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Spotify: Please pay

Rory Cellan-Jones | 10:25 UK time, Tuesday, 18 May 2010

Is Spotify, the streaming service which the music industry is praying will wean its customers off illegal file-sharing, now struggling to make its business model work?

Screenshot of Spotify siteThat's one interpretation of this morning's announcement from the firm that it is now offering two new ways of getting access to its library of more than eight million tracks.

The story so far is that Spotify launched a free ad-supported service which proved so immensely popular - but, it appears, so unprofitable that the company had to close the doors to new arrivals, apart from those invited by existing users.

It then launched a £9.99 a month premium ad-free service, and kept adding new bells and whistles, such as smartphone apps and the capacity to store tracks offline.

In March Spotify said it had 320,000 premium users, and the company told me this morning that the number was now significantly higher, but that may not be enough to cover the costs of servicing all the free users and paying licensing fees to artists.

Now the firm is launching Spotify Unlimited and Spotify Open. Unlimited will give users an ad-free service for a cut-price £4.99 a month but only on their computers and without those bells and whistles that Premium offers.

And Open is a way of inviting in all of those people queuing at the free entrance without giving them as much as the early arrivals - they get to listen for just 20 hours a month, and have to put up with adverts too.

So, with a carrot and a stick, the company is trying to increase its overall audience, while persuading more of them to be paying customers.

Spotify insists that these new services are a response to a big surge in demand since a recent upgrade which allowed users to load in all of the music they owned on their computers and then share their playlists through Facebook.

That innovation made Spotify look like a real alternative to Apple's iTunes. But, with Apple rumoured to be planning its own subscription service and Spotify still not managing to enter the American market, the clock is ticking for the company and its Swedish founder Daniel Ek.

Mr Ek has worked tirelessly for the past three years, travelling the world to persuade reluctant music industry executives to do licensing deals, and winning them round to a vision of a world where consumers would pay for unlimited access to music, rather than buying individual tracks.

He has been the leading apostle for the freemium model, where you get something for nothing then graduate into a paying customer. But now the pressure is on - and Spotify needs far more of its many fans to start shelling out.

Comments

  • Comment number 1.

    Lady Gaga who had 1 million plays on spotify earned just £108 from it. They can't expect it to work when they give such poor returns for plays.

  • Comment number 2.

    Wait, Spotify is a subscription music service?!

    All this time whenever I saw integrated links or graphic-only adverts, I thought it was a news sharing service like Digg.

    I had no idea that the subscription model was already available. Now I know this, I'll look into it.

    The value of advertisements explaining what they are for, I guess!

  • Comment number 3.

    I am seriously tempted by the £4.99 a month option - those adverts can get VERY ANNOYING after you've heard them several times in a row.
    My only caveat is the poor 'radio' option, which needs a lot of songs to be recategorised, and the lack of anything which offers an iTunes 'Genius' type playlist of selections from recommended artists. If Spotify can sort these issues out then I won't have any excuse at all not to start paying.

  • Comment number 4.

    we7 launched a very similar pricing structure a few months back, at a time when Spotify had only Premium (9.99) or free. I wonder if we7's mid-sized package (no ads, but no bells and whistles) has prompted this new offering from Spotify?

    What I like about we7 is that there is no need to download any software to use it - it's all browser-based, which means I can use it at work as well as at home.

    That said, I wasn't aware of Spotify's ability to play music you already own - don't remember that being there last time I looked at it. Maybe worth another look, although I don't know if that would be enough to tempt me back.

  • Comment number 5.

    So happy about Spotify Unlimited. I use Spotify all the time, the ads are really annoying, I don't need offline or mobile, and £10 is too much. £5 I can live with.

    Wonder if they offered a slightly cheaper (£99?) annual subscription that'd be cool.

    Also, wouldn't it be great if they did a 'gift' system where I can buy someone else Spotify Premium - like I can buy someone else a Flickr Pro account.

    S

  • Comment number 6.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 7.

    "so unprofitable that the company had to close the doors to new arrivals"

    except:

    "'In five months from the launch Spotify became our largest digital source of income and so passed by iTunes', Per Sundin, head of Universal in Sweden, told the newswire."

    and

    "It's also planning a US roll out, potentially backed up with $50 million from a group of high-profile investors including Hong Kong billionaire Li Ka-shing's charitable foundation."

