Amazon and Google Are Making Music Free — And That Could Be a Big Headache for Spotify
Spotify’s free tier is one of the modern music industry’s most controversial talking points — and one of the Swedish company’s strongest competitive advantages.
Spotify has regularly proffered the following justification for its “freemium” model: In a world where YouTube and piracy sites allow any of us to access most of the world’s recorded music without paying a bean, Spotify needs to be able to offer the same level of cost-free convenience to thrive. This is good news for artists and the industry, says Spotify, because “free” users will not only drive revenue by listening to advertising, they’ll also be in a position to be up-sold into Spotify’s $9.99-per-month Premium tier.
One statistic, above any other, tells us why the major record companies — despite their evergreen hatred for the concept of free music — continue to license Spotify’s ad-supported tier: some 60 percent of Spotify’s Premium customers originally came to the service as “free” users. As Spotify’s R&D chief, Gustav Söderström, put it last year, the company believes that its free tier “is the only way we’re going to be able to achieve our goal of getting billions of fans onto the platform, and getting the entire music industry to the [financial] size we think it should be”.
Free Spotify, however, also faces some strong opposition. Speak, for example, to insiders at Apple — whose streaming music service has no free tier — and they might argue that Spotify’s ad-supported option devalues the work of today’s stars. Speak to artist advocates, meanwhile, and they might point out that just a tenth of Spotify’s revenues are derived from advertising (with the other nine-tenths coming from users who pay for Premium access) — and that the free tier drags down the average per-stream Spotify payout to under $0.004.
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