Spotify Responds: “Without Free, Pay Has Never Succeeded”

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From this morning’s Financial Times…

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The Spotify business model relies on attracting users to a free service that offers a selection of music but with limited functionality, with the aim of converting those users to paying subscribers. Spotify generates some revenue around the free service but makes more via paid subscriptions.

A person close to Universal says there was clear evidence the availability of free music on Spotify was hurting digital downloads from stores such as Apple’s iTunes. “The market data really speaks for itself,” the person said. “It’s clear that the key to success for artists, consumers and Spotify alike is developing an offering that drives more free users to the paid tier.

According to the Spotify says its model is working, and the best thing the industry has going for it right now.

“Without free, pay has never succeeded,” Jonathan Forster, who heads the Nordics region for Spotify, told the Financial Times.  “We’re one of the greenest shoots of growth in the industry. We don’t want to destabilize that. We think that this model works.”

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Image by Tony Bowden, adapted under Creative Commons Attribution-ShareAlike 2.0 Generic (CC BY-SA 2.0).

60 Responses

  1. Sarah

    Love when company execs talk without actually saying anything. “We support what we’re doing.” Oh, hey, thanks for clearing up our confusion on that point. 🙂

    Reply
      • Anonymous

        Firstly, a large portion of that $7 billion is already from Spotify and other streaming services. Replacing revenue they are already generating… that makes no sense.

        Secondly, why are you expecting a single service to generate $7 billion?

        Reply
        • It Takes 90 Million PAID...

          well, it doesn’t matter if it’s spotify or spotify and _______. If as many like to say “streaming is the future” as is “access over ownership” then these subscription models need to have 90 million paid subscribers at $9.99 a month to generate the revenue we have now… of course, we can keep the free tier and lose another BILLION dollars a year in cannibalized revenue…

          Reply
  2. Versus

    ““Without free, pay has never succeeded.”

    FALSE.

    Pay without free has not even been tried in the digital age, since free (legal or illegal) was always there. It would work if piracy were controlled, and other free pseudo-piracy options (YouTube etc) were force to go legit.

    Furthermore, pre-digital, the original recording industry model was precisely and only “pay without free”. Before home taping (also illegal), the only option was to pay for the record. There was no “free tier”.

    Reply
    • Anonymous

      Exactly, someone’s memory apparently only goes back a decade.

      Tired of this bullshit. Either repeal copyright law or enforce it. Stop letting politicians get bought off by Google.

      Reply
    • Anonymous

      Well since piracy can’t be controlled there is no point in bringing this up.

      Reply
      • David

        ‘Controlling piracy’ hasn’t been tried. Oh, wait, there was something called SOPA. That might have done some good, but the tech lobby and their media shills killed it off before it was even debated.

        Reply
        • Anonymous

          Might* have done some good. It very well might not have because it was a poorly written piece of crap that should never have been proposed.

          The first step to stopping piracy is to admit we can’t stop piracy. The second step is to reform copyright. That means making changes that benefit both the copyright holder and everyone else. As long as we keep trying half-ass attempts to pass legislation that only alters copyright enforcement to benefit one side (to the extreme in the case of SOPA) then we will continue run into walls and get nowhere.

          Reply
          • David

            You seem to have swallowed the propaganda against SOPA. There was nothing wrong with it that could not have been easily amended through the normal legislative process – which is what it never got, because Google whipped up an online lynch mob.

          • Sarah

            David:
            easily amended through the normal legislative process

            That statement is a shocking oversimplification. When you’re talking about massive legislative and regulatory changes in an area with a large number of very motivated, powerful lobbyists, and that also affects most ordinary people, there’s nothing “easy” about it – as you saw when SOPA got killed. If you want to go through the legislative process, fine, but you have to accept that it’s just a political game and that means that “what’s right” isn’t nearly as relevant as “who has the most power and what do they want?”

            RepX addresses piracy from the market side by setting up a system where paying is actually a more appealing choice for the typical consumer than stealing (no, it won’t eliminate piracy but if total elimination is your goal, you’re simply being unrealistic). It’s definitely hard but it’s doable, and it’s way more attainable than any “easy legislative changes” on this issue.

          • David

            ‘Total elimination’ is not anybody’s goal, that I’m aware of. The realistic aim is to make piracy more difficult and less profitable. SOPA tried to do that by cutting off funding, from advertising or otherwise, to ‘foreign infringing sites’, and by blocking search engine links to such sites. If you disagree, please say which provisions you disagreed with, citing the actual texts, not the ludicrous straw-men erected by the likes of Wikipedia and the EEF.