    I dont think they are struggling as badly as you suggest.

    Source: https://swedishwire.com/business/687-spotify-overtakes-apples-itunes

  • Comment number 8.

    Picking up on RB's comment. The Spotify app allows you to play music you already own if that music is on the PC running the app. If you want access to your own music collection from any computer, you need to use one of the cloud music services such as Psonar, audiobox.fm or tunesBag.

  • Comment number 9.

    @Simon Cross

    There is an option to gift a premium account, on the homepage it says "give the gift of music"

    i love having spotify on my phone, its awesome

  • Comment number 10.

    I love Spotify, its my favourite thing online along with Gmail.

    The free option is almost too good to be true, so it is not surprising that Spotify are having difficulty converting users over to the premium version. I signed up to premium for one month just to play with the iPhone version. Its a fantastic app, and having no ad's and a higher bit rate on the PC was nice too, but £10 is just too expensive for me at the moment. If they could somehow make a £5 a month option, i would be straight on it. For the time being though, the £5 no ad, no mobile version will bring in some extra income that Spotify deserve.

  • Comment number 11.

    I have been using Spotify free for about a year and think it is a great idea though I only listen to it now and again so wouldn't find the £10 sub very good value. Spotify really needs to develop its app to make it easy for users to find stuff they haven't listened to before, unless you are looking for something specific then the app can be a bit of a desert. Perhaps they need to encourage developers to use their data to develop apps around it.

  • Comment number 12.

    "Lady Gaga who had 1 million plays on spotify earned just £108 from it. They can't expect it to work when they give such poor returns for plays."
    The standard Spotify PRS payment (ie, the base rate paid to artists whose record label hasn't negotiated any extra on top) is 0.02p per play according to a website which deals with unsigned artists wanting to be placed on Spotify. Because there's some confusion elsewhere, that's a fraction of a pence, so 50 plays = 1 pence. It doesn't sound like much, and it isn't - a million plays would earn you £200. However, the record companies are happy with that, or with that plus something extra they might negotiate on top, and are clearly licensing their music, albeit with a few notable exceptions - for example, the only Pink Floyd songs are cover versions by other artists, which are allowed under the terms of the PRS agreement.

    If that was the problem, like it was with internet radio, the news story would be that the record companies are demanding that their fees per play be increased. They aren't. The story is that Spotify is struggling to cover costs even while only playing 0.02 pence per song streamed. According to this blog, the ad revenue plus premium subscriptions revenue is not going far enough to cover the fees paid per song plus running costs (servers, bandwidth, staff, marketing, etc).

    If anything, if they increased the amounts paid to artists they'd be in more trouble.

  • Comment number 13.

    The downturn in Spotify is inversely related to the increased popularity of Digital Radio. Music & adverts - not the newest of concepts.
    Apps like Tunein Radio let smart phone users listen to 1000s of radio stations without subscription on the go.

  • Comment number 14.

    Why do you never seem to mention Napster when you run these stories? With its subscription models. Spotify is aping Napster, with the new £4.99 price looking like a direct reaction to the change made earlier by Napster.

    Napster has always allowed users to share playlists and recommend songs - features lauded as groundbreaking recently when Spotify added them.

    And Napster still does something that Spotify does not: the To Go service allows subscribers to download their tracks to their mp3 players.

    I think Spotify is great, but Napster still beats it on features and content, and has been operating a legal subscription service in the UK for much, much longer. Please report these things in a balanced way.

  • Comment number 15.

    Just a pity they limit themselves to so few countries. I liked using it when I was in the UK, even enough to pay 9.99 a month for it. But I'm fed up having to jump through hoops (i.e. VPNs) to use online services not available where I live now. I wish they would realise that we live in a global society now and country restrictions for internet based services are ridiculous.

  • Comment number 16.

    @James
    "Lady Gaga who had 1 million plays on spotify earned just £108 from it. They can't expect it to work when they give such poor returns for plays."

    If her track gets played once on Radio One to 12 million people, do you think she gets more than £108? I doubt it.

  • Comment number 17.

    Sorry, over-estimated the R1 audience in my post #16. Chris Evans on R2 or Chris Moyles on R1 might feasibly play the track to 8 or 9 million on a good day. But you get my point.

  • Comment number 18.

    I can't really understand how £10.00 per month is too much to charge for effectively unlimited music. The amount I used to spend on music would have racked up a substantially higher cost and left me with music that I might grow bored of.

