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Spotify: ‘Our ad team is building ways for the free product to be profitable’


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Music-streaming services are famously unprofitable, with Spotify, Deezer, Napster, Tidal and others all recording losses while they try to build their businesses.

Is there a path out of the red and into the black for music-streaming, but crucially, one that will also ensure musicians are fairly rewarded for their works? That was one of the topics at the Paris Electronic Week conference, in a ‘Is Streaming the Future for Dance Music or a Dead End?’ panel session.

“For as long as rightsholders want to ask for unsustainable amounts of money upfront and unsustainable amounts of money along the way, then the economics are going to be difficult,” said Cliff Fluet of Lewis Silkin/Eleven.

“We are in a transitional phase right now. I think the labels have used their old market power in order to create something that is unsustainable. As and when the likes of Spotify, Pandora and Apple continue to grow and to represent the market, I think there will be interesting conversations that will happen in due course.”

Fluet continued: “As the labels won’t necessarily, over time, have the same control over the majority of the catalogue, I think new creators are going to start coming to these platforms direct. I think there will be new technologies that will – how can we say? – even out the market power. Provided those developments can happen before too many services go down, I think the economics of those businesses could and should look very different in five or so years’ time.”

Austin Kramer, global head of dance and electronic music at Spotify, suggested that dissecting the profitability of services at this stage in the market’s development is not necessarily the right way to look at this. Instead, he thinks the industry should be looking at the knock-on effect of the streaming economy within the artist community.

I think the focus as an industry shouldn’t be, ‘Are we making money?’” he said. “I think the focus should be, ‘Are the artists sustained to be creative, is their product being consumed and can we get it [money] to them quicker?’ I think that’s the whole point. My focus is enabling artists to be heard – and that is at an all-time high right now. It’s a good time regardless of whether we post a profit or not.”

Kramer did, however, suggest big changes are afoot on the free side of Spotify’s offering – the part that is commonly agreed on as the biggest drain on its finances but, from the company’s perspective, an essential customer acquisition platform and way to lead those listeners into subscriptions.

Our ad team is building ways for the free product to be profitable,” he said. “That’s the whole business model […] To make money, there are a few options and we aren’t exhausting those yet. I think our [primary] focus is enabling artists and secondarily it is making money on the free tier.”

Fluet said we need to step outside of the music industry bubble and look at this conundrum of growth versus sustainability from the perspective of the wider tech industry.

“The music industry does take a very different view to the world of technology and business,” he argued. “Uber is losing money hand over fist yet its market cap is something like $50bn [it’s actually $68bn according to the latest estimates]. Amazon didn’t make any profit for the first 15 years and Jeff Bazos was very clear on that. ‘I don’t want it to be profitable. I want it to be everything. And when I have cracked everything, then we will make the money’,” said Fluet.

“When it comes to business models, just expecting Spotify to have the same profitability profile as Fnac or NRJ is almost the wrong question […] If they [the major labels] keep asking for too much money and aren’t going to be paying through enough to their artists or their contracts aren’t sustainable, that’s probably going to have a bigger damage to them than it will to Spotify.”

It all, of course, depends on the core business model and the level of marketing spend around a service that can see it be profitable as a mid-tier operation or doubling down to go deeper in debt and (hopefully) emerge a market monolith like Amazon.

“We have always been sustainable through advertising and brand partnerships so we just hope to continue to grow at that level,” said Xanthe Fuller, head of community at Mixcloud. “It very much depends on the record labels and how much sway they have in the future. Right now we have very good relationships with the record labels. We have always plaid royalties and we have had licences in place right from the beginning. That means we have good relationships with the labels. But you never know in the future.”

While Spotify, in its playlist strategy, is moving to become more radio-like, within dance is it moving to be more like Mixcloud in blurring the lines between “playlists” and “mixes” and that is something that will grow in the coming months.

We are working on mixing internally and we have also signed with Dubset [to allow uploading of longform DJ mixes and other UGC] – so that’s to come,” said Kramer. “There’s two ways to look at it: you’ll have the long-form mixes like Mixcloud; and then you’ll have internal mixed content. Right now we are doing a test with electroNOW [Spotify’s biggest dance playlist]. It’s the same components as a feature called Party, which is on mobile in the ‘party mode’ where we mix the tracks for 16 bars at most.”

Beyond the broader economic debates, Kramer also hinted at how Spotify will evolve for the dance music industry in particular.

Dance music cycles quicker than pop,” he said of the comparatively high turnover of streaming within the genre, which is in a large part due to the fact dance fans tend to be earlier adopters of digital technology.

“Compared to radio, it does move quicker. Fans consume it quicker and are wanting something new – and that’s where Mixcloud and Beatport can come in. They are places where you can hear the new music immediately,” added Kramer.

“As a philosophy for my current position, we want those tracks to be consumed and we want to share that information with the world. We want the ecosystem to remain but for Spotify to help educate and to help labels and artists to know which tracks are reacting quicker.”

Kramer previously took part in a panel on the future for radio, where he claimed that “radio is of the past – it’s not relevant”.

Eamonn Forde

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