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Spotify Examined: What Their Report Really Says (ayesimo.com)
58 points by oo7jeep on Dec 19, 2013 | hide | past | favorite | 31 comments

>A Spotify Premium user isn't the average music fan.

Disagree I consider myself the average music fan and the reason I like this service is that I have all my music with me where ever I go, even if its not my device. Other people I know who use Spotify are mostly average the other half isnt.

Spotify has converted me from a pirate in my younger days to a paid music subscriber.

I can't agree. People that use Spotify, Rdio, last.fm are edge cases, they are early adopters, often heavy users - the sort that freemium services often kick off when they mature.

I believe there is a difference between heavy user (myself) and above average music fans. I will concede that maybe more than half are above average. Above average meaning they go to many music festivals and follow what artists are doing.

Your use case is why I have iTunes Match. It's finally not buggy, I love it so much it's the reason I got an iPad mini yesterday instead of a nexus 7, and that was a hard decision.

I am all about cross platform these days. S4 GE phone, iPad, MBP laptop, and a windows desktop powerhouse. iTunes Match sucked when I used it last but its been a while.

I've had it since launch, and it's always been pretty buggy. But for the last 12 months all issues I had (libraries getting weird on one device, streaming choking a bit sometimes) have all been fixed, so I'd gladly recommend it now. 18 months ago? God no ;)

iTunes Match would have been a nice feature 5 years ago but there's just no need with the final catching on of streaming. There's still a handful of music not available on Spotify but I find listening to my own collection of songs to be pretty miserable.

In addition to having most music everywhere, I find that the Spotify sync experience is amazing. I make playlists of Spotify songs and my personal MP3s, and Spotify syncs the entire playlist to my phone. The ability to mix Spotify content with my own content, and have it all synced easily, is what really sold me on the premium subscription.

I completely agree. At first I was a Zune Pass subscriber. I hated that it wasn't cross-platform, but at least it was cheap, had a huge library, and the standalone player was quite good. I had a giant 50gb library of mostly pirated music which I no longer listen to and have since lost. Now I'm an Rdio subscriber. Personally I subscribe to Rdio because I feel the user experience (UI, etc) is far beyond what Spotify offers. Although I'm slightly bummed at some of the exclusive licensing deals that Spotify is getting.

I will have to check out Rdio. Heard of it a lot but havent had the pleasure. Also I love a good UX/UI.

This is why I buy ebooks from Amazon when I can just as easily pirate them, the knowledge that I have a digital archive that I can transfer from device to device with ease (I use itunes match rather than spotify for the same reason).

> They don't pay per play, so most of your money goes to popular artists no matter how indie your listening habits are.

That's a misleading sentence, it implies that your listening choices do not affect how much money goes to indie artists, which is not true. The proportion that each artist gets depends on how many plays they have relative to the plays of all artists in total in a particular time period, which is a proportion you do influence by what you choose to play.

If you want to be misleading in the other direction, you could just as easily say:

"They don't pay per play, so some of your money goes to Satanist artists no matter how mainstream your listening habits are."

I may be appealing to emotion there, but it's certainly not misleading (nor is your claim about Satanists, though I think the proportion going to them is very very small). It's true!

Do you disagree that it would be better for the $10/mo a subscriber pays to go only to the artists they listen to?

"Your" $10 does only go to the artists you listen to. If you shift your listening entirely from one artist to another, the artist you left will see their revenue drop by $7 and the artist you adopt will see their revenue increase by $7.

If Spotify subscribers listen to more or less the same number of songs per month then their money does go to the artists they listen to. Your money only goes to artists you don't like if you listen to fewer songs than average.

Not only would that be better, but it would be better if it was usage based billing. Why does someone who listens to 10 hours a month pay the same rate as someone who listens to 140 hours?

Great analysis, btw.

1. "iTunes is also the preferred tool for listening to pirated music, which generates nothing for artists."

Spotify has paid out $1B in 9 years. iTunes is paying out over $1B PER QUARTER. [1]

2. Spotify also has an ARPU cap ($120/yr) - Not only do none of their competitors have this, but it is likely others will find ways to increase APRU (better video CPMs or iTunes exclusives are just a few options). This will likely make Spotify a less appealing distribution option going forward.