          • Sarah

            My point is not about SOPA’s terms. My point is that legislative action on the scale it requires is supremely challenging. In the politics surrounding SOPA, you got a first hand demonstration of that.

            As you point out, the realistic aim is to make piracy more difficult and less profitable. I agree with that completely.

            But that is only the “stick” approach: punish bad behavior, make it less rewarding. It is also the political approach.

            RepX is about taking the “carrot” approach: make legal consumption easier and more rewarding for the typical consumer than illegal consumption. Unlike the political “stick” tact, this “carrot” approach can and – we think – should be carried out without the burdensome requirement of government action. While it faces daunting challenges of its own, its chances for success are significant, and can potentially be realized much more quickly than action taken through legislative means.

            In reality, piracy needs to be addressed from both ends, with sticks (greater legal protection against infringement and theft) and carrots (a legal market that is responsive to consumers’ needs such that they choose to participate in it). However, we talk too often about using sticks, and far too little about using carrots. If we’re serious about solving the problem, we should be serious about pursuing all potential solutions – especially the solutions that we, individually and collectively, can directly contribute to achieving.

          • Paul Resnikoff
            Paul Resnikoff

            The first step to stopping piracy is to admit we can’t stop piracy.

            That’s an interesting assumption, and I’d agree that piracy is probably not something that can be eradicated. Though I’d also argue there really hasn’t been enough pro-content muscle in the fight. Let’s see how things look when the entire Hollywood industry faces its real ‘music industry moment,’ when blockbusters and the totality of Los Angeles film-based culture starts to plummet.

            Sure, tech giants may win another SOPA round, but tell me, what happens when the blueprints and instructions for 3D-printing an entire automobile, firearm, or drone start to proliferate online — and can be effectively executed against with accessible and affordable printing technology — with Google helping to shuttle the traffic?

            This isn’t a future that’s easy to predict. But I don’t think we’ll be debating the per-stream payouts of Spotify at that point.

          • Name2

            The MPAA just got DVDFab yanked by a US court from being offered globally.

            Now, what were you saying about poor, powerless Hollywood?

    • jw

      >> Pay without free has not even been tried in the digital age,
      >> since free (legal or illegal) was always there. It would work
      >> if piracy were controlled, and other free pseudo-piracy
      >> options (YouTube etc) were force to go legit.

      Most people have no idea what Spotify is, or that it even exists. And a lot do, but don’t understand why it’s a better alternative to iTunes or CDs or whatever.

      A huge part of the puzzle is that music discovery doesn’t happen the way that it used to… the promotional channels just don’t hold the same influence. And so on the off chance that someone hears a new song enough times to figure out who sings it, they’re probably going to go to iTunes or YouTube. The average user doesn’t know to go to Spotify for new music, & they have no reason to ditch their current library in favor of Spotify because the value proposition hasn’t been clearly communicated. “Why would I pay $10 per month for what I already have for free? To listen to songs that I already own?”

      So because the value proposition takes time to realize, premium users have to come through the free tier. No one just jumps into premium Spotify. We saw that with Beats… people just don’t get it. Not that Beats was a perfect product… far from it. But you have to wade into Spotify the same way that people use YouTube. (This is YouTube’s strategy with Music Key… you’re already coming here for a discovery, why not just use YouTube as your primary mode of listening?)

      So cutting off free at this point is a ridiculous idea… the alternative availability of free has nothing to do with it. It’s all about the value proposition, which we all agree could be communicated better, but is still going to take a long time for people to really grasp… why $120 per year makes sense. (And artists like Taylor Swift aren’t doing anything to help the cause.)

      Inevitably, the free tier will have to go. But the industry would be shooting itself in the foot if the free tier was done away with before the value proposition has really taken hold, & is taken for granted in a mainstream way. Until then, unfortunately, freemium has to be a part of the equation.

      We all agree on certain things… premium streaming, if it goes mainstream, could be very lucrative. The value proposition of Spotify Premium has been poorly communicated by the company, & isn’t understood by the general public. The public needs to understand the value proposition before premium streaming can realize it’s full potential in terms of revenue. So far, the freemium approach seems to be the only method leading consumers across that bridge into premium subscriptions.

      At least, that’s the way I see it.

      Reply
  3. GGG

    The problem is there is barely limited functionality. They could speed up this whole conversion thing with some pretty easy, not to mention normal on plenty of other services (music and otherwise so people are already used to it), changes.

