Spotify, the marquee music streaming service, announced earlier this week that they’ve reached 10 million paying customers and 30 million free users per month. While that pales in comparison to the numbers of say Facebook’s monthly active users, it’s a huge signaling issue for the music industry and like minded streaming services
The free service is paving the way for customers who convert much easier with Spotify than other companies. After a huge makeover earlier this Spring, even free users quickly see the value in the premium model. Spotify CEO Daniel Ek told Bloomberg that the $10 per month for the paid service is less than the cost of one beer in the company’s native Sweden.
The free to paid conversion is why Spotify didn’t worry when Beats Music, headed by hip hop pioneer Dr. Dre and record industry Mogul Jimmy Iovinne, introduced a new streaming service as well. Beats music doesn’t have an actual free model to work a free to paid conversion scenario. However, there are companies l like AT&T that use a promotional period for the paid service to get to paying customers, a partnership where both companies make money.
Spotify was a pioneer in the streaming music industry. Founded by Ek, along with Martin Lorentzon it’s always been believed that neither cofounder thought Spotify would ever get as big as it is. But is it big enough?
Bloomberg offered up an indepth analysis of where Spotify is and where it could go in the coming years. Many Wall Street analysts have insisted that streaming music companies will have a long road to profitability. Even with millions of paying customers Spotify still sees about 70% of it’s revenue go directly to royalties in deals with major and indie label companies that are the bread and butter, or at least the ingredients needed to run Spotify. After the labels 70% cut that 30% hasn’t covered their operating costs. To date they’ve reported a net loss of $200,000.
With the upcoming acquisition of Beats Music service as part of the Beats deal with Apple, the playing field will change, but not to levels that Ek is worried about. Ek reminds Bloomberg that Apple had tried a social service around their iTunes product called Ping, which fell to it’s face. Also, even though numbers haven’t been released, it’s widely believed that iTunes radio, which was designed to compete with the likes of Spotify and Pandora, isn’t reaching the user numbers that Apple has hoped for. Ek tells Bloomberg that will all of Apple’s focus on design, they have failed to deliver a good quality streaming service.
At the same time, Apple is the largest catalog and download service available with it’s iTunes platform. Combining iTunes with Beats Music service could finally be the competitor in Apple that Ek was expecting. Even with Apple possibly releasing a directly competing product, Ek still doesn’t worry. Ek also points out that there is competition in other spaces like cloud based storage, DropBox, