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27th May 2015

The future of Spotify

The more I think about it, the more I question the future of one of my favourite apps, Spotify. With more and more artists starting to stand against it, and new platforms like Jay-Z owned Tidal looking to provide a more premium music service, I question if Spotify needs to re-think their business model in order to maintain market position. Right now they are big. 60 million users big. But they aren’t as big as iTunes. Add Apple’s recently acquired streaming service Beats into the mix and Apple have a USP that would be unmatched: a streaming service built with a market leading purchasing model behind it. Apple could upgrade their software overnight and create a really big problem for every competitor out there. Companies like Spotify need a purchasing model and need to get the majors on their side, and they need to do it fucking fast.

So here’s my prediction, followed by what Spotify could – and probably are – doing to compete…

The future of Beats + iTunes

Apple are currently keeping quiet on Beats, and it’s a wise move. They need to learn, and they need time for Beats to mature and grow organically. In the meantime, they are building a service that can finally introduce a streaming service into the Apple ecosystem. My prediction is that Apple will combine Beats and iTunes to create a streaming service that will give power to major artists, whilst providing a platform for new artists to gain exposure. They will learn from the mistakes of the Spotify / Taylor Swift dispute, and create a model that allows artists to sell their music via ‘purchase’ package, still undercutting the RRP of an iTunes digital album today. For example…

Taylor Swift, who sold 1,287 million copies of her last album week 1, uses Beats ‘purchase’, where the album would cost say $12 on top of a monthly $10 service.

Tyler, The Creator, who sold 90,000 copies of his last album week 1, uses Beats ‘premium’, where the album would cost just the monthly $10 service.

For major artists who choose to use the Beats ‘purchase’ model and deny streaming of their album on sites such as Spotify, their sales revenue would increase significantly. And we are talking big numbers here. Remember that Taylor’s last album sold over 1 million copies in its first week. Just do the maths. The numbers are insane.

However, it would also mean a smaller amount of revenue for an artist such as Tyler, who would have sold albums at the current iTunes album price. At the moment he can take earnings from streaming, from sales, and also from selling physical copies. But I question how much longer this will work as a revenue model and maybe a shift is what is needed. It would be a big change for these mid-level artists. I think there’s a powerful concept here in that an artist/label can choose their own distribution model under one ecosystem. Currently, this doesn’t exist.

As for the brand, I predict Apple will continue with the Beats brand, and discontinue iTunes Music. Why? Because Beats is cooler. Beats is newer. For teenagers, iTunes reminds them of a clunky experience they had little need for. Beats on the other hand is a brand backed by music gurus. A brand that has headphones they wear. Beats can go on to have a brand connection similar to the likes of Red Bull.

As for Spotify…

The way I see it, Spotify only has a few options:

1) They create their own ‘Purchase’ model where artists like Taylor Swift can sell their album for a price their label wants. This will keep existing users happy to stick with Spotify. Will it help to grow the business? That I’m not sure about. Trying to convince users they can now listen to their favourite artists if they pay more money, because that artist wants more money, is a hard sell. Especially if their last album wasn’t on the app because of financial reasons.

2) They adapt their model to concentrate more on new, emerging artists. This scenario would suit a situation where most major artists deny Spotify streaming rights. By concentrating on emerging talent and careful curation, Spotify could become a middle ground between what it is now and an application like SoundCloud.

3) They change their strategy minimally, and continue to build a super strong product. It isn’t likely that all major artists will desert Spotify exclusively for Beats. There are artists that have become hugely successful simply by offering their music for free. Free music equals exposure. But there is still the huge challenge of competing with Beats, Google Play music and similar.

Spotify’s strength lies in the fact they are the biggest business doing what they are doing, and also one of the first to really understand and revolutionise streaming as a service. People are not going to be in a hurry to switch from Spotify to Beats without a real reason. Music libraries are personal. They are created over time and become a part of our lives. Will people want to start again for little reason other than that its Apple? Most likely not. Will they convert to Apple if their favourite artists aren’t available on Spotify? That’s a different question entirely.

For the last 3-4 years, artists have lost a lot of control over their music and how it is broadcasted. With the likes of Beyonce and Taylor against streaming because the value is to low, and artists like Jay-Z and Diddy setting up their own music platforms, it looks like artists are starting to gain back some of that control. If enough major labels get behind the same cause, we could see another big industry shift. One that gives control back to the artists.

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