I remember it well. I was sitting in my student halls during my first year of University. It was early 2009. In typical student fashion my flatmate sold me Spotify with one word – ‘free’. At that time the service was in its infancy, with a limited selection of artists and features, but for a student the concept had great appeal. My reliance on iTunes was stifling my musicality and I’d always felt it lacked the required accessibility when sampling new songs. Spotify was streaming service that offered me order, whilst giving me the chance to explore – all this and it didn’t require a credit card. It was the path of least resistance, where convenience dictated its adoption. At least, that’s how it was for a penniless student. Five years on and 20 million songs later Spotify have a service that streams to 55 countries with a growing fan base of 24 million, and I’m still an avid supporter.
There is freedom to be found when you are given something for nothing and Spotify has become renowned for its ability to grow in the face of this apparent monetary barrier. With 1 in 5 paying for Premium subscriptions, Spotify has shown a willingness to invest in streaming services, allowing for a smooth transition between free and paid subscriptions – and all of this in a time of a global economic depression. The revenue stream from the Premium service alone is £575,424,000 yearly. It’s an impressive feat for any aspiring business, as I’m sure Spotify’s financial consultants will show in their annual reports. If you took the US based Pandora Internet Radio with its 150 million active users and applied it to the Spotify’s 1 in 5 that would be £3.6 billion from subs alone. Even with small profit margins Spotify have the volume to make it work. In essence, subscription fees can be big, big money.
We can see Spotify’s contribution to this revolutionary approach today. The recently released financials of Universal Music Group illustrate much of the 75% jump (from €257 million to €450 million in 2013) in streaming and subscription revenue was driven by the growth of Spotify. Significantly, major music companies like UMG, Sony Music and Warner Group have all invested minority equity stakes in subscription and streaming services, showing a presumption in the exponential growth in this marketplace. So the music industry is shifting its focus to regular lanes of revenue from consumers rather than intermittent single and album sales. This yields a regular flow of revenue whilst negating the risks often associated with traditional methods of sale.
So it would seem that Spotify is on an ever rising cloud of success with some commentators claiming it is ‘too big to fall’. Like Facebook, they could become a giant in its marketplace, a goliath in the revolution of music listening. But it could be tricky to keep all those plates spinning.
Indeed, it seems that Spotify has failed to capitalise on the potential of marketing their platform to consumers. The continual adjustment of ‘Freemium’ services in the past couple of years have left many people feeling that there is a concerted effort to force people away from the free streaming to Premium services. It is entirely understandable that Spotify are pushing this to their users, as it would provide a substantially more stable business model. But there is a need to give value for money and I don’t believe Spotify has grasped the nettle fully. Here’s why.
I’m a cautious when it comes to paying for a service when it doesn’t offer me something I don’t already have. I don’t own Spotify ‘Premium’. Spotify ‘Freemium’ gives me almost everything I need where music is concerned and it’s now available on all mobile devices, with a partial service. Frankly, why spend £119.88 yearly on a service you can only use through the Spotify platform and local file syncing. Uninterrupted listening and offline music is irrelevant in a world where the internet and wi-fi can be accessed anywhere, anytime – if Spotify lets me down I’ll be on Vevo, Soundcloud, Grooveshark or YouTube listening to music.
What frustrates me most about Spotify is its lack of connectivity. There are areas where the music is just not there for a specific genre and artists, and I understand there are label constraints that make acquisition difficult. But to highlight one – EDM is lacking and specialist branded digital content channels need to be explored further. Spotify’s ‘Electrospective’ App needed to be marketed in a vibrant and concise way – through TV, Radio and Print Media, as well as via the Internet. There are great ideas there, but as a user you have to root around for them and that is the problem which often leads people astray. Whilst mainstream music may have its revenue making benefits, it is part of a patchwork quilt of vibrant and talented artists. Spotify needs an advertising campaign that makes people stop and think. It needs to be a bang, not a whimper. But Spotify doesn’t seem to have much interest in running strong ad campaigns outside of platform promotion. It shouldn’t just be about the technology. It should be about their view of industry’s progression as a whole. All avenues need to be explored when developing a business model which currently relies heavily on ad’s PPC function via ‘Freemium’ users.
