Come on, this article sucks big time. A growth of 1 million paid subscription in just 6 months. It took Rhapsody/Napster like 10 years to get 1 million subscribers! 

What's your problem with Spotify? Why the constant negative attitude towards this service? 

Paul just laid out the business realities of what it will take to satisfy Spotifiy's investors, based on how many millions they invested.

They also force fed the service through Facebook, and came up through the ranks 10 years after Rhapsody and Napster's entree's into the world. 

Different world, different game. 

You'll need a better comparison. 

The negative attitude towards Spotify is the businessmodel for Digital Music News ;) Works every time.

"You can trot out Swedish success stories, and put a cheerleader like Chester French on the stage." This proves that Digital Music News doesn't follow the music news in Europe. In The Netherlands streaming revenues (mainly Spotify) are almost equal to the iTunes revenues. Labels expect Spotify to overtake iTunes by the end of this year. Source: http://3voor12.vpro.nl/nieuws/2012/juli/-Spotify-gaat-eind-dit-jaar-iTunes-voorbij-.html (It's in Dutch. Google translate will do the trick)

In France the streaming market is good for 39% of the digital revenue:

Source: http://www.igeneration.fr/itunes/musique-le-dematerialise-progresse-plus-vite-que-le-physique-ne-chute-91472

BTW in France Deezer is the market leader, The French like their own companies better maybe?

What happens in Sweden, doesn't stay in Sweden. It is just not happening in the U.S. yet, it will probably take more time. That's good for DMN I guess.

I sure would welcome more transparancy and artists friendliness from Spotify. It's a great company but the PR towards artists sucks. They could at least explain how the rates are calculated in general. It isn't that hard to do?

But maybe Spotify don't want to bring the news that the rate per stream will not rise? Artist who expect rates to grow above $0.01, stop dreaming. Impossible! 

Hans, I think we had this discussion already. The requirement for payrate secrecy is embedded in the individual distributor contracts. If it was widely known what each distributor receives, artists and labels would start shopping around for distributors with the best stream payrate deals.

Streaming companies are currently fads, especially where they are headquartered, and this will dissipate once alot of subscribers figure out they were drawn in by the hype and nationalistic pride, related to these companies, but are not high-volume music consumers to justify the cost of a subscription.

Spotify and Deezer are national fads. Blackberry was and possibly still is the national pride of Canada, but look where it is now.

You are right we had this discussion already. So why start it again? 

Yves,

I think you've commented on every streaming story and your pissy posts are getting old. Take up a new cause, or go write some new material in Burma and get lost.

I read DMN everyday.  And whenever DMN writes a good piece on Spotify it seems like everyone attacks them, and when they go tough/negative everyone attacks them.

Don't take it personally, it's just an article.  

They need to do better to get people to subscribe. In my opinion, they failed with the loss of the freemium idea. They had a great thing going with a limited time of free plays, but they they went back on that and now spotify can be free forever. Stupid. Why are they giving away free service to anyone? Free service should be a one month trial, at which point you pay or quit! How anyone can argue against $10/month is insane. Just pay the fkn price and feel good about it. Its $10 per month. COME ON. What a joke that people won't pay this. And I am in no way against what has happened in the music business - these last few years are the result of greedy labels, bad timing, bad business decisions, and the simple fact that music has become so easy to make and release that its value has declined a heck of a lot. Accepting that reality is part of moving forward in the business. But what company with this much funding and investment can screw around so much that they fail to get even a small portion of their promised subscribers on board by now? Its pretty pathetic to have only 4 million right now. And Spotify, if you are listening, you should know that your user interface blows. The fact that everyone has to go through facebook is a HUGE mistake. You need to understand that people want to share music and be friends VIA SPOTIFY not VIA FACEBOOK. Do you know how hard it is to find someone else on spotify if you don't both have it linked to facebook? Do you know how annoying it is to navigate you app comared to iTunes? THink about these things. Fix them. Cut off people from free use or just spam them with ads until they do. This doesn't need to be a free service, it has value. It is well worth the $10/month and I challenge anyone to explain why it isn't.

Explanation: I think the average consumer doesn't want to pay the $10 a month b/c they think that paying even this small monthly charge for another media is too much. sad but true.

They would rather take that money and purchase 5 or 6 songs off of amazon or iTunes.

