a different service, or whole new models for distributing music or making it available direct from artist to fan will open up. Once again, you appear to be talking about Streaming in some Fukuyama-esque ‘end of history’ way. It may last, it may not. Music is bigger than Streaming. Streaming is bigger than Spotify.

          “But none of us know what will happen, and anyone who says they do is a fool.”

          There are certain facts to consider about how people want to consume music today and in the future. The point now is that artists and labels haven’t done anything to create something even remotely similar to Spotify in ten years time. Artists and labels don’t innovate but rather rely on others to do that for them. This is the sad state of music business today. I’m convinced that legal streaming is going to be a significant part of how we listen to music in the future.

          ..how *some* people want to consume music. And about how some artists feel about that. Spotify is a macro-industrial solution. I’ve no idea which parts of the indie-music scene are feeling the pinch, which ones are doing well, and which ones are finding new audiences through streaming/free downloads/sharing/vinyl/whatever. Why? because most of the stats available are about metatrends in ‘music’. Which are imbalanced due to the VAST majority of music sales/downloads/streams etc. happening to a tiny percentage of artists. the number of artist-still-producing-music that are part of those figures is smaller still. So the hundreds of thousands of independent artists across the world make up a small amount of the total revenue within the various music industries, but represent the vast majority of the stakeholders. Those stats don’t exist.

  • Andy

    Hi Steve,
    Interesting thoughts. I think I agree with most of what you said. Unfortunately, Spotify isn’t very transparent about how they pay their content providers.

    My band is getting about £0.00095/stream from Spotify. At that rate, we’d need 1,000,000 streams to make £950. But what does 1,000,000 streams really mean?

    Let’s compare this to someone buying a CD.
    Let’s say the average CD has 10 tracks, and on average, a person who has purchased a CD will listen to it 100 times during their lifetime. Converted into streams, that’s 100 X 10 = 1,000 streams. 1,000 streams gets you £0.95 on Spotify. Compared to what you get selling a self released CD, it seems small, but it’s actually pretty close to what you would get from a record label.

    But there are other factors to take into consideration. Spotify, as far as I know, have an agreement with PRS for Music, to whom they pay a fixed amount per stream of £0.02. That money is supposed to go to the songwriters or publishers, or whoever holds the rights to the composition and lyrics. That’s right, the songwriters earn more money from Radio plays (whether we’re talking about internet, of Fm radio) than the artists who recorded the songs. Bono was ranting about that recently by the way.

    In my case, and in the case of most indie artists, I’m the songwriter as well, which means that I should in theory be entitled to the £0.02/stream as long as I’m a member of PRS or a similar rights collection society.
    That changes things a lot. With £0.02 per stream, you would get £20 for 1,000 listens.
    Unfortunately, I have yet to receive a penny from PRS so I’m not 100% sure that they are really paying PRS £0.02/stream. We’ll see.

    Personally, I like the idea that the more people actually listen to your music, the more money you make. With CD’s, you could sell a CD that people only listened to a couple of times before getting rid of it. With the Spotify system, you’ll keep making money if people really enjoy your music.

    But if Spotify really is paying out £20 for every 1,000 streams, plus the infrastructure expenses, etc… How on earth will they stay in business? I’m pretty sure they can’t generate that much revenue from ads. Even at the rate of 1 ad per stream, I can’t see them making £20 for every 1,000 streams. The CPM (cost per 1,000 impressions) on the web is far less than £20 and ads generally pop up every 4/5 songs. So I’m having trouble understanding how they expect to survive.

    So that leads me to the question of premium accounts and whether Spotify should pay more for songs that are listened to by premium users.
    First, how many tracks does a premium user actually listen to on a monthly basis? 100, 500, 1,000?

    For Spotify’s model to work, the average premium listener must either listen to less than 500 songs/month or the figures I have are completely wrong! Or maybe something else is going on.

    Either way, I’m not sure it actually makes sense to pay more for premium streams. If that were to happen, the publishers will also ask for more from premium streams. So the only way they would allow this scenario is if Spotify agrees to increasing the per stream fee for premium streams. And why would Spotify go and do that?

    So my question is a totally different one. Do indie artists get paid at the same level as the major label artists?
    I have a feeling that premium users listening to a lot of indie bands are not only indirectly paying for the free users, but are allowing Spotify to pay a higher rate to Major labels than they do to independent labels and artists.

    Is there anyone out there who could help shed some light on this? Has anyone received a cheque from PRS related to songs played on Spotify? Is there anyone out there getting more or less than £0.00095/stream from Spotify?

    Maybe Spotify aren’t paying a penny to PRS and they’re only paying a prorated percentage of ad and premium accounts revenues to the artists. Who knows!?

    Cheers,

    Andy

    • Steve

      Andy,

      really good thoughts. You’ve added a lot to what I was saying, and clarified some things. Good stuff.

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