What’s going on at Spotify?
p2pnet news view Advertising | Music:- One phrase sums up Vivendi Universal, EMI, Warner Music and Sony Music.
Overwhelming, all-consuming G-R-E-E-D
Re-spinning already created, already digitised music ‘product’ into a huge MP3 cash-cow should have been easy. The technology was already there and ‘consumers,’ as corporate communities contemptuously call the people who keep the wheels of commerce turning, had already demonstrated they were willing and able to start buying music downloads.
But in 2003 the Big 4 labels decided suing music lovers instead of wooing them was the way to go, also hiking wholesale prices so high very few would-be online distributors could afford them.
The corporate online music industry was dead at birth.
The Big 4 have since blown hundreds of millions of dollars on one scheme after another designed to provide a vehicle capable of carrying Big 4 product to the satisfaction of the Big 4.
Then along came Sweden’s Spotify, billed as a, “proprietary peer-to-peer music streaming service that allows instant listening to specific tracks or albums with almost no buffering delay”.
The labels were reportedly keen — Sony is said to have been able to snap up six per cent of the Spotify for a paltry 30,000 kronor, around $4,541 Canadian — with the mainstream media (and others) heralding it almost as the second coming.
Now,”Is everything all right at Spotify?” asked NME on Friday. “News that the music streaming service has reverted to being invite-only – just days after the much-heralded launch of its iPhone app – is deeply puzzling.”
The “clumsy volte-face” could be interpreted, “as a sign of unexpected success,” says the story, ” they’ve had so many subscriptions since launching the app, they simply can’t keep up with demand. It’s a technical hitch: please bear with us while we repair the fault.”
But, it states »»»
… there is another, more troubling possibility: Spotify has a cashflow problem. As New Media Age point out, Spotify pays record labels per stream – it’s not much, about half a penny per track – but any sudden spike in users would cause a corresponding hike in the site’s costs.
And that’s a problem, because Spotify can’t possibly be making any real money yet. How many people do you know have signed up for the £9.99 subscription? According to tech blog The Register – as reported by The Guardian – Spotify’s advertising revenue to date is less than £100,000.
Said The Register in June »»»
Move over Fifty Quid bloke – and make way for 14p man.
Statements seen by The Register indicate that’s all the hit music service Spotify makes per user from its advertising-supported business. The difference is the middle-aged spender coveted by the movie, games and music businesses plunks down £50 per week – but Spotify earns its 14p per user per month.
The figures – which we can disclose for the first time – make for interesting reading. They confirm Spotify’s explosive growth – topping half a million registered users in the UK in May from a standing start in January.
But revenues at this stage are negligible. Advertising income was just over £82,000 last month, hence the 14p figure. We can also reveal that despite the phenomenal growth, the takeup of the tenner-a-month subscription program is small, and as a percentage of users, is falling.
Fewer than 17,000 UK users were signed up to Spotify Premium in May, an increase of 2,700 over the previous month – despite the service adding 170,000 registered members overall.
And two months later, “No wonder the majors speak so highly of Spotify,” said Helienne Lindvall in The Guardian, “they receive 18% of shares in the online streaming service.
“It’s just a pity that artists won’t get to see any of this … ”
The major record labels and the bigger indies, “seemed unusually positive about Spotify, which made me think that they must have received a pretty hefty payment and/or equity in the company,” she says, and, “Sure enough, the other week some of my suspicions were confirmed when it was reported that the majors received 18% of Spotify shares.”
Lindvall cointinues »»»
One of the main reasons why majors have been hesitant to offer their music to start-ups is that they’ve seen companies like YouTube and Last.fm build businesses, only to sell them off for big bucks without sharing the money with the copyright owners whose music they used.
A source close to Spotify told me he has serious doubts that their business model will add up and that it’s a case of “spot the idiot”, ie “find somebody stupid enough to buy it before realising that it’s too costly to run and that the numbers don’t add up to making a profit”.
But, says Luke Lewis on NME, “There’s no firm evidence that people will ever be willing to pay to stream music in significant numbers” and this in turn, “exposes a fundamental flaw in the business model: the more people pay for a subscription (thus avoiding the ads) the less attractive the service becomes to potential advertisers. And the more ads it runs, the less music lovers will want to use the service.”
“Indeed,” he says, “I’m convinced the ‘free’ aspect of Spotify is unsustainable. Across the media, people’s faith in the ad-funded free content model is faltering,” stating, “Rupert Murdoch is planning to charge for online news. Following his lead, Google are developing a system of micropayments.”
Advertising, “will never cover Spotify’s costs: its only hope of success is in attracting subscribers in huge numbers,” says NME, going on »»»
You might say: who cares if it’s profitable? To its most devoted fans, Spotify represents the achievement of the elusive “celestial jukebox”: the limitless-music paradise that David Bowie predicted in 2002, when he said: “Music itself is going to become like running water or electricity.”
But while it might look like utopia for music fans, if Spotify is to have a future, it needs to be a viable business. For now, funding is still pouring in – the company employs 30 people, and has offices in London and Sweden. It was recently valued at over £200 million.
However this is, Lewis adds, “an entirely theoretical, phantom value,” and, “There’s every possibility Spotify could go the way of Spiralfrog, or Pandora, or any number of music services which once looked promising, before fading away when the investment dried up.”
Meanwhile, back on the Light Nets and P2P networks …
NME – The problem with Spotify, September 11, 2009
snap up six per cent – Sony Music owns a piece of Spotify, August 13, 2009
The Register – Fifty Quid Bloke, meet Spotify’s 14p man, June 25, 2009
The Guardian – Behind the music: The real reason why the major labels love Spotify, August 17, 2009
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September 14th, 2009 at 10:23 am
Don’t use spotify or other proprietary streaming services. Get your DRM (Digital Restrictions Management) free mp3 or ogg files on your disk so that *you* keep the control instead of giving it to a company which may remove the songs as they see fit, or impose geographical restrictions.