Tag: Spotify

Spotify Mobile: 3UK bundles with HTC Hero

A couple of weeks ago, I pondered Spotify’s impact on music business models and suggested that mobile may have a role to play in the monetization end of it (which is, unless you’re Twitter, an inherent part of a business model indeed). It didn’t take them long:

Today, the UK arm of 3 – always one of the more creative carriers – announced a handset (and not a bad one either) to be bundled with Spotify Premium (i.e. on the go and no ads): users will pay £99 up front, and then £35 a month for 24 months for a tariff including a Spotify Premium subscription covering both PC and mobile, 750 minutes voice calls, unlimited texts, data and Skype-to-Skype calls. Listen up: all bandwidth included. For a streaming service. Now we’re talking!

3 said that the Spotify Premium service was

worth £240

which suggests that they might want to stick to the £9.99 price point (which would surprise me). But then it is hard to tell which bit of such announcements is marketing and which actual price-setting for the sake of royalties and such like…

3 also said

that the deal with Spotify would extend to other products in the coming months, including 3’s mobile broadband service.

Again, I am curious about the price point: the way it is, it would be a nice marketing deal for Spotify but it could be said that not much was going for taking exactly that offer vs just signing up as it is already. A little discounted however (with the difference paid for by 3’s marketing department) might change the ball game altogether…

It’s all good though: I for one am truly intrigued by the prospect of having more than 6 million tracks (equating to, what?, 6 terabyte or so of music) on my phone!

And one little thing on the side: it is – again – an app and not the mobile web that they choose – in spite of bandwidth apparently not being an issue at all. It is thus another argument for the superiority (for the time being) of apps over mobile web when it comes to UI and input constraints.

Mobile to Rescue Music Business?!

It seems to be music week this week: Apple running its somewhat anticlimactic “It’s only Rock’n’Roll” event today, lots of folks pondering Spotify Mobile and now this: the good folks at Forrester Research have released an interesting report entitled “Music Release Windows: The Product Innovation That The Music Business Can’t Do Without”. This is some statement.

The Old Model is Broken

Forrester was kind enough to let me have a glance at the report, so let me dive into its revelations and the underlying rationales, which starts off with looking at the broken model of the industry: in (latter part of) the 20th century, the music industry was mainly fueled by record sales (first vinyl, then CD). With the introduction of digital media and, in particular, ubiquitous broadband connectivity in many parts of the world, it shifted to digital downloads. Unfortunately, it mainly shifted for downloads that people did not pay for. iTunes has only taken a piece of the action. And iTunes’ ¢99 per song model has then contributed to people no longer buying whole albums but only the songs they like most, which somewhat squashes profitability.

Live events, etc used to be a support for record sales. They have recently become the biggest revenue generator for some recording artists (as well as for some labels, at least if they managed to conclude so-called 360-deals with artists) but they cannot alone make up for the shortfall. On top of all that, people like my 14-year-old son use a plethora of services (Spotify, Last.FM, YouTube and probably dozens more of which I do not know) to quench their thirst for music.

Change the Product, not the Business Model

The researchers suggest to re-think the product offering in order to engage the fan more holistically: leverage diverse assets through those maligned 360 deals: they might “feel” a bit tight around the hips but the opportunities are immense: labels and (capable) artist management can create a very rich offering of diverse content. This then ties in into step #2, which sees the industry moving away from (or rather beyond) the classic album model where an artists would release one album per year (or so) and sustain the buzz in promotion thereof (and in between) with concerts, interviews, singles and EPs. With digital distribution, there is no need for that (an album on CD might be maintained as one part of the mix however): one can produce a continual stream of creative products from the artist. This will help build sustainable and longer-term relationships with fans.

The final piece is – put simplistically – the introduction of release windows similar to what the film industry is doing for decades: releases are structured successively with higher product (read: better monetizable) tiers coming first. It is re-vamping a trusty old model though: you want it first and exclusive, you pay more.

The bottom line is – oh, the bliss of buzzwords – the 4 C’s, which are content, convenience, cost and community: The higher the cost, the greater the convenience and the better the choice of content. The authors basically plead a re-introduction of scarcity in order to re-build the perceived value. Convenience ranks above content in terms of the creation of value: and this is where mobile plays a role: it is always with the user, it is always on, it is readily accessible (at least the new generation of phones is). It is arguably why services like Spotify are believed to be a valid revenue stream for labels, at least on mobile…

Community is the Glue

Is community just thrown in for good measure? No, of course not. According to Forrester, “Community enhances social value.” It is the glue that will be the key differentiator from piracy (or so they hope): the thinking is that a sense of community will build some sort of moral cohesion (another C). Here though, Forrester tails off a little. It says:

“Social functionality should be deployed right across the hierarchy.”

Nothing wrong, you say? No, it is not. However, “deploying functionality” is way short of what is needed to build social value. What makes a community? Emphatic engagement with fans, not a set of tools that sits somewhere on the various sites and offerings being operated by some far-away call center. Whilst the principle is right, the suggested execution remains a little shallow. Forums & networks is all they have to offer. Hm. Everyone has them already, so will this work?

The principle does work, I believe, However, the execution is much, much more complex than the analysts reveal. Here, one can make or break this.

Release Windows

The analysts suggest that a release should be tiered by windows: start with a preview, then go into the mainstream for-pay channels (2-3 weeks delayed) and finally release to “free-to-air” (6 weeks delay). The premier window is suggested to being the one where incremental value can be unlocked: first releases, premium value-added content (and no DRM!), etc; users only get this if they pay. Elegant packaging and programming is crucial to convince people of the richness of this. Then they will not defect to P2P sites. CD releases remain in the mainstream window and then, finally after six long weeks, the Spotifys of this world will be able to get it through their ad-supported model, TDC Play, the Danish flat-rate all-you-can-eat model that generated more than 100m downloads in 15 months would be able to add it to their package, etc.