However, I think they would have no problem paying the additional amount if it was bundled as part of a larger media source e.g cable bill, mobile bill, internet access bill

Very well put - couldn't agree more with you, such a pain having it facebook proprietary. Music has been devalued to the point where getting customers to pay $10 a month for all the music they want is a major hurdle. I guess if they only gave people 1 months free trial they couldnt claim such a large "customer" base to advertisers etc etc

Great post, Adam. I just got onto Spotify and, as a huge music fan reconnecting with favorites from decades past and discovering great bands and artists that were heretofore unknown to me (and detesting having my musical adventures interrupted by advertising), I happily coughed up for premium after just a few days and think it's money very well spent. I really can't imagine why, in a world where, not so very long ago, we had no choice but to buy $15 CDs to get a few songs we liked, people grouse. (I guess we all want "something for nothing and our kicks for free," as Dire Straits memorably put it.)  I also don't like the strong-arm tactics to connect it to Facebook. Things are changing so fast, though, so who knows what will be on the digital music landscape in a year or two?

It's "money for nothing," as they memorably put it.

We would like to see nothing less than a collapse of VC support for Spotify.  

We've taken a look at Spotify's numbers and have concerns about their future capabilities to resonably increase their payouts to artists.

Furthermore, because they are distributing products made in the USA, we would prefer to support a company that has greater transparency, greater support for artists and is headquartered in the USA.

Please keep in mind, I am not an economist, but I am passionate about fair compensation for musicians and all individuals who enrich our lives through their creativity and hard work.  

I Just don't see that happening Will, 

Think about it this way, Twitter has still yet to figure out how to get the gold out of the mine or monetize at all, yet they still rack up investors, and pay out early ones. 

There's too much actual, palpable traction and potential here (along with major label catalogs invested) to see this thing go away. 

Some things aren't meant to be monetized. Like twitter. Why can't people just understand that some ideas ARE NOT FOR MONEY??? Jeeze its so pathetic to hear all these people talking about monetizing this site and that one... I just laugh and laugh thinking of all the finance idiots who will lose money in the tech world because they don't get the reality that we don't go to every site on the internet to be marketed to. One day all these idiots will stop throwing money into the pit of technology and realize there's more value in making physical products and selling them than there is in trying to jump on someone else's bandwagon to try and make a profit without having done any work. Ha! I laugh in the face of those investing in facebook. A good friend of mine built that ad platform idea himself and he left the company because it was no longer about socializing, it became about money. Money that will never reach the level investors expect. Tech sites will always crash and burn because they have no inherant value. Its just laughable that investors think there's that much profit behind an idea that doesn't really sell anything. Advertising isn't worth as much as you'd think. You want to spread your brand image? Go for it. But don't expect anyone to buy or pay for anything on a social media site. We aren't there to shop. Get it? No, you don't.

You seem angry today Adam. 

I think a lot people actually do get it, but they also just want what they want. They want facebook, they want twitter, they want it all and the next thing, how they want it and it's part of their life now. 

However, all that growth and service expansion has to be funded somehow. They all have to keep the lights on and provide for the demand, and while Im sure you have an idea as to how they can do that or what is "fair" to pay the people to run it, that's not up to you, or any one of us. 

Money will always be a part of it, that's the reality. Not everyone will be a non profit. Even people shifting the way the game is played (louis ck etc) work with huge sums of money, and are all working gainfully. It's just how they choose to do it that makes it feel better to many of us (others still don't give a shit either way). 

I agree that rampant speculation, angel investment and irresponsible VC has destroyed the integrity of a lot of the tech industry, but it has also launched incredible amounts of innovation that we stand on the shoulders of now. 

So what exactly is "fair" out of curiosity? What price would fair be?

They can't pay more than they bring in, and they can't pay everything they bring in because they have a lot of serious expenses. I don't see that they can pay anymore to makes things more fair.

Casey that's exactly the problem. They complain and say that the rate is not fair, but the question " What price would fair be?" remains unanswered.

Anyway Spotify paid $180m royalties to musicians last year and is on track to double that figure to $360m in 2012. Is that fair enough? Source:

http://www.telegraph.co.uk/finance/newsbysector/mediatechnologyandtelecoms/9442034/Musicians-getting-more-than-half-of-royalty-income-from-online-streaming.html

Though I must add the Adele picture is a bad choice in this context ;)

$180-$360 Million mostly paid to labels. You will note in the article, Spotify says it does not pay back to artists.