    Reply
    • Casey

      At this point I think if they made a new PC client that didn’t suck and made it premium-only they could add a million subscribers in the same day. Ok maybe not, but I honestly can’t think of one thing they have done to increase the value of their premium service over the free service since it launched in the US. In fact I would argue they have decreased the value of the premium service by adding so many free features.

      This company really is starting to look like they really don’t know how to manage their own product. Their marketing sucks. Their software sucks. Their industry relations are looking increasingly sucky. They are really opening the door for a competitor like Apple to come in and undo everything they have done.

      Reply
      • jw

        Am I the only person who really likes Spotify’s software? Sure, it’s got it’s flaws (managing lots of playlists, notifications), but I can’t think of a playback software I’d rather use for OSX or Android. Certainly not iTunes or Beats or any of the other streaming services that don’t support local file playback.

        Reply
        • Anonymous

          It doesn’t matter what you like jw, you’re just a thief. Please go away.

          Reply
          • jw

            For what it’s worth, I ended up buying the Doug Paisley record I pirated on vinyl, after listening to it for a couple months as local files in Spotify. Are you against piracy that ultimately leads to profit for the artist & the label?

        • Name2

          I avidly detest Spotify’s software. Both Tidal and (God help us) Rhapsody have better mobile clients.

          Biggest PITA: being able to clear the play queue. The current “standard” solution is to click on a track from another playlist, and that “clears the context”.

          Fortunately, Spotify has a decent selection of sound effects collections. I put together a playlist of a couple of chimes followed by mild applause. Called it “Aaaaa”. Takes all of 6 seconds to play and lets me know the music I ACTUALLY WANT TO HEAR is about to start, and not something I fat-fingered six months ago.

          Reply
        • GGG

          I don’t HATE it, but it could be better, and like Casey said it’s more that they really just don’t seem to be trying.

          Reply
        • Casey

          I used to like it a lot. When Spotify first launched in the US the player felt extremely fast and responsive. But they have really chipped away at it over the last several releases and version 1.xx really took a dive in terms of both speed and features. Especially if you are running it on older hardware.

          Granted I only really care about the PC software. The mobile app doesn’t really matter to me because I use it so rarely.

          Reply
          • jw

            The response issues may have to do with them ditching the P2P underpinnings of the network?

            I haven’t had any issues on an ssd macbook pro, or on my moto x. (I did have issues when I was on a Windows Phone, but I assume that product is under-resourced, compared to the other products.)

            I think the last few updates have made some nice strides… I love that they ditched apps & streamlined the social feed on desktop, & the “local files” feature makes it much easier to download files to my phone for offline playback.

            But I haven’t used the Windows software in years.

  4. Anonymous

    “Universal says there was clear evidence the availability of free music on Spotify was hurting digital downloads from stores such as Apple’s iTunes.”

    This makes it sounds like if they turn off the Spotify free tier then download sales would come back–showing a continued fundamental lack of understanding of what is going on here. The problem is not streaming services. The problem is that smartphones and always-connected devices have changed consumer behavior. Apple made the digital media download obsolete with the advent of the iPhone.

    As always-connected culture spreads and becomes more and more reliable, fewer and fewer people will ever consider downloading individual media files to their devices. And that has nothing to do with music streaming, much less any particular tier of a single music streaming service.

    Reply
  5. dommusicguy

    either take the money you get from me listening to you on Spotify or don’t take any money from me and I’ll go back to downloading music for free

    Reply
    • lick my k o

      yawn.. your threats are sooooo fuggin hollow at this point. maybe 15 years ago, but give it up already, you suck, and your momma agrees

      Reply
  6. Yep

    maybe restricting some content to the paid service is a good idea. I suspect though that a lot of users will just jump to YouTube to listen.

    Restricting listening time might make more sense. Maybe, a one off ‘top up’ like data charges then a low, limited subscription.

    It’s a tricky one. There are valid point on both sides.

    Reply
    • Paul Resnikoff
      Paul Resnikoff

      It looks like that’s what UMG may be angling for, but that result still makes little sense when viewed in the broader service eco-system. Consider, for a moment, a more restricted freemium Spotify:

      (a) ‘Less free’ Spotify; more caps and limitations
      (b) Paid-only Apple-relaunched Beats
      (c) Totally free YouTube (w/ some paid on YT Music Key)
      (d) Grooveshark (still alive)
      (e) Soundcloud
      (f) BitTorrent

      If that makes sense to anyone, I’d love to hear why.

      Reply
      • It Makes Sense... Like VOD...

