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Posted by Mark Mulligan on April 14, 2011
Spotify’s CEO Daniel Ek today announced via his company’s blog that free access to Spotify is being cut back, with total free listening limited to 10 hours a month and any song being limited to just 5 plays a month. The comments on the blog post are interestingly polarized between those who claim they’ll start pirating again and those who are vociferously in favour of the move.
For Spotify, this is a sound business move. It will buy the firm breathing space and will tilt its operating margins closer to sustainability. It will even make it easier to position a scaled-back US offering as not being a Spotify-lite in comparison to Europe.
But as much as it makes strong business sense for Spotify, it is a shame that the legal music market has lost its second most popular unlimited free on-demand service (after YouTube). As things currently stand, the economics of free simply do not add up: The amount of money that streaming music services can generate from advertising falls short of what they need to pay rights holders. Until that changes, we won’t see mass-market free on-demand music services here for the duration. And this is nothing new; I made the same comments years ago about those ad-supported free music trailblazers Spiral Frog and Qtrax (view my MusicIndustryBlog post here).
Now, many record label execs will argue that they don’t want to have legal free as a permanent component of the digital music landscape, and label pressure may have played a role here. But tough. The consumer demand dial cannot be turned back. Illegal downloading and YouTube forever changed many consumers’ perceptions of music as a paid-for commodity. These consumers expect music to be free. If they can’t get it for free legally, they’ll go to Megaupload, swap hard drives, or go to music blogs (and the behind-the-curve ones may even use P2P networks!).
Free needs fighting with free. That doesn’t necessarily mean it has to be free, but it certainly needs to feel like free. Long-time readers will know that I’ve been banging the "subsidized services" drum for years now.
But that really is how the circle must be squared -- by finding third parties that will shoulder some or all of the cost to the consumer in return for bundling the service with their products. Imagine how tiny a fraction of a three-year Spotify premium subscription would be as part of a new car sale.
Of course, Spotify has already started down this path with deals with 3 in the UK and Telia Sonera in Sweden. My view is that it is this "third way" (i.e., not free, not paid) that will be Spotify’s route to long-term success and financial security. It is also the bandwagon the entire market needs to get on, and fast.
*People old enough to get the pun will hopefully forgive me.