Surprise! Spotify Is Making Their Free Tier Even More Free

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Artists hate free streaming.  But Spotify says freemium is working — and it’s time to crank it up.

Apple Music now has 40 million subscribers.  Amazon Music boasts “tens of millions of paid customers”.  So how does Spotify expect to gain the upper hand and remain as the streaming music leader?   One way is to release a $15-a-month standalone device that streams music exclusively from your car.

Oh, and also make its free version even freer.

Bloomberg is now reporting that Spotify has started developing a newer version of its free music service.  The current version, filled with ads and limited playback options, will become easier to use, “especially for customers on mobile phones.”

The change is expected to be presented at a “news announcement” event in New York on April 24th.  This marks the company’s first major product change following a successful direct listing on the New York Stock Exchange.

Very little is known about the revamped free version, and how it would differ from the company’s Premium offering.  Spotify offered a “no comment” statement on the matter.

The move would be another doubling down on freemium.

During the company’s 3-hour long ‘Investor Day’ presentation last month, Spotify’s Chief Product Officer, Gustav Sodostrom, explained that Spotify’s free version lets the company reach “millions of consumers…on the fence about paying for music.”  It also allows the platform to collect data and “learn from the biggest possible group of music fans in the world.”

But there are more benefits, according to the streaming platform.  As free listeners find great music on Spotify, they discover “that music is an important part of their life worth paying for.”  In fact, the company’s CFO, Barry McCarthy, told investors that Spotify’s eventual scale will ultimately offset major losses.  McCarthy previously served as the CFO of Netflix from 1999 to 2010.

But wait: what if that strategy doesn’t quite work?  Business Insider demonstrated that it takes the company 12 months to recover costs from freemium listening.  Part of the reason is that free listeners still cost Spotify a lot of money, and the costs are largely the same from an infrastructure standpoint.   So, before the service can achieve profitability from a converted subscriber, it will suffer massive losses.

Even worse, a very large percentage of paying Spotify subscribers are enjoying a discount.  Analysts differ on that point, though the number of $1 discount plans, student half-rate plans, and other sweetheart deals is recognized as high.

In fact, as Spotify prepared to go public, it was already suffering annual losses of $1.5 billion.  That raises a deeper business problem: as Apple Music executive Jimmy Iovine pointed out, Spotify doesn’t have any other product besides streaming to offer users.  Companies can’t make money from streaming music alone, something Spotify has already proven.

By profitable contrast, Apple and Amazon have a massive product offering outside of streaming.  Spotify solely relies on streaming.  But don’t tell that to the gamblers on Wall Street.



4 Responses

  1. spotify devaluing music

    a person listens to a song a limited amount of times, maybe 100 or 200 times in years, depends. Will he earn more if the listens on spotify or apple? obviously on apple more. Where has the music more value? on apple of course, paid tier works for artists better, they get more value off their music.
    apple has much more power… off a 1000$ iphone, just deduct 10$. only 10$. add 10$ from the subscription. now you have 20$ for apple music. How many people will listen more than twenty bucks of music? very little people.
    Lol regarding apple they still have to try make profit somehow with their music service as standalone, but apparently they can afford to pay more than spotify.
    Back to the starting devaluing point I raised, this is what I wanted to say. I don’t want spotify to fail but they need to get rid of the freemium model. Youtube is getting rid of it (youtube remix is coming)

  2. spotify freemium is legal piracy

    basically spotify freemium is legal piracy I don’t like it

    • michael

      just saying it’s really not considering that the artists will get played based on the amount of people that listen to the son. like every 1000 or 10000 times a song is listened to they will get 10 – $100 it really isn’t piracy.

  3. Jake

    This statement is false: “The reason is that Spotify has to pay an equal amount of music licensing fees and royalties on every song streamed.”

    Spotify pays publishers and labels based on a % of ad rev (for free tiers) or a % of subscription revenue (for paid tiers). The payment amounts vary greatly based on which team the stream is taking place.