It should come as no surprise that Spotify ended 2018 with 200 million monthly active users (MAUs), since the company’s Q3 financials, published in early November, predicted that it would reach 199-206 million MAUs by the end of Q4. Indeed, Spotify announced the milestone quietly in a blog post on 1 January (“In 2018, over 200 million people—yes, you read that right: 200 million—across 78 markets worldwide used Spotify…) without many media outlets picking up on it until the figure was mentioned again during interviews at the CES show last week.
Spotify took nearly eight years to grow to 100 million users (in June 2016) then just two and a half more to double that figure. The company also increased its conversion rate – the percentage of those listeners who were paid subscribers – from around 30% in mid-2016 to nearly 46% at the end of September 2018. But that conversion rate is now one of the factors in the latest tension between Spotify and major labels. Or, at least, the average revenue that those paid subscribers are generating for the company, and thus the rightsholders it licenses from.
See Rolling Stone’s article on Spotify’s average revenue per user (ARPU) for a breakdown, summarised neatly in the headline ‘The Average Spotify Subscriber Pays $5.50 a Month — and Record Labels Hate It’. Hate is a strong word, but there are certainly some salty quotes from anonymous label sources. “This isn’t really about record labels, it’s about artists — it’s about Spotify pushing down the inherent value of music in order to accelerate their customer acquisition,” said one. “Spotify is subscription streaming’s market leader, and by driving down ARPU they’re starting to do the same thing to artists that Amazon is accused of doing to authors.”
“Spotify is trying to subsidise their business model with some of this behaviour in emerging markets. The rates they want to pay the industry are so low, it’s tantamount to them asking artists to write them a check, not the other way round,” said another. These are quotes well-crafted to be incendiary: trying to set the terms of this debate as ‘Spotify screwing artists’ – a perennially-sensitive topic for the company. The timing is clearly no co-incidence either, with licensing-deal renewals in the air, and debate about how Spotify hopes to see its royalty commitments evolve.
Just more negotiating drama, then? Well, no: the topic of ARPU (and specifically declining ARPU, with WMG boss Steve Cooper recently citing “family plans and meaningfully lower price points in emerging markets” as the key factors) is an important one to address outside the cut-and-thrust of licensing talks. Few labels would argue that a Spotify subscription should be the equivalent of $9.99 a month in, say, Egypt (where it launched recently for the equivalent of $2.78 a month) or India (where it’s expected to launch in the near future, licences willing).
Spotify’s arguments will remain focused around the importance of bringing people in to a subscription relationship – in many emerging markets, piracy is still the key enemy – as well as the potential to do a better job of making money from its free tier through advertising. But the Rolling Stone article hints at the tensions that could reopen the conversation about whether Spotify’s price should rise in some of its more developed markets – whether that be a Netflix-style across-the-board rise of a dollar or two; a Tidal/Deezer-style more-expensive hi-res tier; or even (as we’ve heard mooted by one source this month) some kind of ‘membership’ tier offering other kinds of benefits.
These are all important questions, and briefing journalists that Spotify is out to screw artists is a very negative way for labels to encourage exploration of these ideas. At the same time, it will be important for Spotify to avoid seeming arrogant if it dismisses the labels’ concerns and adopts a ‘we-know-best’ view on pricing. There’s a huge opportunity to bring hundreds of millions of people into the music-subscription world over the next few years, and carefully-thought-out collaboration will be the key to making the most of that opportunity.
(On the plus side, Spotify is taking action over another tension with artists and labels that’s emerged recently: the uploading of ‘fake albums’ purporting to be by artists like Beyoncé and SZA. Witness its job ad for an ‘associate content infringement manager’ who’ll be responsible for processing “different types of incoming infringement claims efficiently and be the liaison between rights holders/claimants and Spotify Content and Legal departments” as well as improving “processes, tools and documentation regarding the handling of infringement claims”.)