Spotify: Why the Honeymoon Is Already Ending

Spotify Now Has 200 Million Monthly Active Users
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When it comes to Spotify, European executives are usually lavishing the praise, heaping the hype, and foreseeing the future of music.

The same is true – to an extent – in North America, where the service is technically unavailable based on territorial licensing restrictions. American influencers like Bob Lefsetz and Ted Cohen are totally seduced, though others are less swayed by the movement.

On the consumer side, the groundswell is also immense and growing among European music fans.  Of course, American consumers are still out of this one, based on the availability restriction.  But when Spotify does cross the pond, they will certainly be wowed by the elegant interface and superior experience.

But ahead of its arrival, American major labels executives are showing a cooler, more measured reaction.  At the NARM Conference in San Diego on Tuesday, the reception was rather dispassionate and objective, and focused on revenue issues.  “Unfortunately, nobody is upgrading to the premium models, which is the hope down the road,” said Amanda Marks, executive vice president and general manager of Universal Music Distribution (UMD).  “There’s almost no advertising in the free section so there’s no impetus to upgrade.  From the Spotify perspective, they can’t actually sustain the business without bringing in the revenue.”

Those are major concerns – not for free-riding consumers, but definitely for major licensing parties.  And even if the advertising picture ramps, majors will still be looking to diversify.  “Listen-only on-demand is probably not something we see as a long-term solution,” said Mike Jbara, executive vice president and chief operating officer at WEA Corp., a subsidiary of Warner Music Group.

In other words – US-based majors love the service, but they really want a meaningful revenue stream – from advertising, premium subscriptions, or ideally, both.  But according to insiders, that is also a major concern among European executives as well, despite the deafening hype.

And, a concern for Spotify, a company now facing the end of its honeymoon phase – at least within the industry.  In discussions with Digital Music News, sources close to the company have pointed to a rather sober, hype-free chief executive Daniel Ek, despite the swarm of attention surrounding the company.  “This explosive adoption is almost harming Spotify in the eyes of content owners,” one major label executive relayed.  “Ek is already starting to see the beginning of a backlash.”

That sounds like a bold prediction, until Spotify is compared to the innumerable startups that have traveled a similar path.  Indeed, the digital music space is littered with heavily-funded, heavily-hyped startups that are now mired in their revenue-less reality.

Meanwhile, Spotify is stressed to spruce its model before expanding its licensing march. “The last thing they want to do is go into new territories before they’ve figured out how to convert people to the better proposition,” another executive relayed.  Indeed, that is a riddle perplexing the entire industry, even for those blessed with huge consumer engagement and interest.

Report by publisher Paul Resnikoff in San Diego.