Spotify continues the online music revolution

Spotify

Photo by Rsms (flickr.com/photos/rsms/) some rights reserved

Since the late ‘90s online music has been characterised by technology companies revolutionising the landscape while the record industry struggles to comprehend the changes and the damage done.

Napster, mp3 blogs, Apple, MySpace and YouTube have all left their mark, some with a more lasting impact than others.

This year it’s shaping up to be the turn of online streaming and radio services, as they step up their pitch for the money in your pocket and a bigger slice of the action than ever before.

Leading the charge is Spotify, which in the last week has radically scaled back its free offering and then today announced it would be taking on Apple for both iPod/iPhone integration and, more importantly, download sales.

The amount of coverage Spotify gets you’d think it was the only online music service out there – combining a compelling offering with a large paying subscriber base will tend to do that, but it’s not alone in wanting to evolve in the revenue department.

In two weeks’ time online radio station Last.fm will start charging £3 a month to use its mobile app, though its browser-based service will remain free.

Then there’s We7.com, which in March launched an Android app as part of a push for its subscription services – priced at the same levels as Spotify (free, £4.99 and £9.99). It still looks like an online store rather than a service, but it’s not a bad runner up to Spotify.

Spotify’s revised model

But Spotify is the most interesting because it’s the best.

It also seems to be the most successful, last year announcing it was Europe’s biggest music subscription service and then in March passing the one million paying subscriber mark.

But that still leaves 90% of its 10 million users who choose Spotify’s free service and its decision to cut this back predictably raised the hackles of users who think paying for music is immoral.

In the real world there was more informed discussion of why the company has gone down this route, with Spotify’s long-held US ambitions thought to be behind the new limits.

“The changes we are having to make,” was how co-founder Daniel Ek referred to it in a blog post that tiptoed around offering a reason for the changes beyond saying “above all, this means we can continue making Spotify available to all in the long-term”.

So now listeners can’t play individual tracks more than five times and total monthly listening time is capped at 10 hours per month – though Spotify says that still works out at 200 tracks or 20 albums.

This not only changes the feel of the free service – I wasn’t even aware there was a time limit before – but more importantly the way I’ll use it. No more an unlimited iTunes-in-the-cloud, it will now have to serve more as a new music discovery tool (or I’ll have to start paying).

The change, though unexpected, addresses Spotify’s obvious flaw for record companies. As my then seven-year old son put it last year: “Why would I buy the CD when I can listen to it for free.”

That’s the rub for record labels, and something has to change if a seven-year old can identify it.

Hence the push for the £4.99 a month Unlimited version, which does away with both adverts and listening limits, and the £9.99 Premium version with an offline listening mode and mobile access to Spotify’s full catalogue.

Today’s changes add iPod integration, some mobile app use and the new download service for all users.

Proving the freemium model

Spotify has proved the value of a ‘freemium’ model of both free and premium versions very effectively. Back-pedalling a little now to appease the record companies won’t change that, but could help with Spotify’s long-held dream of a US launch.

The company has stateside distribution deals in place with two of the four major record companies. Sony and EMI are onboard but Universal and the Warner Music Group continue to resist Spotify’s advances, according to The New York Times.

Judging by the adoring coverage in the tech press, if it can pull off a US deal then its part in the online music revolution will step up to a whole new level.

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