A decade can bring substantial evolution to an emerging media corporation. When I penned an article about Spotify in August 2014, I branded it a success, though also considering the potential transient nature of its triumph.
Back then, the Swedish firm was a private entity, offering music streaming solely. It boasted of 40 million regular monthly users, with a quarter of them being paid subscribers. Being inclined to purchasing music rather than renting, I considered this 25% subscription rate exceptionally high.
A decade later, Spotify now proudly hosts 626 million users every month, and among this greatly extended user pool, 246 million are paying “premium” subscribers. This accounts for 39% of their user pool.
Spotify’s diversification into podcasts has seen it evolve from a mere music streaming platform to a more inclusive audio provider. It has not only gained mainstream popularity but has also emerged as quite an influential player within the industry. The marketplace that Spotify brought to life, it continues to dominate. In recent times, they have even started to enjoy repeated quarterly financial gains.
As new as the concept of subscribing to online media was in 2014, Spotify played a significant role in promoting the idea of monthly payments for access to content, which was otherwise available for free, though with some cumbersome restrictions.
With a seemingly irresistible proposition, Spotify embodied the freemium business model rather successfully. Almost all its revenue was generated from the ad-free premium tier, while the free tier, despite its limited usability (primarily on smartphones), acted as a dependable gateway to the paid version.
However, the implications of the current picture at Spotify aren’t fully captured by these figures. Despite the impressive 39% subscribership, it’s worth noting that this rate was formerly higher. In 2019, a year post its listing on the New York Stock Exchange, it recorded a peak of 46%. Since then, there has been a gradual decrease.
The number of subscribers who opted for the free tier to economise due to financial strains, and the number that may have migrated to services provided by Apple and Amazon, remains vague. However, with a yearly growth rate of 15 per cent (taking it to 393 million), it’s apparent that the ad-funded free tier is developing at a faster rate than its premium counterpart, which has grown by 12 per cent. Despite these encouraging figures, it’s a rather pleasant dilemma, wouldn’t you agree? Attracting more users to the free tier which is supported by advertisements, rather than requiring payment, seems an achievable target. It’s working for Spotify as long as they can entice users to enrol, often with the carrot stick of a three-month trial of the premier tier, free of charge.
Yet, Spotify is not the sole entity within the music streaming world. It shares a symbiotic relationship with the music industry, spearheaded by the ‘big three’ major record companies; Universal Music Group, Sony Music Entertainment and Warner Music Group, in order of precedence. The brewing discontent within these labels towards Spotify’s free tier—a sentiment not equally shared by Spotify—is not a new phenomenon. Industry insiders are now speculating whether this friction is coming to the fore again, leading to potential implications for users who currently use the platform at no cost.
After observing the significant discrepancy between Spotify’s revenue growth and the second-quarter growth in Universal’s subscription streaming income, industry analysts at Music Business Worldwide (MBW) suggest that this could be the case. They highlight a comment from Universal executive Michael Nash, stating that there’s a potential market of 180 million consumers ready for the next influx of music subscribers. MBW speculates that Universal might not take lightly to Spotify securing these customers before its competitors in the streaming market. One method they might use to ‘rein in’ Spotify could be to target the free tier.
Both record companies and recognised artists have a history of disfavouring the free tier, primarily because it seems to undervalue their product. Before her contract with Universal, Taylor Swift, argued that “music should not be free”, maintaining a boycott of Spotify for three years. This position helped her to sweep up a vast amount of physical sales for her 1989 album.
Universal now boasts Swift in its line-up and is known for not backing down from confrontations. Recently however, Sony also voiced its discontent regarding the inadequate earnings from streaming facilitation offered by complimentary tiers such as Spotify’s. CEO of Sony Music Entertainment, Rob Stringer, has proposed levying a small charge on users of ad-supported services, on the argument that Sony believes ‘everyone is disposed to paying a nominal sum for virtually the complete musical cosmos’.
Yet, approximately 393 million Spotify users who don’t pay might disagree. Another tactic that could emerge during the ensuing round of licensing negotiations between the streaming service and the industry may be a refusal by the labels to provide complete access to their collections on the free tier, instead retaining certain albums or tracks solely for those who subscribe. Spotify has persistently opposed this, but it doesn’t always have things go its way.