    Spotify offers a much more dynamic music collection, including the facility to have something like 3,000 odd tracks downloaded and available offline at any point.

    I suppose it's another example of today's something for nothing society.

  • Comment number 19.

    So if Spotify closes up shop and Last FM now not hosting any music (just linking to WE7 etc..) i assume the 3 strikes rule will be repealed?

    As when it was been introduced we were told about all the "great new free ways to access music like Spotify and Last FM" and that they were an alternitive to piracy, now they both are on the rocks surely 3 strikes is untenable?

    What, the system dosen't work like that and the Government is a slave to big business and the entertainment industry? Oh big surprise.............

  • Comment number 20.

    @Pegsinho

    The difference is that i used to spend a fair bit a month, and walk away with a cd, that i kept forever, with no further cost if i stopped buying cd's, i still have it
    with spotify if i stop paying, i no longer have any music to listen to.

  • Comment number 21.

    Neilly,

    Spotify Premium (and also Spotify Unlimited) can be used anywhere! You must register in one of the countries on the site but after that if you have premium you can use it anywhere.

    See the feature list at [Unsuitable/Broken URL removed by Moderator]where it says "Take your music abroad" :)

  • Comment number 22.

    @Fred Cox

    "The difference is that i used to spend a fair bit a month, and walk away with a cd, that i kept forever, with no further cost if i stopped buying cd's, i still have it with spotify if i stop paying, i no longer have any music to listen to."

    I've been subscribing to Napster for 6 or 7 years now. The thing that makes the subscription worth the price with respect to CDs you keep is that before Napster I would buy about one CD every week or two, say £30 a month. I'd perhaps listen to those CDs a few times, but after a month or so I'd move on to something new. I have many CDs that I rarely listen to.

    However, occasionally, let's say about once every couple of months, a CD comes along that stays with you, becomes one of those favourites you want to keep and play forever.

    This is where Napster and Spotify shine. Instead of paying £30 a month and having 3 CDs, I can pay £10 a month, listen to a 100 CDs, and buy, say, one that I'll want for the long term, for a cost of perhaps £20 a month.

    I get to listen to vastly more new music. I get to unearth real gems, not fads, or albums with a couple of great singles and then endless filler. I end up with a better CD collection.

    And I save money.

  • Comment number 23.

    I need to try this application. I never try Spotify before.

  • Comment number 24.

    I agree with Graham about Napster it needs to get mentioned more, it has probably a bigger back catalogue then all of the other streaming music services although there's a few gaps it has stuff like The Glee Cast and Bob Dylan which aren't available for UK users on Spotify.

    Spotify is great but so is Napster

  • Comment number 25.

    Someone asked what she'd get for the song if it was played on Radio 1:
    "Royalties vary from about £75 every time a song is played on Radio 1 to a tiny share of the £100 annual licence fee that the PPL charges to pubs, clubs and restaurants for the right to play music." (The Times, May '09)
    It's calculated on the basis of listeners, so a larger station will pay more (naturally, if they're commercial, offsetting this by increased prices for ads).

    So assuming 0.02p per play on Spotify and £75 a pop on Radio 1, you'd need 375,000 plays on Spotify to earn the same amount.

    (For what it's worth, Spotify said that the £108 figure quoted for Gaga's Poker Face was a partial payment made to one of its songwriters, not "what that song has earned from 1m hits".)

  • Comment number 26.

    It's really funny that just yesterday, probably a couple of hours after this announcement, I bought Spotify Premium. I hadn't heard about this new system. I'm getting an iPod Touch on Friday, on which I hope to be using Spotify. If it doesn't turn out to be as good as I'd hoped, I can easily switch to Unlimited, so this is good news.

    I just really ho[e that any kind of pessimism from this article isn't true, because I really would be very very sad to see Spotify disappear!

  • Comment number 27.

    @dandelionblue
    "So assuming 0.02p per play on Spotify and £75 a pop on Radio 1, you'd need 375,000 plays on Spotify to earn the same amount."

    Is that £75 the artist's share or the total royalty for playing on air?

  • Comment number 28.

    A lot of you are missing the real problem which is that the subscription service does not offer the direct debit payment system which is protected under the direct debit guarantee.

    I don't know how many of you have tried to cancel regular card payments, but you cannot do it through your bank, unlike direct debit. Also it is not protected from errors, again unlike direct debit.

