With 5m paying subscribers, 20m active users and $500m paid out to rightsholders since its launch in 2008, Spotify remains top dog in the streaming-music subscriptions market.
Yet the more it grows, the more controversy it attracts: about whether artists are making enough money from streams; about whether it can ever turn a profit; and about whether streaming really is the answer to the music industry’s woes.
Music Ally sat down at Midem this week with Ken Parks, Spotify’s chief content officer, as well as its US managing director. Up for discussion: artist payouts, Scandinavian sales, suggestions that it’s just a “search box”, and the company’s mobile plans. Starting with…
Spotify v Artists
Spotify doesn’t really speak enough publicly about the artist payouts debate, although it’s fair to say the company has been caught between a rock and a hard place on the issue.
It’s unwilling to antagonise its label licensors (and stakeholders) by talking too loudly about dodgy contracts and a lack of transparency among rightsholders, yet it has sensibly refused to criticise individual artists who have attacked the company.
“It’s enormously important that we have an ongoing and positive dialogue with the artist community,” says Parks.
“We have teams of people who engage with artists and artist managers every day, we take input from that community, and we make sure we are aligned. We definitely want the world to view us as the platform that is most attractive to artists.”
It’s pretty clear that behind the scenes, Spotify is trying to be a lot more transparent with artists about how its business model works – and by implication where the lack of transparency may lie elsewhere in the value chain.
The row still rears up regularly, with Aimee Mann’s recent declaration that “artists don’t make money from Spotify” being one example, and Galaxie 500’s Damon Krukowski’s well-argued piece for Pitchfork on his Spotify and Pandora payouts.
Bright spots? Metallica – hardly a band to turn a blind eye to the value of their music – signed a direct deal to add their catalogue to Spotify in December.
Spotify’s press releases on streaming milestones for artists including One Direction and Bruno Mars have deliberately also pointed to their chart rankings from CD and download sales to hammer home the no-cannibalisation point.
And this week, Cracker and Camper Van Beethoven musician David Lowery, who caused a stir in June 2012 with an open letter calling Spotify “not a fair system now”, gave a new interview making his more-nuanced views clear:
“My only criticism of Spotify is that the rates right now are too low. It’s entirely possible that it scales and we get a better rate. And that’s what Spotify and everybody claims. I have a Spotify premium account, and as a consumer, I love it,” he told Spinner, before noting that the key question is whether it cannibalises sales. “Anything that makes it easier for people to consume our music legally is great; it’s a step in the right direction.”
Spotify is certainly singing from the same hymn sheet. “We think it’s a great thing that millions of people who used to steal music are now paying for music,” says Parks. “We’re totally transparent about what we’re doing, and we definitely live by that principle.”
Earlier this month, figures published by music industry body the IFPI revealed that total Norwegian music sales rose 7% in 2012, with streaming services accounting for 45% of labels’ revenues (including physical sales). Meanwhile, Sweden saw 14% total sales growth last year, with streaming accounting for 57.5% of all music sales.
That’s two countries – early adopters, obviously – where streaming music services are reversing lengthy sales declines for the music industry. Unsurprisingly, that’s music to Spotify’s ears.
“It’s a very positive development for the industry, and the implications go far beyond those countries,” says Parks. “It shows what we’ve known all along: this business only gets better at scale.”
“In a market like Sweden where piracy was so ingrained it was almost a way of life, you can actually change things around,” says Parks.
“That market was absolutely in freefall. It was dead. We have revived that: digital is most of the sales in that market, and we’re most of the digital market. But before that, there was no bleaker situation than existed in the Nordics.”
Can the music sales bounce be repeated elsewhere in the world? That’s the challenge now for Spotify and its streaming rivals, whether global or local players. As the world’s largest music market, the US will be a key testing ground.
“In the year we launched there, the US experienced growth,” says Parks, referring to 2011, when US music sales rose 6.9% year-on-year – the first such rise since 2004.
“Everyone is optimistic in the US that they have seen the bottom, and we don’t see it as co-incidence that we’re part of the picture now.”
Not just Spotify, it has to be said. The company faces more competition than ever globally, from the well-funded Deezer and emerging rivals like Rdio and Rara; from device-led services like Xbox Music, Sony Music Unlimited and Samsung Music Hub; from companies with a targeted local focus like Dhingana and Saavn for India and Yala Music in the Middle East; and later this year, from headphones firm Beats’ new Daisy service.
Beats firmly parked its tanks on Spotify’s lawn when it announced Daisy earlier in January, with CEO Ian Rogers swiping at established rivals by promising its users are “not just going to get a search box… I don’t believe that any existing services out there are the people who are going to popularise the notion of subscription.”
The key battleground may be discovery. With on-demand streaming services clustering around similar price points and catalogue sizes, figuring out how best to help users find music they love is being seen as a differentiator.
Yet Spotify has been working hard to move beyond being a search box for some time now: indeed, it devoted most of its December 2012 press launch to outlining its plans for smarter recommendations and the ability to follow tastemakers on Spotify.
“Daisy is not the first company to be thinking about this,” says Parks with a raised eyebrow. “What we launched in December shows we’ve been thinking long and hard about this problem as well, and this is just the first iteration of our attempt to address that problem. You’ll see a lot of new things in the coming months.”
He stresses that Spotify is shying away from “heavy curation… telling people what they ought to like” in favour of giving them the tools to follow the artists and people that they like.
An area where Spotify also needs to innovate is on mobile. While its apps work well enough, the company has tended to introduce new features on the desktop first, with a long gap before they make it to mobile – if at all.
Exhibit A: Spotify’s HTML5 apps platform, although admittedly sensitivity about Apple’s likely reaction on iOS may be part of that delay. But with the phrase “mobile-first” all the rage in the technology industry, how important is mobility to Spotify?
“It’s increasingly a mobile-first world, and it’s critical to go where your users are,” nods Parks.
“Increasingly, people are finding out about our service first on their mobiles. They’re really engaging with our free radio product in the US, for example, so you’ll see that only get better and more customised for users, and you will see that across all markets.”
But does this also mean Spotify’s development emphasis will tip a bit more towards its mobile apps, or at least have mobile higher in its priorities when planning its roadmap of new features?
“Yes, it has to. The service, at least commercially, is four and a half years old. It launched in 2008, and that was desktop, mobile and a paywall in between. That’s no longer the case, so we have to think about user behaviour.”