Tag Archives: Streaming Music

UNDERSTANDING SPOTIFY

Screenshot 2014-11-07 10.53.26Young people prize “access over ownership”. This sounds like the kind of thing a digital music strategist like myself would be saying to support streaming services like Spotify. However, that’s not where the quote comes from. This was said by Sheryl Connelly, who is the head of Global Trends and Futuring for the Ford Motor Company. That quote was in reference to cars and was made two years ago in an article in The Atlantic. If the access model is affecting the business model of automobiles, what chance does the music business have to change that tide?

The fear that causes an artist to withhold music from Spotify is based on emotion rather than fact. The access/streaming model is scary largely because consumers are given greater choice. A purchase model requires the consumer to make a decision on which artist to support, thereby distributing money into the hands of fewer artists/labels. The access model gives the consumer such a wide choice that they can listen to a greater variety, thereby distributing money into the hands of a larger number of artists/labels.

Yet when faced with the choices that Spotify provides, most consumers shut down and don’t choose much at all. This phenomenon is called The Paradox Of Choice, and was outlined in the book of the same name by Barry Schwartz. Many Spotify users deal with choice by defaulting into playlists that reflect their style or mood at the time they want to listen. In observing the Spotify charts over the last year, the major deviations in weekly play counts almost always correspond to being added or dropped by a playlist.

Spotify’s growth in 2014, like nearly every other digital company, has mostly been in the mobile space. What makes that interesting is that you can’t listen to a particular song on demand on Spotify’s free mobile service. You are forced to listen to music on a random shuffle instead. Most of that listening, by app design and consumer choice, goes to playlists. By extension, this means the majority of free plays on Spotify are just a different iteration of internet radio.

When you understand that, limiting music to the paid-only version of Spotify becomes an obvious mistake. That’s because much of the revenue generated in the free tier doesn’t come from the consumer’s choice, but rather the choice of the playlist creator. If an artist is not on the playlist, they wouldn’t get much of that free-tier money anyway. Conversely, a song chosen on a playlist creates new revenue that wouldn’t exist otherwise.

Screenshot 2014-11-07 10.54.59Therefore, looking at the “free tier” revenue thru the comparison to sales is incorrect. The much more accurate comparison is internet radio. By that measure, Spotify should be embraced as this tier pays a higher royalty rate than Pandora does. Furthermore, Spotify playlist choices are made editorially by either Spotify’s team or individual users around the world. Pandora’s choices are made by algorithm, which leaves exposure decisions to largely be made by machine. From this perspective, artists of all sizes should be embracing Spotify’s model. Pulling music from Spotify’s free tier is akin to dropping songs from a top radio company that appeals to listeners 25 and under.

By understanding this ecosystem, my label DigSin has been experiencing exponential growth from Spotify, and I know we’re not alone. Our marketing division, DigMark, is also being hired by both majors and indies to help navigate this brand new world. With any disruptive technology, emotional response to fear often creates counterproductive decisions. The usage patterns of both free and paid Spotify users show both ecosystems to be smart opportunities for all artists. I strongly urge the music community to not be blinded by emotion. Instead, understand the data and embrace the digital disruption.

“The only way to win is to learn faster than anyone else.” – Eric Ries