Music: Keep an Eye on Spotify

By Jerry Del Colliano

If you haven’t heard about the European music streaming site Spotify, I think you'll be interested.

Spotify is headed for the U.S. sometime after the new year. In Europe it is getting rave reviews and making lots of friends.

But when Spotify tries to monetize its operation through monthly consumer charges, a very popular service may become less desirable.

The question is what makes Spotify different from the dearly departed Yahoo Music Unlimited, MTV Urge or Virgin Digital – all three of which failed miserably competing with Apple’s iTunes story.

Spotify launched in late 2008 and it is serving up both free and premium options for on-demand music.

With Spotify, a consumer gets access to over six million tunes. The free model is ad-supported. There is a mobile version for iPhone and Android devices in Europe so you can see how the scene is being set for the launch here and a way of caching 3,000 songs.

Will consumers pay $15 a month for the premium package?

They haven’t been willing to sign on for these types of ventures previously -- at least not in large numbers. After all, young people live in a world of bit torrent sites, illegal piracy and buying what they absolutely must own for 99 cents or less.

Why pay more?

Why pay anything at all?

Well, the major labels love the idea for Europe which ought to tell you that there is something wrong with Spotify’s paid model.

The labels haven’t been able to spot a trend since the 33 1/3 RPM record – and even then, they were probably trying to hold on to the 78. (I kid the labels here, but really, they are so out of touch with today’s consumer that their wish for a monthly cash stream in return for a monthly music stream seems to be more fantasy than reality).

Remember what I always say -- observe the sociology not just the technology.

Talks are going on between Spotify and the U.S. labels as if the U.S. labels really have a negotiating position.

Here’s the thing with streaming.

Streaming is the new music radio.

Every label, artist and writer should want their music streamed on these popular free services because it is the new age way for consumers to discover music.

Radio got out of the music discovery business when top 40 became top 25 and when playlists were cut sharply to game the Arbitron ratings diary system.

You see broadcasters doing the same thing again as Arbitron rolls out its Portable People Meter that records drive-by listening from encoded signals picked up by respondents who carry the PPM device.

Someday when all this fuss dies down and smart programmers get together to analyze how they let radio give up its music discovery monopoly, they’ll find that they were more concerned with playing to Arbitron than to listeners. That’s why PDs argue that if they cut their playlists, they succeed – even today.

True – they succeed with Arbitron.

They don’t score with music loving consumers who are continuously abandoning radio for the digital frontier.

Back to streaming music services such as Spotify – they allow consumers to sample music without having to buy it.

Isn't that what radio used to do!

Spotify needs to sell advertising to make its money but may not be able to sell enough of it to satisfy the greedy record labels. Spotify does a good job in tastefully inserting ads, but in the end if their model is built on getting consumers to pay $15 a month for access, I’m saying chalk this one up, too.

In fact, Spotify has only been able to convert 10% of its European customer base to monthly streaming fees. Its policy is to convert so-called “freemium” customers to premium.

And to that I say, good luck with that, too.

We’ve been there before.

Rhapsody had fewer than one million customers willing to pay for streaming. The new fangled Napster about three quarter of a million when Best Buy bought it. That’s scary, too. Best Buy owning Napster.

One thing Spotify gets right – real right – is how important mobile access is to its strategy. No streaming music service will make it if it is tethered to a computer or laptop.

The deal is to get mobile users who, after all, buy applications for their smart phones, to pay. In the past mobile subscription services have required syncing between the home computer and mobile devices if for no other reason than to attest to the fact that the consumer still has a paid license. Since the music is streamed instead of downloaded, Spotify avoids the problem.

So consumers can cache more than 3,000 tunes on mobile devices but they still have to check in and verify that they still have a license.

In case you’re wondering what "He" would do (“He” being Steve Jobs), it is significant that Apple is not standing in the way of Spotify when it wants to use an Apple app to go mobile here in the US.

That should tell long time Jobs-watchers something significant.

Jobs understands that streaming is the new radio – why else do you think Pandora is on its way to being number one in online stream just barely behind CBS Radio and ahead of Clear Channel (see the Ando Media chart to the left).

Let’s put it like this.

In the past, consumers discovered the music on their radios and then went to record stores to go buy what they could afford – singles, albums, whatever.

It’s really no different today except that streaming services help consumers discover music – radio still has uncomfortably tight playlists everywhere – and then they can buy what they want from the iTunes store or a traditional CD if they want.

Radio has so many ways it can be in the music discovery business if it wanted to and we’re going to get into that at my January Media Solutions Lab in Scottsdale, but for now consumers are continuing to have their way with the record industry and broadcasting interests.

Watch Spotify because of its significance as a music discovery streaming system that consumers need and want.

Not a replacement for the CD, legally downloaded music files, pirated bit torrent site downloads or essential monthly consumer expenses such as text messaging packages with their mobile carriers.

Don’t mistake it for a replacement of the profit that record labels lost because they insist on having it their way instead of letting consumer’s get theirs.

For those of you who would prefer to get Jerry's daily posts by email for FREE, please click here. Then look for a verifying email from FeedBurner to start service.
Thanks for forwarding my pieces to your friends and linking to your websites and boards.