Understanding Spotify: Access Over Ownership [Jay Frank]

Screenshot-2014-11-07-10.53.26-300x132By Jay Frank  on FutureHitDNA.com

Young people prize “access over ownership”. This sounds like the kind of thing a digital music strategist like myself would be saying to support streaming services like Spotify. However, that’s not where the quote comes from. This was said by Sheryl Connelly, who is the head of Global Trends and Futuring for the Ford Motor Company. That quote was in reference to cars and was made two years ago in an article in The Atlantic. If the access model is affecting the business model of automobiles, what chance does the music business have to change that tide?

The fear that causes an artist to withhold music from Spotify is based on emotion rather than fact. The access/streaming model is scary largely because consumers are given greater choice. A purchase model requires the consumer to make a decision on which artist to support, thereby distributing money into the hands of fewer artists/labels. The access model gives the consumer such a wide choice that they can listen to a greater variety, thereby distributing money into the hands of a larger number of artists/labels.

Yet when faced with the choices that Spotify provides, most consumers shut down and don’t choose much at all. This phenomenon is called The Paradox Of Choice, and was outlined in the book of the same name by Barry Schwartz. Many Spotify users deal with choice by defaulting into playlists that reflect their style or mood at the time they want to listen. In observing the Spotify charts over the last year, the major deviations in weekly play counts almost always correspond to being added or dropped by a playlist.

Spotify’s growth in 2014, like nearly every other digital company, has mostly been in the mobile space. What makes that interesting is that you can’t listen to a particular song on demand on Spotify’s free mobile service. You are forced to listen to music on a random shuffle instead. Most of that listening, by app design and consumer choice, goes to playlists. By extension, this means the majority of free plays on Spotify are just a different iteration of internet radio.

When you understand that, limiting music to the paid-only version of Spotify becomes an obvious mistake. That’s because much of the revenue generated in the free tier doesn’t come from the consumer’s choice, but rather the choice of the playlist creator. If an artist is not on the playlist, they wouldn’t get much of that free-tier money anyway. Conversely, a song chosen on a playlist creates new revenue that wouldn’t exist otherwise.

Screenshot-2014-11-07-10.54.59-300x193Therefore, looking at the “free tier” revenue thru the comparison to sales is incorrect. The much more accurate comparison is internet radio. By that measure, Spotify should be embraced as this tier pays a higher royalty rate than Pandora does. Furthermore, Spotify playlist choices are made editorially by either Spotify’s team or individual users around the world. Pandora’s choices are made by algorithm, which leaves exposure decisions to largely be made by machine. From this perspective, artists of all sizes should be embracing Spotify’s model. Pulling music from Spotify’s free tier is akin to dropping songs from a top radio company that appeals to listeners 25 and under.

By understanding this ecosystem, my label DigSin has been experiencing exponential growth from Spotify, and I know we’re not alone. Our marketing division, DigMark, is also being hired by both majors and indies to help navigate this brand new world. With any disruptive technology, emotional response to fear often creates counterproductive decisions. The usage patterns of both free and paid Spotify users show both ecosystems to be smart opportunities for all artists. I strongly urge the music community to not be blinded by emotion. Instead, understand the data and embrace the digital disruption.

“The only way to win is to learn faster than anyone else.” – Eric Ries

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  1. This is obviously in response to not only Taylor Swift breaking the Platinum drought of 2014, but also other major artists who pulled their albums from Spotify as well and ended up having some of the top selling albums of 2014.
    There is no “one size fits all” business model for music artists. What works for one may not work for another. But clearly if you are a Major artists like Coldplay or Adele. It makes sense that releasing your album to Spotify the same week that you release if for sale is going to cannabalize your sales.
    This is why Major movie studios don’t release their big films on Netflix instant the same week they release it in theaters.
    Netflix does not expect Movie studios to give them all their movies at the same time they are released to theaters….Why should Spotify expect the same of major artists?
    PS: Withholding your album from Spotify doesn’t have to mean forever either.

  2. Somebody, anybody, please explain to me how an artist can make a reasonable living off of Spotify? Come on brilliant visionary pundits who see the future…show me the spreadsheet? It has nothing to do with FEAR, it has EVERYTHING to do with selling a product WAY TOO CHEA…. like by a factor of 10…. (like below minimum wage cheap). This model never makes enough revenue to support an artist, therefore this model is unsustainable…pretty simple!

  3. D Henderson, you are completely wrong. It works when it scales up. But: you have to have a hit. And if you want to make real hey, you have to have 100 hits, like the Beatles or Elton John. If you’re not a hitmaker, make it a great hobby but keep a real job. Because music is and always was only a real job only for hitmakers.
    I can show you the spreadsheet or you can make it yourself. and also please show me the old spreadsheet: how many artists were ever recouped, i.e. got paid after their advance and their one album? The answer is less than 500 in the history of recorded music.

  4. “When you understand that, limiting music to the paid-only version of Spotify becomes an obvious mistake. That’s because much of the revenue generated in the free tier doesn’t come from the consumer’s choice, but rather the choice of the playlist creator.”
    Jay’s obviously all in ’embracing the digital disruption’. Disruption being the digital way of saying we found a new way to screw artists. Simply add that to the closer ‘Adapt’ which simply means shut up and bend over…end of discussion.
    Now listen Jay. The clock has run out and all these failed concepts especially free. So without meaning to sound overly critical give it a rest dude, while the rest of us try and clean up your mess.

  5. In any model, some artists will make money and some won’t. When it comes to new artists, this is especially true. This was the case with vinyl, CDs, downloads and now. It’s difficult for me to call it a failed concept when it’s successfully bringing money in for my artists. One of which has a 3 year old independent record which is starting to generate thousands a year when before it had been hundreds. This is a direct result of the Spotify network amplifying it after discovering it from our promotion of their new record on Spotify.
    The “spreadsheet” is pretty simple. If people like it, it gets put on playlists. Those playlists amplify the exposure. If people like it (a key element), it then leads to more direct plays and more playlists. This collectively leads to revenues on a global basis.
    We’ve now replicated this enough times with several artists to know that this is effective and we’re not getting screwed. If you lean back and expect Spotify to just make you money, and you don’t actively work the network…yes, in those situations you will make very disheartening royalty statements. But that’s true of any platform or retailer, physical or digital.

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