    This is the only reason I do not subscribe to Spotify premium. Direct debit is safe and reliable and gives me control over the payment, as well as protecting me from mistakes.

  • Comment number 29.

    Spotify have release mobile applications for Symbian (Nokia,etc), Android and the iPhone: https://recombu.com/news/breaking-spotify-launches-symbian-application_M11192.html

    I think they've pretty much nailed it from a mobile phone perspective - which you have to be a subscribing member to use. I like the 4.99 price plan, since I don't really listen to music on my phone much - but do tend ot whilst I'm working - either at work or at home. So I would deffinitely be inclinded to subscribe to that.

    I can quite see why they would be struggling however to say "I suppose it's another example of today's something for nothing society." is absurd, free users have to listen to ads - if the ads are making enough money to cover the cost of playing the songs, Spotify need to look at how they can improve what they're earning from it. In my opinion it should be self sustaining.

  • Comment number 30.

    Hey, there's another streaming service which plays music along with the videos, can be accessed on phones, is free, and doesn't even require you to create an account. You can even download the music from it.

    It's called YouTube.

  • Comment number 31.

    Hmm. For £10 per month I can buy 10 iTunes songs every month, and keep them for ever and play them on whatever I like. Maybe even a little cheaper on Amazon. After a few years I'll have hundreds of songs in my collection, but with spotify as soon as I stop paying I have nothing.

  • Comment number 32.

    I was only thinking this morning on the way to the office (as I listened to Spotify on my mobile) how clever this all was and what would I do if it were to close down.

    I do hope that Spotify gain more paying customers by reducing the cost to £4.99 a month giving at least on a computer ad-free music.

    I only use Spotify now for music. I never liked (and still hate) iTunes to manage and purchase music. I bought an iPod few years ago and was annoyed how I had to use it to manage my collection, bought from iTunes or not. Then I tried Amazon’s mp3 service, which at least allowed me to do with the song I bought what I wished with ease.

    I am not saying things should go backwards – but in the ‘old days’ one had to go out to a record store and buy the music, be it on Vinyl, Tape or CD. I remember copying tapes and then handing them to friends and them vise versa. But see that was all small scale. Now we have fast connections and computers that can rip a CD in a couple of minutes and then burn that CD over and over or ‘share’ that music to anyone anywhere it is of course easy and tempting to do. Why pay when one can do for free?

    We might all moan but we never have owned our music, just the right to play our music. We OWN the media the music is put on, not the sounds you might say.

    So along comes Spotify, and others who offer ways to consume music free with adverts – then we moan because of them. So we have a premium option, £10.00 a month all you can eat. But we moan that is too much. So they add more to it and mobile apps letting us take that music we play listed with us. Then we moan that we cannot have the music from our CD’s and Mp3’s that are on our computer at home with us in the app on our mobile on the bus.

    Let’s face it the only way any company could have 100% user love would be to have the ideal player, full of features, mobile apps, ability to store and stream music from our collections around the house, the car, the mobile the mp3 player unrestricted, have no adverts and not have to pay anything towards it. Only no such company could exist, no record company would support it and so that ain’t never gonna happen!

    We have what we have and take your pick how you get your music. For me, £10.00 a month to have my music with me, at home and even at work (downloaded Spotify here) is peanuts. I used to pay 79p - £1 a track and sure I could ‘own’ it and save it to my iPod, computer, laptop, mobile etc..But I had to wait while these transferred back it all up just in case etc.

    If you really want to keep what Spotify has to offer for free, do like we all used to. Record off the Radio (remember that) well how about you record from Spotify and make mp3’s for yourself. Now that a whole new kettle of fish...

  • Comment number 33.

    Grooveshark.com is where it's at im ny opinion. I used Spotify for less than a day, I stumbled upon grooveshark.com which is totally free and allows all manner of track selection and playlist creation that last.fm does not give while also allowing a "radio" button to play you similar tracks like last.fm and pandora did before.

  • Comment number 34.

    Ahem are we all forgetting that over 75% of global music sales and finance. (Gigs, Cds, Downloads, Publishing, Writing, licencing.) is owned by 3 massive companies. Essentially cartels and monopolies will shoot themselves in the foot.

