Spotify is reducing the amount of music that free users of the service can stream, capping it at 10 hours per month. This should not come as a surprise. It is simply part of a “get them hooked, then make them pay” strategy Spotify began when it reduced the free service from unlimited to twenty hours listening a week.
The reasons for it doing so are clear cut: licensing requirements make offering a free, unlimited music on-demand service financially impossible. Comparisons with TV, another ad-funded medium, are off-base. The most premium TV or movie content is seldom offered immediately ad-free on TV, whereas the concept of release windowing does not really exist in music. And whereas TV advertising is a $70bn business, radio advertising, the ad-sector Spotify is most aggressively targeting, is a fraction of that.
Offering a free service was crucial for Spotify because it needed to get people used to the idea of a music streaming services, and get them to understand the value of such a service. This is something competing services have failed to do. With over 10 million registered users, and over 6 million using the free service regularly, Spotify has succeeded spectacularly in doing this. Now, though, the time has come to play hard-ball with its free users.
The other limitation Spotify is introducing is to only allow users to listen to a single track five times. This is more significant than capping the monthly play time as it ensures that users will not be able to use Spotify as a free replacement for album buying. This is what has always concerned labels the most about Spotify – and, lest we forget, while the full ownership structure of Spotify has never been revealed, it is widely believed that the major labels own a major stake in the service.
Essentially, it repositions Spotify further towards being a pure music discovery service, at least in its current form. This is not the first service to have moved in this direction. Competitor We7 is focusing much more heavily on radio-style services, in part because the license fees payable for radio are far smaller than for on-demand. It’s certainly not out of the question that Spotify would go the whole hog and launch a radio service to compete directly with the likes of We7 and Last.fm in the future.
Many have pointed out that services like Rhapsody and Napster have broadly failed to sell paid music subscriptions to a mass-market audience. The difference is that Spotify is more than simply about accessing music. It is about discovery, accessing peers’ music and sharing playlists. It’s an experience and is now part of the fabric of many people’s online lives.
A few users will return to Rapidshare, BitTorrent et al, but essentially, Spotify provides a better service and experience than these services do. For many people, this is a greater priority than unlimited, free music. And it is for this reason that Spotify has decided to act as it has done.
This blog post was written by Giles Cottle, Senior Analyst with Informa Telecoms & Media.