Mobile is in the premium tier (with very few others): Forrester believes that carriers’ and OEM’s efforts, investment and – last but certainly not least – billing relationships merit this. I would suggest that the eye-opener ringtone where one could charge huge premiums for monophonic (!) 20-second-loops would contribute to this conviction, too.

In the “modern world” with smartphones and flat rate data plans, a lot of it of course hinges on how such services tie in with a) the handset (app vs. mobile web), b) the provider(s), namely labels, artists, operators, handset manufacturers, other (mobile) distributors as well as iTunes, and c) the users, i.e. will they adopt it or will they defect to the (free) web side of things after all. The crackdown on piracy in many countries will have something of a disciplinary effect but the jury on this is probably still out.

Is that It?

There must be more in order to create compelling services and products. Otherwise, I cannot see people doing it in sufficient numbers. It could be seen online with Spotify where, anecdotally, only 17,000 in the UK have signed up to the premium service; I cannot believe that the premium music market should be limited to that. The analysts suggest the creation of

“truly 21st century products […] blend[ing] interactivity, multimedia, multi-platform, convenience and social to create something totally new.”

That sounds awesome but how do you create it? The starting point needs to be the relationship between artist and fan. I have long held that this bond is more than actual musical tastes; it is a lifestyle decision, which is why fans crave to belong to “their” artists’ circles. As early as 2002, a “Britney Spears Mobile Fanclub” was successfully running, and that did not even involve her label! What it did involve though was access (or at least the promise thereof) to Britney (who was, at that time, arguably one of the biggest recording artists in the world). The service combined text (real-time backstage reports from Britney herself!), live concerts, editorial, merchandise, and special promotions to create a rich and comprehensive experience around the artist. And this at a time when a ringtones were just on the rise and premium SMS not widely available! The principle works! It does take however (and that’s a big IF) active involvement of a complex ecosystem of artists, management, labels, merchandise firms, media, etc.

The new generation of artists is of course significantly more tech-savvy (see e.g. upcoming singer Remi Nichole‘s video blogs and tweets): one sees a much higher willingness to participate actively and – even more importantly – authenticly in engaging the fans (“audience” is probably an overcome term in this respect). This can work, and on mobile it can work as a revenue generator, too! But the core is the revised approach to the people (and this is not limited to the music industry): they are not sheep that want to be exploited; if you treat them that way, they bolt. Treat them honestly, fairly, transparently, and you have at least a fighting chance!

Is Spotify finding the Business on the Move?

Spotify was a breath of fresh air when it hit the markets. Finally, there was someone who combined the ease of iTunes with unsurpassed breadth in catalogue. Lots of songs. Always available. And even the ads weren’t all that bad (which is why few people upgraded to the ad-free premium version [more on this below], much to the dismay of label executives who – rightly – fail to see the greater good of dependable revenue streams from those few ads; although they are getting more, mind you).

Then, back in July, Spotify submitted its iPhone app to Apple. And the big wait began. After lots of back and forth and speculation if it would or would not, Apple finally approved the app. So now it’s live, and not only on the app store (where it ranked #1 on the UK store when I checked tonight) but also on Android Market. A Symbian version is in the works.

All reviews I have read are raving: from “very impressed” (and that’s the Daily Telegraph no less) to having “to pry it out of my cold, dead iPhone” (Wired), everyone waxes lyrical about the thing. It comes with a load of stuff, too: streaming all your favourites from over 6m tracks on the go sounds promising, and one can also sync up to 3,333 (what a number!) songs for offline use in the networks’ broadband doldrums.

The trouble (!?) is: you can only use it as a premium subscriber, which means forking out £10 per month. Which brings me conveniently to the key point, which is the business underlying model.

The labels are fairly happy, it seems. Because they got shares in Spotify itself. Some more equal than others though: the majors are said to have received a disproportionately high stake). The same report claims though that ad income is only £82,000 and, in the UK, only 17,000 users had signed up for the premium version. However, shareholders and all that, Spotify still has to pay the labels a fee per streamed track, irrespective of the user paying or not. Tricky model, that. Note though that this might be different in other countries: according to reports, the world’s largest major, Universal Music is making more money from Spotify in Sweden than from iTunes!

Anyhow, all this was before the mobile app, and mobile may well be the game-changer for them… The launch of the iPhone app, glorified niche audience or not, seems to have gone fairly well (#1 position on fhe app store within days of launch). Spotify reckons that mobile is where its future lies. And this had been echoed (and well ahead of the actual launch!!!) by others in the industry, and perhaps rightly so: if users are used to (and in love with) a service they are more likely to pay for it if that means they can also have it whilst on the road. For the marriage of music with the world’s leading MP3 player come mobile phone, the iPhone, this seems to be made in heaven: I can have the smallest model and still carry 6m+ tracks around with me? Wow! Here’s value-add!

The much-discussed freemium model it is then: get them hooked on the free desktop app and convert them to paying users on mobile. It has long been known that users are more likely to pay if stuff is portable (I can still recall the disbelief of music executives when they realized that people would pay more for a monophonic ringtone than for a full-blown music track). And whilst now the link between (free) basic service on the desktop and (premium) mobile service is new, the principle is old and proven: and it is simply added value (plus the little things like being used to paying on mobile and having convenient existing billing models in place). If the user perception is that they are getting value for money, they are willing to pay. And if it is for such a fairly special thing such as music (don’t we all love and nurture our very own musical mix tastes?), the step is even easier to make.

Spotify fully expects this to fly: they are upgrading their servers already. Labels are said to be still a little jumpy but I reckon their experiences over the last decade or so have shown that their is a need to re-think incumbent models…

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