Last week Spotify announced that they were cutting back their “freemium” service and limiting the number of plays per song and number of monthly hours that a user could enjoy the service without subscribing.
The service caught a lot of flack in the media for doing this, which was totally unfair. Do you actually think that Spotify wanted to do this? Hell no! So why did they do it? Clearly, the major record labels forced them to. With Spotify the industry now has a proven model that actually works with real data to reinforce the argument. The service has been operating for a couple of years and I think it would be safe to say has more subscribers than Mog, Rdio and Rhapsody combined, with well over 1 million subscribers and an impressive conversion rate of active users.
So what’s really going on? The labels want Spotify to bend to their idea of a workable model: at most a month’s free trial and then the user is forced to make a purchase decision. This, of course, is lame. It sure hasn’t set Rdio and Mog on fire. Naturally Mog and Rdio would go back to the labels and insist on the same terms, and they would get them. Suddenly you have cookie cutter services and the labels would have successfully killed a new business model that they are actually making money from. What’s particularly galling about this is that these so-called trial periods are completely arbitrary!
The labels have absolutely no basis for determining that a month (or less) trial period is enough to get a user hooked on a service. It’s just a number that label lawyers and digital execs throw out in a meeting and everybody says “That sounds good”. It’s totally seat of the pants.
As an example, when we were putting together licenses in 2005 for my old company, Mashboxx, Andy Lack, then CEO of Sony Music, had come up with the idea of letting our users “sample” Sony content before making a purchase decision. Users would get 3-5 free plays of every Sony track. “Great idea” we said.
So we started work on free streams for all Sony content and we then took the idea to the other labels and got their buy in as well. However, if memory serves me, that bonehead Don Ienner (former Columbia Records chairman and chief knuckle dragger) came up with the bright idea of inserting voiceovers at certain points in the tracks so that people wouldn’t copy the streams. Idiocy. Totally arbitrary.
We ended up being forced along with Ienner’s plan, knowing that it was beyond dumb, with the intention of dropping the stupid voiceovers a week after launch (soft launch that is). It would be much easier to deal with the labels that way because they would only be paying attention during the launch week and then turn their focus to some other poor slob.
The old saying is true when it comes to the music industry: “It’s easier to ask for forgiveness than ask for permission”. That’s the real problem, as illustrated most recently by Google and Amazon. The labels are just more trouble than they’re worth.
It easily takes years to get the licenses and huge legal fees on top of ridiculous advances that are sure to put all but the most well-funded start-ups out of business in less than a year. The recording industry just doesn’t offer any incentives for entrepreneurs to distribute and sell their goods.
Hopefully both Google and Amazon will tame these knuckleheads and finally make them eat a little crow. What’s really sad is that when you try to do things the right way like Spotify has, the labels punish you beyond belief.