Spotify – another one-hit wonder or a sustainable player?
Spotify’s founder Daniel Ek spoke on Friday (15 May) at the Great Escape festival in Brighton. He told the conference how Spotify had come to be and shared his vision for the future.
Spotify is the current star in a succession of well documented and debated on-line music offerings purporting to offer the solution to the holy grail of the next business model for music.
Any such service has to overcome some early hurdles in order to make an impact and enjoy success most notably:
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sufficient content to be attractive to the broad base of consumers with a wide array of musical taste;
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an easy to use interface
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most importantly a balance of revenue and licensing cost that makes it a viable business.
Spotify would seem to have the first of these sewn up, for now at least. Having successfully negotiated licensing deals with the major labels, Spotify’s repertoire is wide enough; albeit with some familiar absences (will the Beatles ever make the jump to digital?)
However, others have cleared this path before them, right now with the major labels money talks, and licenses are now easier to come by than a couple of years back when QTrax famously jumped the gun. The real tests however are perhaps yet to come. Current industry whispers are that the majors may change their position on licensing going forward and perhaps more importantly in the future it is unlikely that the relative completeness of Spotify’s repertoire will be maintained through a small number of large licenses as the shake out of the artist/major label relationship takes shape. Will smaller labels and artists individually see enough upside in the Spotify business model for them?
Spotify certainly believe there is. They are promising, down the line, the launch of an upload facility where content partners can control the availability of their own material and artist page; and there is much talk of facilitating the development of new revenue streams (downloads, ticketing etc) in addition to the share of the perhaps meagre advertising revenue which individual artists will enjoy. Time will tell as to whether the numbers add up for all parties.
On the interface Spotify have got the balance between familiarity and simplicity about right. The downloadable interface is intuitive (especially to those familiar with iTunes) and easy to use without too many gimmicks. Perhaps more could be made of the homepage which currently looks a little bare – a marketing opportunity which iTunes currently make good use of.
The statistics imply that a large population of music fans are already switched on, over 1 million across western Europe alone; but just think though what Spotify’s service would look like if bolted onto Facebook or MySpace. If and when launching Spotify becomes a default access point in the way these social networking sites have – then it will really get interesting. One senses, with the launch of Facebook connect, this is not that far off.
The recently announced mobile version of Spotify should add another dimension. Ease of use and reliability across networks will be critical.
Finally, and most importantly, revenue. Arguable the old saying that ‘Content is King’ should be replaced with ‘Revenues are Royalty’. Spotify’s current model is simple. Advertiser based, shared between the platform and label/artist. In a nutshell the key challenge is the correct balance of adverts. That debate is nothing new however – perhaps some advice on advertising inventory strategy from the commercial radio sector would be valuable?
Many artists however may find that there’s not a lot in the pot. At current advertising rates a million hits is unlikely to generate more than £15,000 gross revenue to be shared between all parties. However we are in a recession and advertising is not the hottest market. If Spotify can deliver the ultra-targeted audiences to advertisers, perhaps they will be the first to benefit when growth returns.
It is more likely however that revenue growth will come from extensions to the business models. A tie up with 7 Digital has already been announced to cater for those who feel streaming is just not enough. Watch out for future premium services, tie ups with merchandisers, ticket agencies and other ways for fans to interact with the artists. One should expect to hear the term ARPU (Average Revenue Per User) discussed more as a measure of success in the future.
So in summary, is Spotify a long player or a one hit wonder? Time will tell, but the indications are that they are innovative and ambitious enough to deal with the many challenges that await. Arguably the hard part has already been done – in getting our attention – now they need to keep it.”