In their own promoS spotify says it pays "rights holders AND artists"

Rights holders yes, individual artists will have to wait it out a few years

Labels taking a cut from the music they largely paid to produce and own the copyright for? Not in my music industry!

Labels do not pay to produce records.  Labels lend production funds to artists to produce records.  Artist must pay the funds back to the labels.  This is called financing.  Labels finance the records but the artist "pays". Surely you already know this basic bit of information.  (So please stop this willful misinformation campaign.)

Give me one good reason why such a company needs to be headquartered in the US.

to reassure venture capitalists

Will,

It's just supply and demand. For example, what's a "fair" price for anything you want to sell? It depends on how many sellers there are for similar products.

There is simply too much music being made and distributed today for it to command the kind of money it used to make 30 years ago.

Given the tools and the pretty much endless supply of people talented enough to make the kind of music today's listeners enjoy, there will always be people willing to do it for nothing.

Notice, I did not say this is great art. But today's listeners don;t demand anything near to "great art". 

When one musician gets tired of doing it for free, another 12-year-old will start working on his computer and in a few years will be distributing "godd enough" music through some streaming service...for free, basically.

You have a noble cause, but it's like trying to get people to refuse to play for free in a park because there is no pay. They do it because they like it.

Will,

Why do you always talk in the third person?

Maybe he is royalty and speaks for himself and the country he rules.

I think the article is right when indicating that 4M paying subscribers is not even nearly enough. What is missing in this article is the fact that Spotify has about 10M users altogeher and that means freemium/premium user ratio is very good and rising up!

What is the average salary for Spotify employees?

Information wants to be free.

This isn't a fun music play, it's a gigantic financial game.  And all of that money needs a massive return at some point in the relatively near future (ie, a few years).  Which means that Spotify needs to start putting massive heat - right now - on well-entrenched rivals like iTunes and iCloud.

Putting massive heat on iTunes equals pulling customers from iTunes.

When Spotify was launched in the UK is was touted as the "iTunes killer".

Hence Spotify's underlying business plan would be dependent on the very "cannibalisation" that they so fervently deny.

This being the case, from an indie label point of view, it is highly relevant to compare Spotify per-stream income with iTunes per-track download income. We want to get a clear idea of where we are heading if this monster is allowed to fully succeed and acheve the dreaded "scale".

Therefore the tired "can't compare apples to oranges" argument has no merit.

To all the investors and traders considering an investment in Spotify, understand inexperienced investor and trader psychology:

You are afraid to lose out on a once-of-a-lifetime investment opportunity. Let's be clear, this is not a good thing. Reasonable investment opportunities come every year if not every month.

Don't pretend you weren't warned.

I knew I saw you on the floor on the NYSE....

Perhaps you could give me some advice on my portfolio....

How long did it took Itunes to generate $1 billion in sales from digital music?

Look at Spotify growth:

2009:  $18 mil revenue

2010: $99 mil revenue

2011:  $236 mil revenue

2012: projected $889 mil revenue

A revenue of 40m per month (and growing) doesn't seem too bad - even with hundreds of millions in investment.

The whole payment to artist - even though pitiful - has been handled totally wrong.  Record labels were paid huge amounts of money upfront to upload music but Spotify pay the artists direct (am I correct on that?) - Spotify should have paid the collecting agencies who then distribute funds out so that there is independant auditing and in doing so, the collection agencies can remain impartial and negotiate on behalf of the artists on rates paid and look for improvements down the line.

If Spotify can't ramp up their numbers, then what happens... the investors fall away and the company collapses and despite millions of streams, no-one will see a penny and somewhere will sit servers with 16 million tracks ready for hacking and illegal downloading.

Apple has a complicated role in the decline of the music industry

Yes, Apple stopped that decline by allowing musicians to sell their tracks and albums after so many record stores closed.

Apple is part of the reason many of those stores closed.

And Apple killed album sales in the process. No need to buy entire albums you can just buy the songs you like. Yet artists praise iTunes and blame P2P. Now they have found a new enemy: streaming. What's next?

Finally, someone who admits that the music business model was built on tricking consumers by "bundling" songs they DO like with songs they "are not likely to like" and hiding the unlikable songs in the "bundle" known as an album.  Pretty sleazy business strategy--kind of like cable TV--and doomed to fail once the consumer has the (digital) tools to hear the entire record before making making an informed decision.  Solution: Make better records or at least records that appeal to a defined audience no matter how big or small.

