Free online music has never been so legal. Music-streaming service Spotify is currently providing the soundtrack to success. The brand has provided a framework where music labels make money and users can listen to more than a million tunes free of charge.
It has been warmly welcomed by the record industry, which has been struggling to find ways of generating revenue since the advent of illegal peer-to-peer file sharing and downloading services online.
Registered users are rising fast despite no official marketing spend. One million have already signed up, with 250,000 in the UK alone, according to figures from Hitwise. However, Spotify says, in unofficial figures, it has more than 1.5 million users, with 40,000 more joining each day.
Earlier this month, the service even opened its code to third-party developers to help create a range of new premium subscriber services. It has also done a deal with online store 7digital to offer track and album downloads.
The media reaction to Spotify has been couched in superlatives, with The New York Times describing it as a serious rival to Apple’s well-established music services, dubbing it “a Swedish iTunes killer”.
But Spotify UK sales director Jon Mitchell says he’s not aiming to crush the mighty iTunes but merely create a new model for allowing people to listen to music legally. “Ninety-five per cent of downloads are nicked. Music is essentially free right now. We can start to return the revenue that we generate back to the labels,” he enthuses.
But is the everyone-wins philosophy of Spotify too good to be true? The most popular service that it offers is the free ad-funded model where listeners are interrupted every 20 minutes with a commercial. It also offers a premium paid-for subscription service with no ad interruptions for 99p per day or £9.99 per month.
Yet it is not the first to try a business model of this type. Other ad-funded music services such as SpiralFrog have folded, unable to make a profit or get all the music labels on board.
Mitchell claims Spotify won’t have the same issues as it already has the four major music labels signed and has more than 1 million
songs available. It even has ambitions to offer users the opportunity to listen to unsigned acts in future.
But the aim of this year is merely to establish Spotify as a viable business, attracting advertisers to the service. “We’ve got to prove to the record labels that it is a viable business model. The aim is also to get recognition in ad land as an established advertising medium.”
Big names such as Vodafone, T-Mobile, and Sony have already signed up. But Mitchell is keen to push that the company isn’t just banking on one revenue stream. “We’re not just ad reliant. While ads are a very important part of the business, our premium side of the business is also just as important,” he explains.
This area of subscription revenue is the division that Spotify is desperate to grow. Mitchell says that while numbers are growing, they “could be better”.
Spotify plans to add more services to its premium offering over the coming months in an attempt to entice more music lovers to part with their cash. The band Glasvegas recently played an exclusive acoustic set for paying subscribers. Future additions may include artist meet and greets and VIP tickets for gigs.
These added-value offerings may not be on offer from Spotify alone. By creating longer-term partnerships with various companies and access to such benefits as retailer discounts, it hopes to attract more interest in its paid-for services.
These partnership deals are already being signed. The latest involves Universal Pictures promoting its latest film The Boat That Rocked. It links a microsite to Spotify. Those who access the comedy film campaign site can click on images of the movie’s characters and listen to their choice of songs, which launch on Spotify’s music application.
Mitchell also wants to utilise the brand’s strong legal music connections to help forge brand and artist partnerships. “We have very good relationships with labels and therefore artists’ management in terms of bringing stars to brands; maybe media owners wouldn’t have access to these people like we do,” he says.
This type of deal is a growing trend as record labels lose money and artists struggle to make money through traditional means. Jack Horner, co-founder of music marketing agency FRUKT, believes that if Spotify can provide relevant and targeted advertising to its listeners then it has every chance of succeeding. He says: “If it can get some thematic and genre advertising, that would be really exciting because then it would be entirely contextualised with the music.”
Mitchell claims that Spotify can indeed target by area, age and gender, allowing advertisers to buy their space in accordance with the audience to whom they want to appeal. He claims: “We’re able to offer the accountability of online with the targeting that radio offers.”
Although its core users so far are 18- to 35- year-olds, there are also a large amount of users over the age of 45, which means the medium will attract a wide range of brands, claims Mitchell. “It’s so easy to use, my mum can use it as well as my trendy Shoreditch tech mate.”
Despite these upbeat intentions, Spotify is likely to face difficulties convincing the masses to set aside illegal downloads and choose this as the best way to access music. The International Federation of the Phonographic Industry estimates that 40 billion files were illegally shared last year. “There’s a generation of people who don’t expect to pay for anything. It’s really hard for a publisher or a media owner to adapt to that world,” admits Mitchell.
It is too early to predict whether Spotify will be able to make the necessary adaptions to make revenues soar, grow the business and keep the record companies on-side in the long term.
But if it can convince enough illegal downloaders to switch to a new business model and pave the way for other entrepreneurial solutions, it might be enough to halt the playing of a requiem for the music industry.