What would interest me would be the connection with consumers on the ground, not just via their phone or computer. Give Premium users the ability to develop their music tastes outside the internet ‘share’ or with their headphones on. Ron Pope, the American rock and pop singer-songwriter, recently posted an article in the Huffington Post championing the benefits of his partnership with Spotify:
Spotify allows fans to take in all of my music so that they can become a fan of me as an artist, rather than directing them to one particular single … With Spotify, it’s not about a single; the fans can pour over my entire catalogue and follow my journey from my first album all the way through to today.
He now has sell-out concerts months in advance, when before he would struggle to fill a venue. I think the point that needs to be made to Spotify is that it can draw upon his experiences amongst other artists. They could run a marketing strategy out across all media platforms to bring people together, in both sharing music online and with live events. If Spotify can propel Lorde from relative obscurity to stardom with one song in a single playlist there is surely a trick to be had. They have the tacit support of record labels and artists why not create a ‘Spotify Festival’s’ that could draw upon the community and data of regions for inspiration, and develop line ups to suit the consumer fan base. This would both silence the critics that claim Spotify is stifling young talent and support a lot of up and coming artists who would otherwise been overlooked. There needs to be an all-encompassing assessment of the music industry and its affiliations. Festival attendance is on the up, and younger generations are enjoying the ability to see their favourite artists in global arenas. Spotify has all the necessary elements to bringing the experience of new music streaming and put their name to live events.
This could allow for expansive scope in brand association and would potentially draw people into using the Premium service. Take the top two music festivals in the world – The Mawazine Festival in Morocco had attendance figures of 2.5 million in 2013 and Donauinselfest in Austria had 3.2 million. Spotify should be ambitious and aim high to bring their brand closer to the consumer. These festivals above aren’t particularly foreign friendly (Donauinselfest has an Austro-centric line-up), yet their success is symbolic of the devotion of fans and artists alike. If Spotify did produce a festival – give their Premium users discounted or early access. Propel people toward the benefits by funneling their focus. The Japanese music market (which surpassed the US as the world’s largest recorded music market in 2013) is another area which Spotify could approach. Other companies are struggling to compete with Spotify to provide global streaming services. Combine strong regional advertising campaigns with live events and festivals and Spotify could scoop in on the gap in the market between digital media and live performance. They need to think bigger, because, whilst the technical elements are in place, they are lacking a cohesive brand image that can attract people away from other preferred methods of online streaming.
Experiential marketing, the ability to engage with your customer, is vital in developing the highly socialised nature of online streaming today. It was even discussed during the Social Media Week presented by Spotify in New York this month. There is clearly an awareness of the benefits, but not a clear method to addressing the issue. Certainly, if you take the example of Red Bull or Monster, the profit of a close brand association is clear. Their ability to combine high-octane events with their brand image gives a clear indication as to the product they are promoting. Spotify is perfectly suited to shifting into this concept as part of a growing market model in the music streaming.
Elsewhere we are finding creative approaches to including mobile Apps like Spotify into everyday living. Ford has developed AppLinks that will be fitted as standard in vehicles (Ford Eco-sport at the Mobile World Congress) – allowing for brand engagement behind the wheel. The content provided can be tailored to the owner via biometrics and driving data. These are all significant advancements in digital technology that allows you to connect to anyone, anywhere. Spotify need to challenge themselves to strike whilst the iron is still hot and get ahead of the competition. Technology is limiting Spotify’s growth because it lacks the physical communication needed to learn and experience the world around you. There is only so much you can absorb from a device. So what I’m suggesting is a union between the old and the new. Everyone remembers their first live performance, the first time they stood, drenched in a sea of hands listening to the throbbing of muddy feet. Spotify can incorporate all these sensory experiences into building a better platform for music in the future.
Well Spotify, you have my attention, but it’s a cacophony out there, with clamouring voices all around… I just can’t quite make it out. You seem to be a head above the crowd… for now. But there is a need to look further ahead, to a time where the playground is flooded with marauding imitators. In this growing market Spotify need to continue to innovate to accumulate. After all, every great adventure starts with music – take the risk, step out and see where it leads you.