Is Spotify’s ‘freemium funnel’ really working as well as they think?
Spotify says definitely yes, though very serious questions on sustainability are emerging. According to data now confirmed, Spotify has 20 million paying subscribers, but a total of 75 million overall users, of which 55 million aren’t paying anything at all. Previously, Spotify disclosed a paying subscriber total of 15 million, on a total overall user level of 60 million.
All of which means that for every 1 paying subscriber, Spotify adds 3 non-paying, freemium users.
So, is that good, or a serious problem? On the negative, there’s little indication that Spotify’s freebie dead-stock will be converting anytime soon, which presents a serious problem to labels and artists. According to data compiled by the Big Three major labels, 69% of paying subscribers make their decision within three months of having free access. That would explain recent moves by the majors to pressure Spotify to close its free-access tier to three months, though according to executives speaking with Digital Music News, recent investigations by US attorneys general in New York and Connecticut may be cooling those efforts.
In response, Spotify has flatly denied any reports that its unlimited free access window will be shortened, despite plans by Apple to limit free-access streaming to three-months only.
The old figures you state above are incorrect. It was not 15 million paid/45 million total (this would indicate 30 million free, or 33.33% paid). It was actually 15 mil paid, 45 mil free, for a total of 60 mil. = 25% paid.
Today, as you report Spotify has 20 mil paid, 55 mil free, 75 mil total = 26.66%
So, effectively, Spotify is now converting a higher percentage of people from free to paid, which is the opposite of what your headline and subsequent article would suggest. In fact, it’s not 5 free users per paid user, it’s more like 2 free users per incremental paid user.
See point 1 here: https://www.digitalmusicnews.com/permalink/2015/01/30/15-reasons-never-ever-buy-streaming-service
I’m all in favor of being precise and factual… but if we’re going for a pretense of accuracy, we should also note that “paid” is a deceptive term because we don’t know what a “paying subscriber” actually means.
Is it someone paying the list price of $10/month? Someone paying a reduced student rate or on a family plan? Someone paying $0.99 for 3 months?
After all, a subscriber paying $10/month is obviously not the same as a subscriber paying $5 or $0.33 per month – 20 million paying subscribers at $10 each produces very different results than 20 million paying subscribers at $0.33 each. Yet Spotify just announces the number of “paying subscribers” as though that’s a meaningfully complete item of information.
The lack of transparency – the unnecessary confusion and misinformation – in this industry, from all sorts of participants, is shocking.
The ‘elephant in the room’ is the rate per stream. All creators/labels have no control over the amount of times Spotify users listen to there music in a month. The more they listen to lower the rate.
There is no minimum payment to labels.
The future is very uncertain for record companies right now.
In fact subscriber growth outpaced free user growth, but that does not fit into Mr Resnikoff’s picture
It’s worth noting that a massive, undisclosed number of people that they call ‘paying subscribers’ are through bundled telco deals and the like. I was offered a year free with a new Vodafone contract in the UK. After that year would I continue paying? No I wouldn’t and neither would a large majority of those people. So what is the true number of paying subs? Sure the partner company is paying for each sub, but that isn’t the same as having a dedicated paying customer that has a lifetime value. I would guess that their actual number (educated, based on deals I know of) is more like 8-10 million paying subs. Spotify is in a lot of trouble once Apple kicks in to gear.