Why the music industry is like a stuck record
Spotify has announced a new restriction for the 50 million or so users of its freemium service that bring it in $220 million in revenue: some new albums or releases by the Universal Music Group (UMG) will not be immediately available to them, and they’ll have to wait around about two weeks.
The restriction reflects the continued tension between Spotify and the record labels, who have long campaigned for restrictions to freemium users, or even for the total elimination of the free tier. According to their twisted logic, free listening is a threat because it in some way devalues the product. They claim to earn very little from the service, and in their efforts to earn more are making Spotify, a leading company with enviable growth into a loser.
Artists’ complaints about the amounts they are paid by Spotify, led by Taylor Swift, who enjoys the privileged position of being able to withdraw her music and give up $6 million in the process, ignores the truth behind these figures: it’s not Spotify ripping off musicians, it’s the record companies.
So what’s the problem with restricting part of Spotify to fifty million users, either temporarily or permanently? Quite simply, because doing so sends those users to file sharing and P2P sites. Any song is available with a few clicks, so coming between fans and the music they want to listen to creates an incentive for those fans to go elsewhere to download music rather than using platforms like Spotify.
This has been the case for some time. As things stand, the choice right now for the record companies is not to earn little or to earn what they used to earn, but between earning relatively little and going back to earning absolutely nothing. If any of the record companies really thought that their crusade to eliminate P2P sites by persecuting music fans was working, they need a serious reality check, or to stop consuming illegal substances. The only thing that has stopped people using these sites is the availability of music YouTube, Spotify and the like. Nobody has done as much as Spotify to stop unlicensed music downloads, just as no one has done as much as Netflix and other similar services to reduce downloads of television series.
Freemium is absolutely essential to encourage people to try a service like Spotify. The conversion rate from free to premium is the key to their success. Spotify, over time, has converted more people to paying users than any other similar service. It is only logical that young people will put up with advertising on Spotify for a while, but as soon as their income permits it, and typically by taking advantage of promotional offers, make the move to premium. For the record companies to ignore this reality and prefer to punish freemium users simply reduces that conversion rate, encouraging them to look for music elsewhere. Does anyone really believe that if somebody cannot find the songs they want on Spotify, they will decide to pay a subscription for the same service that has given them a hard time?
Spotify’s deal with UMG is a huge mistake that only illustrates, once again, the extent to which the record companies are like a stuck 78 rpm. Giving the labels “more flexibility for new releases” spoils the free service section, provides users with an incomplete product and a frustrating experience, discourages conversion, and sends them to the P2P and file sharing sites.
This time, Spotify has chosen to get into bed with the enemy, an enemy that has shown on all too many occasions that it doesn’t understand the world we live in today, and whose short term thinking could end up doing Spotify serious harm.
(En español, aquí)