        Paul – it makes sense in the same way the film and television industries are not operating in a state of perpetual Stockholm Syndrome when it comes to piracy.

        Film and TV have transactional streaming (VOD) they have transactional downloads (Itunes), they have limited subscriptions (Netflix) and they have an ad supported / subscription hybrid (Hulu).

        Assuming that piracy must be eliminated or there’s no point in charging for new models is a false dichotomy.

        Sure, it’s not ideal – but we’re a long way from anything that is ideal. In the meantime we need to focus on honest business models targeted to honest consumers.

        Reply
        • Sarah

          Hey, great comment. You should contact us at RepX for a demo – we’re doing basically exactly what you’re describing, but offering all the various models in a single, easy to use platform so both artists and consumers can structure things according to their individual preferences.

          We’re giving demos now and starting to invite artists onto our platform, and we’ll be launching to the public soon.

          Reply
  7. Anonymous

    I don’t get why Spotify isn’t being more aggressive with its advertising. I listen to the free spotify all the time and the only ads I ever hear are to upgrade to premium, which nets them zero dollars because I won’t be signing up anytime soon. Why aren’t they beaming targeted advertisements to me? They know my location, have my facebook information (I use facebook to login), my musical tastes, etc. Imagine an artist is playing a show in town and is able to advertise to every Spotify user that has listened to one of their songs in the last week in that town about their upcoming show? Or a local shot can advertise to anyone listening to Spotify in the surrounding area. The potential for advertising is endless, yet I have yet to hear anything targeted to my listener profile.

    Reply
    • Sarah

      Hmmm….. that’s actually an interesting proposition:

      Artist, pay to advertise for your upcoming show on Spotify so you can then get paid from the advertising revenue we get from you.

      Flow of money in this scenario:
      artist (makes payments as advertiser)–> Spotify –> artist (earns payments as royalties).

      You really need third party advertisers to make the ad-supported model produce revenue for artists. But yes, you’re right that they should be drastically improving their targeting.

      Reply
  8. Anonymous

    https://www.youtube.com/watch?v=iwDDswGsJ60

    i want my money for nothing, my rent for nothing, my food for nothing, my toiletries for nothing, my chiropractor, my masseuse, my drugs, my everything for nothing, such a big deal over tiny wee digital files of something that is everywhere, and yet never anyone anywhere ever talking about how free rent is good or how free food is good, and not just a little cracker in a grocery store, i want all my food for free, heck, put a damn camera in my house and track and spy and watch everything i do, in exchange for free rent and food and everything, forget a dang facebook and google in a lame one sided trade off, cmnon now!!!

    best digital album ever, the first one, now that aint workin…

    🙂

    Reply
  9. JTVDigital

    “there was clear evidence the availability of free music on Spotify was hurting digital downloads”
    “Hurting” to what level?
    As long as these people will stick to the simplistic “free vs. paid” thing, they’ll keep on missing the point.This is about consumers’ behavior, demographics, musical tastes, demand, ergonomy, user experience, etc.
    Nothing to do with streaming vs. download or free vs. paid.

    Reply
    • Sarah

      Yes. It’s about all of those things. And ultimately about how to respond to all of those things in order to produce a system that maximizes total industry revenue.

      Unfortunately this is an awfully complex system, with lots of moving parts, entrenched processes, conflicting interests, etc. Anyone who insists on simplifying the issues to merely “free vs. paid” or “downloading vs. streaming” should probably find a better use of his time, because nothing productive is likely to come of it.

      Now…. a conversation that delves into the nooks and crannies of this complex system, and examines all the pieces to determine how they best fit together to create a thriving music industry – that is a conversation worth having, because that’s what is going to get us to a better situation.

      We’ve been having this conversation at RepX for some time now – and it’s been strongly influenced by the comments you all write here, and on other popular music blogs and sites. If you’d like to participate more directly, and see all of our ideas actually put into a solid, working platform that you can start using, we’d be delighted to hear from you, and work with you as we create the next evolution of the music industry.

      Sarah at repx.net

      Reply
  10. superduper

    My theory is that streaming is inherently worth less than any other format by design, and that when you pay for $10 you basically pay for nothing, so you might as well get if for free by pirating it. In other words, there is no real incentive to stream because there is no real intrinsic value in streaming. Streaming is basically worthless in my opinion and it reflects in consumers’ attitudes.

    Reply
  11. Anonymous

    “Without Free, Pay Has Never Succeeded”

    That’s ridiculous — pay succeeded until Napster, Pirate Bay and Spotify.

