Jason Hirschhorn (former co-president of MySpace and now CEO of REDEF) has been writing about 15 years of decline in the record industry and how the business can be rebuilt. The meat of the piece is where he gets into streaming revenue, arguing that the eradication of free or even doubling subscription fees to $20 a month won’t fix things. Instead, “the economics, business models and key industry metrics need to change.” Key to that change, he proposes, is how Spotify balances free and paid.
Its free users are 76% of its userbase but only contribute 9% of its revenue – so it is facing a situation where paying users are 30 times more valuable than free ones. “In isolation, a free user that generates ad revenue may be better than one that pirates,” he suggests. “But if satisfying that user erodes the value proposition of a paid service – especially one worth 30x more per user – a net disservice may have been done to the industry.”
He says Spotify is currently focusing on user growth rather than revenue growth and so compares it to Netflix, which only offered free access for a month, arguing if the latter had gone the freemium route it would have seriously stunted its growth potential. He concludes by saying, “Over the past 15 years, the music industry has been transformed in almost every way, yet the rates paid by labels to their artists remain largely unchanged. This needs to be corrected.” With revenues down 70% since 1999, the business needs to adapt, especially as the power of labels in the process of breaking acts is declining. Going back to the Netflix model, he suggests Spotify could start signing acts itself just as Netflix has invested in original programming. There will almost certainly be plenty here to have the record industry shouting at their laptop screens but also plenty to chew over.
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