    I couldn't care about lady gaga lack of profits. She should look at Nina Simone (The best female musician and singer of all time) She was ripped off her first few albums and struggled to make a living as well as being heavily censored. The industry model for music itself is wrong and dying. These old dinosaurs of record labels will die eventually. Long over due if you ask me.

  • Comment number 35.

    @ 34:

    I agree with you. The problem with the industry is the fact the 'Big 3' control so much, they want more and more control and frankly even within such record companies the least they think about is the artist who are signed to them, but more the profits. All about money at the end of the day for them.

    Perhaps what is needed is for example EMI to set up shop with s 'Spotify esk' version, where their whole catalogue is available to be played. Then Sony might well follow and so on down the line.

    And Pigs might fly.

    Record companies love DRM and they would have us all, if they could, not consume any media online but physically have to purchase it. I bet they wish when CD's were invented they had all come with players which had a DRM system preventing us from copying the CD's (just like with DVD's)

    Then they would all get their money, the artists a small slice and us the listeners put up with it. But this is an argument for another day.

  • Comment number 36.

    The record companies are so annoyed that they no longer have tight control over the artists and their material that they have spat the dummy out and thrown their toys not just out of the pram, but out of the movig car that is technology!

    They have been too slow on the uptake of this wonderful technology that they are now desperately trying to doggy paddle to stay above water by imposing massive fines on consumers and flexing their corporate muscle to scrape a few quid here and there, justifying it by saying that they are acting in the interests of their artists.

    Rubbish..

    I know a number of singer/songwriters that would gladly give their music away if it got to a wider audience and encouraged them to come and see them perform live.

    Get over it Sony (et al), digital piracy will NEVER go away and will get increasingly more difficult to police - so bite the bullett and start being as creative as the artists you have signed...

  • Comment number 37.

    I am an unsigned artist and I can assure you that Spotify doesn't allow anyone to post their work. You have to go through one of their "approved" agents who charge you a lot of money just to get your stuff on it. No doubt Spotify are taking a cut from that money, there just isn't any justice sometimes!

  • Comment number 38.

    I'm one of the people who likes to have music, not just listen to it. Networks can go down, websites can crash, digital media can disappear. Whilst listening to tracks on online sites is fine, I almost invariably do still buy the CDs - and if I don't, it's because I've no plans to listen to that music again. Sort of like when you watch something on TV...and then buy the box set when it comes out if you like it.

    Spotify is a TV channel without a record button so far as I can see. I'm fine paying my 79p or 99p on itunes or buying a CD. I can put the itunes songs onto a cd as a back up and then even if something crashes there's a physical object with my music on it.

    I also don't understand how anyone can have problems with/feel restricted by itunes. Each to their own I suppose...

  • Comment number 39.

    I can't see what the fuss is with having to "pay" for streaming music or subscriptions. That's what we've got radio for isn't it? The main problem i've found with the online suppliers is the lack of choice. It's ok if you want the latest pop factor rubbish but if you want older more obscure stuff then you're stuck. I had a "look" at Spotify in the past but found that out of 3 artists i typed in it came up less than 10 tracks. Others are the same that i've looked at so it's not just spotify. The main problem being that you can't search to see who's on there without joining and who in the heck buys something without knowing what they're likely to get. Also another big problem i have is that the only way of subscribing to these things is via a card and not by direct debit, not having a card is hampering me spending money online (but that's a separate issue)

  • Comment number 40.

    My father is a prime example of how downloading/file sharing can work productively. He is an honest hard working DJ of 30 years who pays for his music and always has done.

    He owns thousands of records (which he is in the process of selling) and almost as many CDs, and of course, he owns a LOT of music he doesn't listen to or doesn't like. So now he has a system. He will download a piece of music, or even a whole album as a demo, and then he will buy the tracks he likes.

    He's never maliciously downloaded music for personal gain (like some other DJs I've known!) and he has always discouraged my brother and I from doing so.

    Having been brought up in an environment where music is as important as any other art, and is not some sort of throwaway commodity, although I do sometimes download the odd track, it's usually paid for on Amazon or Itunes. I like finding random tracks, and legal free tracks which I might not have listened, and buying stuff I'd never admit to owning (Gilbert and Sullivan!)

    Not all art is free, nor should it be - although I think if they made it a flat 40p per track, more people would be inclined to buy rather than steal! (ps sorry if this is a little rambling, I'm actually at work!)

  • Comment number 41.

    I would but being in the US they won't let me.

 

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