    Reply
  12. FarePlay

    It begs the question. Does Spotify have a for-profit business that enough people are willing to pay for? Who ever said their suppliers, musicians and songwriters, had agreed to support and bankroll their business until it was “successful”.

    Reply
    • jw

      Effectively, they agreed to it when they signed their distribution deal, or sold the rights to their recordings.

      If they would like their music removed, they can probably have it removed, depending on what they’ve agreed to, contractually. (A la Taylor Swift.)

      So who are you really advocating for? Folks who don’t agree with Spotify’s business model, yet refuse to remove their music from the service? If Spotify is really so bad, these artists should just abandon the platform. Right?

      Reply
      • FarePlay

        Watch what you ask for. I’ve been advocating for artists for years, you know that. Spotify is trying to buy their way back into the music biz. They’re prolonging their destruction of the music business. Rumors of a billion dollars, that they don’t have, to get through this renegotiation process.

        Spotify’s got one goal, IPO. One business plan, one exit strategy.

        Reply
    • Name2

      Who’s bankrolling whom?

      UMG waits for Spotify checks like a trust-funder at the end of the quarter.

      Reply
      • Paul Resnikoff
        Paul Resnikoff

        And how much money are they actually getting? Spotify leaked $1 billion, UMG says that’s BS.

        So, if you’re waiting for a trust fund check, and the checks aren’t that great — and, won’t last forever, what do you do? UMG may simply be waking up and realizing they want a business model that goes for more than 3 years.

        Reply
        • Name2

          So, if you’re waiting for a trust fund check, and the checks aren’t that great — and, won’t last forever, what do you do?

          Get a job?

          Reply
  13. Musicservices4less

    Hey, I think I have a business model that is far superior to Spotify’s and will positively, definitely, 100%, without a doubt, get more streams, users, people, etc. than Spotify ever dreamed possible.

    Here’s the business structure. I will use (without Spotify’s agreement or consent) all their technology to create “Spotify Ultimate”. And then ELIMINATE THE PAID TIER!!! Isn’t this brilliant!

    By the way, I am going to use everything from Spotify including using their name just because I can and of course everything on the internet should be free.

    Also, I already have the venture capital because 1) I need to pay myself and my enormous staff millions of dollars just because we can and 2) the venture capitalists figured out that once we capture the entire world on our site, we will figure out how to make money. But first, it all has to be free. WEEEEE!

    Reply
    • JTVDigital

      Actually (even if it was a kind of joke probably) it reflects what most random people think, there is not that much difference.
      The only real difference is this “interactivity” (radio is passive / non-interactive listening whereas Spotify is interactive streaming).
      You can turn on the radio and listen to music all day, for free.
      How do you explain to the people who listen to free music on radio that they have to pay for doing exactly the same thing from their computer or mobile phone using Spotify (or any other premium streaming offer)? Oh yes, they can choose what to listen and when to listen. Woah. Is that worth 9.99$/month? Certainly not. At least not for that type of audience.

      Reply
      • Musicservices4less

        Yes that is the difference and it is huge. The reality is that “radio” never has, including now, chosen what its audience listens to. Payola is there and bigger than ever and now completely controlled by the 3 major labels. After 15 years of trying to explain to the people the difference it obviously hasn’t worked. So you see what the majors approach is now. And the only thing independent labels can do is support just about any action that reduces the availability of “free”. We know that anything that makes it harder to get free “induces” more purchases and use of paid tiers. Now you yourself may be very tech savvy and have the ability to obtain “free” no matter what. However, the volume of music purchasers have traditionally skewed in the age group of 12-18.
        We are trying to make it more difficult for them to get “free”. And, btw, “free” means not authorized.

        Reply
        • wallow-T

          “Now you yourself may be very tech savvy and have the ability to obtain “free” no matter what. However, the volume of music purchasers have traditionally skewed in the age group of 12-18.”

          Shawn Fanning was 18 when he developed the original Napster. Don’t underestimate the abilities of kids to fit digital pieces together to get what they want.

          Reply
      • Name2

        How do you explain to the people who listen to free music on radio that they have to pay for doing exactly the same thing from their computer or mobile phone using Spotify[…]?

        You lie like a rug because, be it radio or free-tier streaming, no one’s paying for choiceless, ad-stuffed music.

        Reply
        • Sarah

          You lie like a rug because, be it radio or free-tier streaming, no one’s paying for choiceless, ad-stuffed music.

          I just love your comments. What a great phrase, I haven’t heard that in a while. That made my day. 🙂

          p.s. I agree with that statement.

          Reply

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