Sunday 12 June 2011

Spotify – Signing their own death warrant?

In a bid probably to improve profitability and maybe also to appease record labels who feel too much is being offered for too little, Spotify have recently changed their terms of use.

Usage of the free service will be limited to 10 hours a month and users will only be able to listen to a track 5 times ever before it’s blocked.

The aim of this is to persuade more people to join their £4.99 ad-free or £9.99 a month premium offering (which gives Mobile access and other benefits), prompting numerous comments from people saying they would just go back to illegal downloading.  The kind of people who illegaly download are probably not the kind of people you wanted anyway even on the ad-supported free model so are no big loss.

For those who would pay if the price is right, it seems as if Spotify have been too aggressive in the change.

I like Spotify but not sure it’s worth a tenner a month. How about £5.99 for the mobile version but with ads? I can afford £9.99 a month but it’s all about that perception of getting value for money.  It’s not necessarily a rational position to hold, but £5.99 seems low enough to not have to think about it too hard and can become more an impulse rather than a considered purchase.

Alternatively price the £9.99 version somewhere between £60-£80 up-front for a yearly subscription.  It’s so difficult when you’ve provided something for free to get people to pay, even if you are offering extra bells and whistles for that money.

If Spotify are thinking “If we make the free version less attractive, more people will move to paid” this would be a risky strategy and is arguably the wrong focus, a better idea might be to get more value from the ads in the free version.

Ultimately, Spotify’s move suggests they’ve not been able get enough value from advertisements to pay record labels what they would consider fair value for the content.

Anyone who has used Spotify on a regular basis will be familiar with having to listen to a small number of ads ad infinitum, including a large number of ones from Spotify themselves.

As Tesco have done with their Clubcard, Spotify have the ability to have a real understanding of who their users are and personalise communications accordingly. I would argue that my choices of what I listen to, how often and when would give a pretty good idea of the kind of person I am.

I get an email monthly from Spotify (it used to be weekly) which is a very generic “Here’s what’s new” email. They never try to sell me related content whether that be links to tours, merchandise etc., or even push me to particular bands websites or to try particular new artists they think I’d like. I don’t get the feeling they are ‘sweating the assets’, it’s more “let’s have a push on premium subscriptions this month”.

Spotify are sitting on a potential goldmine of data but I don’t get the feeling they know what to do with it. The responsibility to use this data however also lies with the record labels, here they are with an opportunity to tightly target their audience but it seems they are more interested in maintaining the current income model around royalties for plays and the odd download.

Any artist related ads seem to be the kind of polished ads you’d get on commercial radio, whilst I’m not advocating bad production values, there must be scope for smaller acts to have quick ads tightly targeted to their likely fanbase, a quick voiceover and thirty seconds of a track with a link to the band on Spotify or their Website/Facebook page etc.,

In such a competitive market as online music, Spotify’s changes could be the beginning of the end for them which is a shame as the service has a lot going for it. Personally, it’s encouraged me to listen to 6 Music a lot more with the paradox being I now listen to a greater range of music via a radio station (on BBC iPlayer) than I did when I had access to 13 million tracks on Spotify.

Dan Barnett
Director of Analytics


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