Thursday, 11 February 2010

The end of Spotify?

Only a few weeks ago I wrote in this blog that Spotify was one of my internet highlights of 2009. Today Warner Music announces that it's retreating from free music streaming services and this might just mean the end of Spotify.

When I first heard the news that Warner will no longer license their music to streaming sites, my first reaction was to have a look at what we will miss if Warner takes off its songs of Spotify. I looked up 'Label:Warner' to see which artist are on Warner's label and can be listened to on Spotify. The first 15 results included Paris Hilton and Van Halen, so I thought: no real harm done – we can do without Warner on free music streaming.
But of course my reasoning is beside the point: The greatness of Spotify is that it has everything and for the service it doesn't make any difference what artists you like. Of course, when I investigated a bit more, I learned that some of my favourite artists are with Warner, and I'm sure R.E.M, Madonna and Prince will be badly missed on streaming sites by a lot of people.

So what does this mean for Spotify? In my opinion - and this is of course very preliminary – I think Spotify is virtually dead. Not that the news of Warner will take of Spotify from the internet as per tomorrow, but I've got a feeling that Spotify will easily slip into yet another forgotten web based music service just like Deezer or MySpace. They had their time and we were big fans of them. We thought they were what the future would look like. And they did give us a good idea of what the future for music in internet would look like and they helped shaping that same future. But now that we're here, they're not around any more. OK, they are still on-line, but when was the last time you discovered a new band on MySpace and how many of your friends still listen to Deezer? The piracy P2P sites have been changing constantly over the years – moving from Napster to Kazaa and on to eMule and BitTorrent. It looks like legal platforms share the same faith.

First the reasons not to panic: Warner did not (yet) say it's going to take off its tracks of Spotify. So there is still a possibility that Warner will keep his music on existing sites, but maybe they will not upload new material, or they can stop working with new platforms.
The thing is: when they do decide to take off their music, it will be a hell of a blow for streaming services. Once you can't find the music you want to hear, you'll start looking for other ways of listening to the music. And most likely people will choose illegal P2P sites to download their music again.
Even if only Warner drops out, it's still one of the 4 majors, so you can roughly estimate that you won't have access to 25% of your favourite tracks.

In their statement, Warner told that free streaming service is 'clearly not positive for the industry'. Said in another way: we don't get enough money out of our catalogue from free streaming.
Free streaming services are funded by advertising: you hear ads in between the music you hear. The business model sounds good, but advertising revenue doesn't add up to a profitable model for the labels. They just receive the royalties for their tracks, and there doesn't seem to be big money in that.
From a business point of view, the free streaming model with advertising is equal to listening to a radio station. The only issue is that when everybody was still listening to the radio, the labels were selling lots of CDs with big profit margins. So in that time, radio was supposed to help them sell records and didn't need to produce a direct profit for the labels. Now that the industry is heavily damaged, the streaming services aren't perceived as help for their sales. The industry sees it as a threat.

I guess Warner will stay on paying streaming services. Spotify and other services offer a premium subscription, in which you pay a monthly fee to have access to the music without the advertising. If the labels get their share of these subscriptions, they'll get a share of a hugely profitable market.
So here's the big question: since I love Spotify so much: would I pay a monthly fee for it to keep it service? I am inclined to say that I wouldn't.
My service would cost me 120€ per year. This is not much compared to the price I used to pay for a CD: I can buy 8 CDs of 15€ with that amount, and this includes the services for one year. Considering this, Spotify Premium is pretty cheap.
But moving from a free service to a paid one is kind of hard after one year free streaming and some more years free and illegal downloading. Ans moving to a paying service should give you a better product. Though in this case, the only change would be not to hear the ads, which is not a big improvement.
It looks like we're used to the fact that we will find our music somewhere for free: we find the video on YouTube, we have P2P downloading. When Spotify arrived, we swapped the lousy interface of P2P for free streaming and the price we paid was listening to advertising. That was acceptable. But now, is the interface worth its money? You also have to consider that the 120€ is streaming only, so you can't put the music on your iPod to listen to it on the metro. The only option is installing it on you mobile, which is still a pretty expensive way to use internet services.

I think it will be the same story like the ones we had before: first a couple of songs are taken off Spotify, then some more, and then a big artist's whole catalogue. We'll get Facebook groups named 'I bet I can find 1.000.000 people who want Madonna in Spotify'. Then you drop out once, because your favourite artist has a new album, and you can't find it streamed. And bit by bit, we'll turn again to P2P, I suppose. I will, if I'm not offered some (free) alternative. And within a year or so, somebody will mention Spotify, and I'll remember I used to like that service but I'll find that I'm not using it any more.

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