3. It seems implausible Spotify is the cause for reduced piracy - YouTube has 10x the content, $0 cost, no need to download an application or creating an account and has 50x the user base.

[1] - Don't worry, I'm not including app sales in this figure.

Beyonce's latest release on iTunes sold over 1 million copies in less than a week at a very premium $15.99 a pop [1]. And there's no need to pirate it, as videos of her best songs are already heading to VEVO/YouTube now [2]. It's a win-win, and Spotify's not a huge part of that story.

[1] http://www.cnbc.com/id/101283857

[2] http://www.vevo.com/watch/beyonce/drunk-in-love-explicit/USS...

Spotify started 5 years ago not 9 plus most of its revenue came last year.

iTunes has a much larger userbase, though. Spotify actually generated half a billion last year alone.

One thing that has always surprised me is just how small the entire music industry is.

The entire recorded music industry was $16.5 billion in 2012 (According to the IFPI). To put that in perspective... - $364b: The TV industry (2009) - $557b: Our spending on the war in Afghanistan - $523b: The amount the world spends on beer each year (excluding other types of booze)

The point here is that the cultural value of recorded music is (I believe) not reflected in it's market footprint. For better or for worse (mostly for better I think) music is cheap.

>We're set to soon see growth of physical sales eclipse the contraction of physical sales completely. Which means the graph, if expanded a bit, might look like this: It goes up a little bit!

I don't understand. To me, the change in physical sales appears to be asymptotically approaching 0. Why assume it suddenly goes positive and then use that guess to make Spotify look deceptive?

>Spotify is playing a little fast and loose here, though. A Spotify Premium user isn't the average music fan. Only 25% of Spotify's active user base pays for the Premium service. .. A fairer comparison might have been the average U.S. citizen against the average Spotify user, since both include people not really paying for music.

No, they're not. They're comparing paying Spotify customers to US paying listeners. If you think comparing nonpaying to nonpaying is reasonable, paying to paying should be reasonable too.

>In a year, Spotify makes about $14.67 per advertising-supported user [2], but those folks if considered just typical Americans would spend $25 on average [3]. That's just over $10 per year lost for each cannibalized person.

Why assume those people aren't buying music also?

The projection graph does assume flat physical sales. But it's a stacked chart.

Paying to paying is not completely unreasonable, but imagine an airline using the average fares of its Airline Club members (who are often flying first class) vs the fares of average Americans. It's easy to inflate the number when the group of people you're talking about are rich and predisposed to being more engaged.

edit to your edit: It's not clear to me why you would be willing to listen to Spotify for free, but then buy music on the side. Anecdotally, I've never met anyone who does that consistently. I'd be interested to hear contradicting anecdotes though.

Ok, gotcha. Eyeballing the graph it looks like physical alone is rising and also you seemed to be implying physical would start to grow.

I've bought so few physical music products over my life that I assume my buying habits are completely different than the average person... but I have no idea. One case you might consider is gifts. On an impulse, I bought several Christmas music CDs last year and I also happen to use ad supported Spotify.

Yeah, there is also a bit of this at play when Spotify talks about what they pay artists. They say they pay an average of 70% of revenues, but they don't explain that major labels get way better rates per stream, not just because of the volume of streams. It would be akin to Wal Mart boasting an average $22 per hour salary for all workers because their CEO makes $100M a year while all others make minimum wage.

That doesn't really square with Spotify's own explanation where equal market share should get equal payout: http://www.spotifyartists.com/spotify-explained/#royalties-i...

In that first graph is says X 4 (Artist's Royalty Rate). So it is based on market share, and some rate, which they would have simply said is Y had it been the same for everyone.

In college I knew some people who bought music on iTunes and then bought the same music in vinyls. I wouldn't expect an iTunes->Spotify switch to change their vinyl habit.

Awesome Post Aston. You know, you can most year-to-year sales data directly from RIAA. You're supposed to pay for the data but usually you can find someone posting them.

Regarding that, I'm not quite as optimistic as your projections on digital sales. I don't think it trends up forever. I don't have a crystal ball, but I have a feeling that downloads sales will actually peak in the next 1-3 years. At which point, the record industry will REALLY start freaking out (again).

OP doesn't acknowledge that downloads may have peeked. I used to download quite a bit but haven't in over a year due to the supreme advantage of streaming.

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