When pop darling Taylor Swift pulled all her #Music from Spotify, in November 2014, the industry asked itself: are we making a mistake with streaming? Should we be giving access to music for free? There are serious doubts about how sustainable streaming services are, and as digital sales fall and vinyl sales are on the rise again, everything in the industry seems to be upside down.
So it wasn't surprising that Spotify unveiled its expansion into YouTube territory, as in video streaming. The Swedish company announced this week in New York that it will offer video streaming, playlists and audio podcasts, in a major overhaul that is coming right now into the UK.
"The new video feature began rolling out to iOS users on Wednesday in the UK," communications director for Spotify Europe Alison Bonny tells Blasting News. "It will be available on Android in due course," the executive adds.
The new features indicate Spotify wants to move beyond what made it so hugely popular over the years - when it was created, in 2008, there weren't good alternatives to buying music on iTunes or downloading illegally. YouTube became the de facto platform for listening to music legally and without paying by browsing through videos, a not so compelling experience on mobile and a big data gobbler for those on the move.
The company's CEO has, unsurprisingly, denied that this update will bring it into direct competition with YouTube. "It's really more complementary to the music experience," Daniel Ek said, during the press conference in New York.
But this update is also about audio podcasts and contents beyond music. "We know there are times in the day you want to switch between music to catch up on the latest news, listen to your favourite podcast or simply watch something fun," the company explains. "Spotify will suggest video and audio shows for you to watch and learn what you love." In the press conference, the company showcased clips from some of its new partners, which range from Vice and Comedy Central; they revealed content from the likes of BBC, Slate and NBC will also be offered.
Why is this happening?
The hugely popular Swedish service is now available in 58 countries. How many are there in the UK? "We don't break it out by country, but we have over 60 million users worldwide," Allison Bonny points out to Blasting News. Of these, 15 million are paying subscribers, who get to listen to music offline with no ads for £9.99 a month.
Here's the problem: it's not enough to turn a profit. Spotify has actually more than doubled its losses, having reported a £115,4 million net loss in 2014, compared with the £40 million loss in 2013. Surely, revenues are growing fast, soaring 45% to £770 million last year, but they are still losing money in the end. In fact, there's not one single company making money in the streaming business right now, which is getting really crowded, really fast. From Deezer to Rdio to Pandora (which is limited to the American market) to the newcomer Tidal (bought by Jay Z) and the upcoming Apple service, based on Beats.
Everything summed, Spotify needs to make real money to keep growing. Some analysts think it's impossible for the whole streaming industry to turn a profit as it is right now: that's what author and CEO of The Futures Agency Gerd Leonhard explained us, mentioning that a worldwide market of 30 million paying users is too small. "Anything above 200 million would work," he says, suggesting a very small fee, like £1/month, which could be paid for instance in a telco bundling. "Building value around the content is what companies like Spotify and Deezer are doing," Mr. Leonhard states, calling this "a new music economy."
Meanwhile, Universal Music expects a transition from the current mostly free model to a mostly paid. Carmen Parada, one of its digital managers in Europe, states that the future will be "focused on the premium model," to ensure the sustainability of the ecosystem. But she thinks it's paramount to get consumers using legal platforms before anything else.
"Spotify's model has always rested in the logic of attracting users and then moving them into the paid subscriptions, and this has worked pretty well on a worldwide scale," she explains. "Streaming drives music consumption away from illegal platforms and into legal services," she stresses, "and the service is also used as a marketing tool, to promote the artist's contents." The new video feature will enhance this for sure, but will it make more users keen to pay? #Smartphone