Spotify - The Freemium Future of Music? (Hi-Fi+)

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Spotify - The Freemium Future of Music? (Hi-Fi+)

A few months ago, in a column for Hi-Fi+, I identified a new trend in music listening. Based out of Sweden, and slowly rolling out across Europe, Spotify is a peer-to-peer music streaming service. Amazingly, given the size and breadth of the service, it has almost no buffering delays. Spotify uses a simple desktop app for recent Windows (XP and beyond) and Mac (OSX 10.4, G4 processor and newer) computers, ideally with 1GB of disk space. Linux users are not ignored, as the app runs on Wine too.

It's hoped to make it to the US by the end of this year.

Spotify runs what's known as a 'freemium' business model. Users can download the app and listen for free, but they have to sit through occasional advertisements (about one every 10 minutes) and can only listen at 'good' quality bit rates; premium customers pay €9.99/£9.99 per month and get an advert-free service, higher bit rates and the ability to stream music to an iPhone. The system uses the Vorbis codec, running q5 (roughly equivalent to 160kbps MP3) for freebie listeners and q9 (around 320kbps in MP3) for premium customers. 

As it stands, the catalog is extensive, although there are big name holdouts, including AC/DC, The Beatles, Led Zeppelin and Pink Floyd. For classical music enthusiasts, it suffers the same 'sort by artist and track name' problem common to computer audio browsers. As a freemium service, it requires a minimum percentage of its clients to take up paid subscription to allow the format to turn a profit; just how big a percentage (most pundits guesstimate around five per cent)  and just how close Spotify is to that break-even figure is not public knowledge. However, since its launch exactly a year ago in Sweden, the service has already attracted more than a million regular users.

The service has an obvious rival in Last.fm – not so much of a rival in fact, the two are working together. Last.fm's joys are well documented (the recommendation system, its social networking services), where Spotify relies upon a search engine that gives users the option of whole albums to be listened to. This has started to influence the buying trends of audiophiles in the UK – it's fast becoming the try before you buy service; users browse the new releases and album charts at Amazon, 7digital or CD Wow!, enter the artist or album name into their Spotify app and listen to the album before buying it. They can create playlists and there's even a 'scrobbling' recommendation service in partnership with Last.fm.

Another potential rival is Rhapsody, but the basic models are somewhat different (Rhapsody's free service gives the user just 25 tracks a month, where the typical Spotify user might browse through 25 tracks in an hour. In business terms, Rhapsody uses 'the long tail' model followed by the likes of Amazon, while freemium is the model of choice for Skype). It's still very early days to see if the long tail is short-lived, or if we will see the failure of freemium.

 

Regardless, three key points make Spotify exciting. First, it had the backing of most of the music industry more or less from the outset. Second, early reports suggest that in the countries where Spotify is rolled out, illegal downloads take a small - but significant - nose-dive. Finally, Spotify's success was mostly viral, passing from user to user through the medium of Twitter. Its success has been so great that as of September this year, Spotify's free service has only been available to users by invite (although this has merely slowed uptake, not stemmed the tide of new users).

There's a sense of unknowing troubling the music biz. Business models that were hugely successful 15+ years ago are now entirely moribund with no potential way of reviving them. Record companies and artists alike are beginning to realize that they can no longer make money from music sales alone, and that revenue has to come from a number of streams (touring, merchandising, licensing, etc). The industry's support of Last.fm and Spotify show that music execs are at least willing to explore potential new ways of listening. 

If Spotify does roll out in the US by the end of the year, just wait and see how it changes your buying habits. It might just make you buy more music. Even if it doesn't, you can still get to sound 'street' by dropping the words 'Spotify' and 'freemium' into the conversation.

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