Spotify: The Unicorn Has Landed...
Last week RDIO CEO Drew Larner called Spotify a "unicorn" because so many people have spoken about its imminent launch but no one has seen it.
Thursday Spotify launched in the US with a bang, the music service is no longer mythical. However, the mythology around Spotify has certainly helped it gain awareness in key circles, especially judging by the more than 200 of my US Facebook friends that have jumped onto it.
The service also has a key advantage over the incumbent music streaming services such as RDIO and MOG -- it offers a free service. The others offer just a free trial of three days before you have to pay.
The extended free service is a key competitive advantage for Spotify and it may force competitors to make a similar offer, raising their costs and extending their road to profitability.
Like the other US music services Spotify costs $4.99 for unlimited music from your computer and $9.99 if you also want it on your mobile phone/iPad or through a living room system such as Sonos.
I recently spoke with Jonathan Forster, General Manager of Europe & Global Vice President of Ad Sales at Spotify. He said it took longer than expected to secure the music rights because the music labels were more cautious about the US market. They also forced Spotify to reduce the amount of free music offered and pushed Spotify to monetize content sooner than later.
Spotify pushed back on some of the music label demands, such as interrupting songs mid-way through to run an advert. Mr Forster said Spotify is looking at some creative marketing opportunities. For example, it is talking with Groupon about potential co-marketing deals.
Today I bought a premium subscription to Spotify and it has been working extremely well despite the massive hit its servers must be experiencing. The service is extraordinary in that it plays instantly without the pause that other streaming services force on the user while they buffer content. There is never any random "shudder" in playback, which is so common and irritating on other streaming services
It can also mirror your iTunes library essentially giving you access to your collection from any computer anywhere in the world. It's an extremely solid service with a massive catalog and it's understandable why it has so many passionate users in Europe.
Here is a statement from RDIO CEO Drew Larner:
"This is an exciting time for the digital music industry and even more importantly, for people who love music. Consumers have many options, but we think they'll ultimately gravitate to a service that fulfills the promise of what true social music discovery can be. Rdio has been built from the ground up to provide a simple, fun, and engaging way to discover new music through friends and family, as well as influencers like recording artists and music bloggers. Music is intrinsically social and the future of digital music will be driven by effective delivery of that social experience."
Giles Cottle, Principal Analyst at Informa Telecoms & Media on the launch of Spotify in the US:
The US is absolutely crucial to Spotify's long-term plans. There's no escaping from the fact that the amount of money artists receive per stream from music-streaming sites is incredibly low. This is a particular concern in the US, where labels generate much of their global revenue. ... With one set of negotiations - no matter how protracted - the service now has access to a population the equivalent size of the EU.
...no music on-demand service has broken through a million paying users yet. In fact, Informa estimates that there were only 2.5 million paying music subscribers in the US in 2010, including paying users of Pandora (customized radio) and eMusic (MP3 bundles), both very different offerings to Spotify. So despite the competition, there is a definite gap in the market for Spotify, and an opportunity for it to grow said market.
...the US is a market where consumers are willing to pay to subscribe to content. A top-end triple-play package can easily cost US$150/month in the US, compared with under US$100 in Europe. 23 million users subscribe to Netflix, while over half of all users of Microsoft's Xbox Live subscription service come from the US.
And, to top it all, at US$10/month - the benchmark stand-alone cost for music streaming including mobile access in the US -Spotify is much cheaper than in Europe. That cost will drop even further if it is able to strike the kinds of subsidized deals in the US that it has with Telia in Sweden.
...what will really determine whether Spotify will thrive or merely survive is the free element, which is currently available via invite only and is capped at 20 hours listening per month before dropping further. None of the music on-demand services in the US have a free element beyond limited trials. And Pandora's rabid success is built on the back of most elements of the service being free.
While none of this may appease (understandably) cautious label execs, the fact remains that Spotify would not have got one million plus paying subscribers in Europe without being able to introduce users via the free service. It may not get that many, even across the vast swathes of the US, if it is forced to cap its free offer too quickly.
Background Info (from Spotify):
Spotify was launched in Sweden in 2008 by Daniel Ek and Martin Lorentzon, out of a desire to develop a better, more convenient and legal alternative to music piracy. Spotify is now the second single largest source of digital music revenue for labels in Europe (IFPI, April 2011), making sure that artists get a fair deal.
Spotify has more than 10 million registered users and more than 1.6 million paying subscribers across 7 countries in Europe; the US marks the 8th territory.
Spotify gives you on-demand access (with no buffering) to a library of more than 15 million songs. What's more, you can import the MP3s you already own with just one click, to create a mighty music player.