Record Labels Rein in Spotify, and its Free Listeners

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For three years now, Spotify has bridged the gap between the socially unacceptable act of downloading music illegally and the more traditional method of actually paying for what you listen to.

I, for one, have loved it. When Spotify first surfaced in 2008, anyone who registered was free to enjoy unlimited access to millions of songs with a better sound quality and loading time than YouTube could ever accomplish. All at the small cost of having to listen to a mysterious man named Jonathon promote the company every couple of songs.

Yes, you would have to wait a few weeks for chart music to surface in the otherwise pretty exhaustive catalogue of music, but seeing as Lady Gaga is played five times every night in So:bar this never seemed much of a sacrifice.

From the outset there were those that questioned if this was all too good to be true, and couldn’t quite see the long term feasibility of listeners not paying for music. Then there were others, like myself, who were all too happy not to question the business plan behind the source of the free music and keep racking up the playlists.

There proved to be a measure of cause to the concerns, as paid subscriptions didn’t increase as rapidly as the company had hoped, and their revenue stream wasn’t large enough to balance the books.

So they adapted. Last year a twenty hour limit was slapped on the service to any new registrants, as Spotify attempted to create a strong enough incentive for the casual user to upgrade to the services we would have to pay for.

And it worked. In the three years since their inception, they have managed to lure in over one million paying customers, hundreds of thousands joining as a result of the restrictions that were put in place. It seemed like good progress had been made towards finally making a music subscription service sustainable.

The company’s ambition is, and always has been, to crack the American market. However, negotiations with the major record companies, with whom they need an agreement in order to launch state-side, have been slow.

Since the late nineties, the major labels have largely been resisting the shift of music away from the control of their licenses and toward the web and all its openness. Out of a desire to retain power in the industry and continue to make monopoly profits they are using their remaining bargaining power to wring a little more cash out of Spotify.

It’s not that what they currently pay is too little. Spotify are now the second single largest source of digital music revenue for labels in Europe, but this isn’t proving enough for the record labels. In a bid to raise the extra money, they have had to enact changes.

Consequently, from May 1st all free users will now have a ten hour music limit per month, and a five play limit per song, per month. A rather larger inconvenience than the occasional advert encouraging me to get a Chlamydia test, instigated in the hope that people like myself will finally start paying for music again.

There is a twist to this though. The money paid to labels isn’t actually correlated with the amount of paid subscribers. When a song is played, whether it is by a free listener or a paying member, the record label receives the same payment either way.

So Spotify are gambling on their revenue from paying customers outweighing what the record companies will lose from listeners turning away from the service; no longer pressing that valuable ‘play’ button. If this doesn’t happen, then although Spotify may well be recieving greater income, if it this doesn’t result in American record labels making more money, they still won’t get their licenses.

With new subscription services coming out such as mflow, or Google music, it is a dangerous time for the company to test the loyalty of its fan base that was increasingly opening their wallets to them.

If I do register for the ‘Spotify unlimited’ subscription, for the princely sum of five pounds each month, it is a tragedy that the greed of  the American labels stands to be the beneficiary.

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Discussion4 Comments

  1. avatar

    I may be alone in this but I’m currently on the £9.99 subscription plan with Spotify. The reason is entirely down to the fact that with that plan I can use the App on my iPhone. As such my iTunes has pretty much fallen into disuse.
    Although £9.99 a month seems a lot when you’ve been using the free service, it’s still less then I used to spend in a month or so on the iTunes store before (horay for legal music purchases) and now I can listen to anything on Spotify wherever I go with my phone.
    That said, if I were to change phones etc I would stop the subscription. The value to me is purely from it’s mobile application.

    Sam Ling
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    I’m a 9.99 user as well. Its allowed me to listen to music on multiple devices, and multiple computers. At the risk of sounding like an advert its been great value for money.

    There are a few artists missing but you can’t have it all. Just waiting now for the windows phone 7 app.

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