Spotify, Are They Ready To Crack America?
To say Spotify has a lot on its plate is a vast understatement. Conquering the US is at the forefront of their plans, yet also trying to tie up various loose ends in its service is putting them in a quite precarious position. We’ll be taking a look at what options Spotify are considering to break America and who, once they get there, will they have to face.
First, in an interview with Billboard last week, CEO Daniel Ek said “We’re making a huge investment in servers and all the infrastructure here in the U.S. So, we’re gearing up for a U.S. launch. I can’t say if it’s in one month’s time or two month’s time, but it’s looking pretty good”.
Then came reports of a new artist discovery feature for its desktop client, including a new Related Artists tab built in-house by Spotify’s own team to help users find more music they might like. These new recommendations are powered by data collected from millions of user listening hours.
Included in that report were also plans to increase the social offerings of incorporating ‘following’ artists (like Twitter) or becoming a fan (like Facebook). Spotify is also looking to become a tool to sell music, tickets and merchandise…as well as using its data to help artists and marketers better understand fans.
As headache inducing as this seems for its developers, all are quite necessary add-ons for the already well-favored service. Especially for the data, if they make such information available to artists it could win them major favor from labels who seem to be doubting its ability as of late.
For example, at a recent MIDEM panel on streaming music, labels were hesitant to lavish support on ad-supported services. Stephen Bryan, Warner Music Group’s senior VP of digital business development noted, “The concern on the ad-supported side is obviously to make it engaging enough to have an opportunity to up-sell. We believe we should be doing more to ensure we’re not undermining the paid service by creating a service so compelling that they don’t see enough value in taking consumers to the paid service”.
Labels have already given Spotify a fair bit of slack. After already lowering their expectations for payouts, how are they going to handle its subsequent trek into the vast potential goldmine of the US?
For Spotify, the best way to get affordable press and a good leg up is to partner up with an ISP; with Comcast already optioning a music program in the near future it would be beneficial to other US ISPs like Verizon or AT&T. Working with an ISP could also make way for more deals with smaller labels and more independents to grow their catalogue and help its chances competition-wise.
The company also already has experience with this; Spotify struck a deal with major Telco Telia in Sweden back in October. Going big was a strong decision because the service is due to become available on computers, mobile and television. However, it is still just an optional service to add to their ISP/mobile bill.
This is different from the blanket licensing that seems popular in the US. For example, ESPN has been charging ISPs one fee to cover everyone, and the consumers pay whether they watch it or not. The well-debated Choruss plan fronted by WMG would also be through a blanket license. It would seem highly likely that labels would push for 100% subscription rate, rather than an optional service.
In terms of optional or mandatory, it shouldn’t be so much a question of whether Spotify want to or not…but whether they can afford to rely on upgrade subscriptions. So far the answer is no. Still less than 4% of users of Spotify are paying subscribers. TechCrunch reported that “the company needs 10% to 12% of its users to subscribe to be a sustainable business” so the company can create revenue share deals with labels and not have to pay by stream.
Also, it’s good to compare competition between Europe and the US. Vodafone seems to be the biggest amongst Europe as a whole now with 450,000 paid-subscribers (in comparison to Spotify’s 250,000). In the UK where paid subscribers are a lot lower than the norm (rather than Sweden, Norway, Finland etc who are closer to the necessary 10-12%), there is we7. With new offerings of premium subscriptions at £4.99 a month (£9.99 for added mobile access) it’ll be interesting to track how Spotify will hold up against that.
As for the US, it would be difficult to believe that Spotify can garner a 10-12% subscription base. As TechCrunch said, “Americans don’t like to pay for things online…US Web audiences don’t even like free services that make money through intrusive advertising”.
On top of that, one needs to consider not only competition, but trends on consuming music being different in the US. For competition, not only is there American-based MOG offering $5 on-demand streaming but Rdio from Skype is another hyped program which is due to offer cheaper subscription offerings.
Also, there was a report last week that internet radio is attracting over 60 million listeners a week in the United States alone. The study by Bridge Ratings noticed that, “internet-only listeners are far more likely to value recommendations and smart systems like Pandora, a trend that will grow over time”. Internet-only radio streams are perceived by Americans to be more ‘adventurous’ and are better sources of music specialization and discovery.
Delving in to Pandora in particular, the main findings included that “88% of those using Pandora for six months or less were ‘highly satisfied’ with the service… 0% were ‘disappointed”…can Spotify’s new algorithm compare with the finely tuned ‘music genome project’ that took years to develop?
The decision Spotify has to make in regards to starting up in the US is really go big or go home…with so many new features constantly being tweaked, are they ready to show it all off? If the company really does want to step it up with the competition and tack on a bunch of new features for the US release they should really take their time to fine-tune it and stop pressuring themselves to jump too early out of the gate.
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