Spotify's nut is too big for its britches.  Period.

Thanks Casey. iTunes was not built to help artists because the record stores were closing, it was built to be a platform to help Apple sell iPods.

I'd think Amazon and other online retailers are just as much responsible for the closing of record stores because they were competing in the physical distribution market. 

I'd like DMN to explore more into the reason of why more music fans haven't adapted streaming services in the first place? As it relates to the consumer/fan, they have the opportunity to consume music at a much cheaper cost to them (or even free in some cases) but they just aren't jumping on board at a super fast rate in certain countries.

I doubt fans are avoiding Spotify because Spotify doesn't pay artists enough. 

Are people afraid to adopt new platforms for consuming music because they are afraid the company won't last long based on the general life cycle of internet-based companies, and not just music companies/websites/services? Or do people just not like how Spotify and similar services function?

I don't know about the free service numbers, but I think people don't want to pay the $10 a month b/c they think that paying even this small monthly charge for another media is something they don't want to do.

However, I also think they would have no problem paying the additional amount if it was bundled into as part of a larger media source e.g cable bill, mobile bill, internet access bill

Most consumers don't normally spend the value of a subscription.

Moreover many don't want to be hogtied to a virtual library with likely subscription price increases on the horizon. Labels won't agree to cap total industry revenues.

You should realize that Sean Parker, founder of illegal Napster but now investor and close advisor to Spotify, has said when it receives a monopoly, they will "squeaze their balls" in reference to consumers. I personally won't be a part of that kind of business culture and my listeners will appreciate me for it.

You can likely find the Parker quote by searching DMN archives.

"You should realize that Sean Parker, founder of illegal Napster but now investor and close advisor to Spotify, has said when it receives a monopoly, they will "squeaze their balls" in reference to consumers. I personally won't be a part of that kind of business culture and my listeners will appreciate me for it."

They won't be getting a monopoly as long as they depend on major label content. The majors have made it clear they do not want a repeat of Apple. Allowing a single retailer to have a near monopoly is dangerous.

Spotify a 4 millions d'abonnés (payants) à travers le monde, mais ça ne suffit pas

Spotify isn't a replacement for album sales.

I think Spotify also faces fierce competition from Pandora and Digital Radio in the US and that could well be another underlying problem regards uptake

Have to agree: this article does suck. But, I'm addicted to DMN somehow... fml -_-

So they want more subscribers, what should they do? What should they do? Oh, I got it, open up to more countries!

Can someone please forward my idea to them?

On a serious note, I'm in Canada and I would love to subscribe (hence pay them money), but they don't want to come here... Their loss.

Or your lovely country is making it very hard for them to come in...Canada seems to protect the rights of it's artist's as well as subsidize them in a reasonable way...doesn't really sound like something Spotify is in the business of doing directly...

PS, 11 years later South America JUST got Itunes.

I say hang tight. 

When multiple streaming services are offering essentially the same thing, there must be something more to entice people to lay down a monthly fee. Specialized, curated content is what's missing.

Yea, it's called Moolah

Facebook has turned on every third party on its platform... Only supports them while it suits their purpose.  How soon til they stop jamming Spotify down reluctant users throats?  weeks, months? Quarters?

Is Spotify a failure? Or is it too soon to call?

Regardless of where they're supposed to be as a company, Spotify rocks. It doesn't make sense to own music anymore, you access it as a service and what you own is the metadata you add to it: your playlists, likes, tracks and comments you shared with your friends; Spotify totally gets this. 

And although there are some holes in their catalog, being interested in both US and French culture I'm amazed at being able to access fairly extensive catalog from less mainstream  artists from  both countries (Gil Scott Heron, Donny Hathaway, MC5, Slim Harpo, Jacques Higelin, Nino Ferrer, Trust ...) and discover tracks I didn't know before.

The main thing I was missing was a good recommendation/discovery engine a la lastfm or pandora but they just added it.

The monthly $10 I pay for my premium Spotify subscription  bring me 10x more enjoyment than the $100+ I pay for comcast and their numerous but vastly uninteresting channels!

CEO of legendary Belgian label R&S saying he's going to pull everything off Spotify

http://www.facebook.com/renaat.vandepapeliere/posts/4394655586687

"Renaat Vandepapeliere

Spotify is nonsense and killing all sales for the artist, with no income at all for them, it's insane ...

I will remove ALLL R&S Tunes from it asap .."