The Significance of the Spotify Revenue Model–A New Social Promotion Paradigm

Spotify is popular European streaming music service that has come to America.  It’s not that we didn’t already have American streaming music services from Rhapsody, Rdio, MOG, Napster, Microsoft, Sony and others, but Spotify is different, it has a free, ad-supported option besides it’s two paid options.

Allowing people to listen to music for free is significant.  Lala.com, also offered a free option, but Apple bought Lala and killed it.  I wonder if Apple will buy Spotify?  Free is a threat to the status quo, but legally free means a new paradigm in promoting music.

Would-be rock stars dream of riches so how will free music help them? To become an actual star means finding a million fans – it’s all about promotion.  If your songs sucks, no amount of promotion will help, but if they are great, without listeners no one will know.  And the best way to promote a product is word of mouth.  And social networking on web pages, blogs, Twitter, Facebook, or even email, is word of mouth promotion on steroids.

It used to be radio airplay created hit songs. But who listens to radio anymore?  Now-a-days people use YouTube.  Adele’s “Rolling in the Deep” is at 106,083,210 plays on YouTube.  Of course that could be 10 million fans listening 10 times each, or 1 million fans listening to the song a hundred times, or it could be me listening for 10 times before I bought the CD, and another guy out there listening to it for 106,083,200 times.  But this is the kind of promotion that payola can’t even touch.  Free is more contagious than the common cold. 

Most people I know who want to share a song with a friend checks YouTube to see if there’s a video so their friends can hear it for free.  But what if there’s no video?  Bummer.  There’s always finding a pirate copy, but that’s a pain and could be dangerous.

Spotify is the new kid in town that could replace YouTube’s as the go-to place to have friends try out songs.  But there’s a minor hitch.  You have to be a Spotify member and install the client software before you can play songs for free.  Now that’s not much more work than getting Acrobat Reader so you can read PDF files, but it is some extra work.  If Spotify gets the kind of market penetration as Flash then it will be a snap to share songs.

Spotify will replace Billboard as the definer of Hit Lists. But this depends on everyone using Spotify.  It would help if they had a web client.  It would also help if they had an embeddable player so web pages and blogs could just add a play button so when someone writes about a song they could press a button and listen while they read. 

WordPress does have a MP3 player I could embed in my writing here, but I’d have to load the song onto the WordPress server first, and since most songs are copyrighted, that’s illegal.  But Spotify, and other streaming services, could legally arrange to stream music to such embedded buttons, and they and the record companies would want such buttons if they also had a button next to the play button to return you to the album page where you’d see ads and more promotions for the artist and their albums.

Now this assumes Spotify remaining the only music streaming service with a free option.  What if that’s not the case?  What if they all offer ad-supported listening?  This will cause terrific competition for membership.  People will chose which service from a variety of features.  Price has always settled down to $5 a month for computer streaming and no ads, and $10 a month if you want to hear music on your mobile device (smartphone, MP3 player, tablet).  I would expect the Spotify competitors to come out with free ad-supported versions soon.  The ad supported version is like getting heroin for free.  Anyone who loves music will pop for the $10 deal eventually.

What the artists and record companies will want is the most efficient way to create massive audiences for songs.  I would guess royalties from subscription music is based on plays.  If no one listens to your album, you don’t make any money.  So they game switches from how many songs you can sell, to how many people can you get to play your song on the various subscription services.  Money from subscribers and ads are out of your control – everything is about getting people to listen.

And since anyone can listen for free, this should wipe our piracy – at least for songs on subscription services.

I’d love to be able to write album reviews and be able to embed a player for each song I review so people could play the songs while they read what I’m saying about them.  Right now I can do this:  “Rolling in the Deep” by Adele.  If you have Spotify you can click the link to play that song.  What I want is a graphic with CD controls and a play button so if you pressed it the song would play right in the browser where you are reading this.  WordPress offers that feature if I pay $19.95, but I couldn’t legally upload the song for you to try it.  If I could, I would gladly pay the $19.95 – but then the artist wouldn’t earned royalty credits.  It would be much easier for all concerned if streaming music services just offered embedding controls that WordPress, Facebook, etc. could incorporate like they do when I embed a YouTube video.

If such subscription music players were widely used, artists would get more play credits.

By the way, Adele’s “Rolling in the Deep” gained 26,000 plays as I wrote this blog.

JWH – 8/5/11

9 Responses

  1. After your last article about Spotify, I downloaded it and I loved it. I got another friend of mine interested in it too. However, my wife and my father-in-law both turned their noses up at it. They said they’d rather use Pandora and not have to think so much about what they want to hear.

  2. Sounds like random music runs in the family. Let’s see what your kids will like. No, some people aren’t music fanatics and prefer radio mode at streaming sites, or just using Pandora.

    But ask your wife and her father what they do when they hear a song they want to hear over and over again?

  3. I may be one of the few people in the known world who hadn’t yet heard “Rolling in the Deep” by Adele. Thanks for embedding it so I could find it today, almost like buried treasure.

    • It’s been a long time since I’ve heard from you. I jumped over to Switched At Birth to see what you’ve been doing, and it made me hungry. Good thing I’m about to go to lunch with friends.

      And I see you’ve been playing a number of songs lately, and from singers that suggest you should like Adele.

  4. Hi James — thought you might be interested in this — I’m attempting to write a novel (first attempt at fiction) and discovered by accident a neat trick to help me get into the heads of my main characters. I am creating I-Tunes play lists for them. One of them, a young female architect, listens to Adele-type music, plus retro beach music; another character, a male veterinarian, listens mostly to Vince Gill; while a really bad guy, a compulsive gambler who turns out to be dangerously emotionally disturbed has a kind of “theme” song by Tom Waits called “Big In Japan.” These play lists are helping me to get into the flow of developing those characters. It’s kind of cool.

    • That is very cool. I might “borrow” that idea. I’ve tried all kinds of things to imagine characters. Sometimes I see ads with people that look so interesting that I save their faces. I wish I was artistic so I could do story boards like the movie people do. Have you ever seen any documentaries on J. K. Rowling? She is artistic and drew pictures of scenes from her stories. I think the reason why she’s so successful is she fully imagined everything.

      I’ve read that movie set designers even put things in drawers or into the scenes knowing that no person will ever see them, but they feel creating such authentic sets will make the movie better.

  5. Apple now has Rhapsody as an app, which is a great start, but it is currently hampered by the inability to store locally on your iPod, and has a dismal 64kbps bit rate. If this changes, then it will somewhat negate this advantage for the Zune, but the 10 songs per month will still be a big plus in Zune Pass’ favor.

  6. Zune and iPod: Most people compare the Zune to the Touch, but after seeing how slim and surprisingly small and light it is, I consider it to be a rather unique hybrid that combines qualities of both the Touch and the Nano. It’s very colorful and lovely OLED screen is slightly smaller than the touch screen, but the player itself feels quite a bit smaller and lighter. It weighs about 2/3 as much, and is noticeably smaller in width and height, while being just a hair thicker.

    • I always thought the Zune was a very nice device and was surprised it didn’t catch on. My Zune recently died. It won’t hold a battery charge, and I doubt it’s worth getting a new battery.

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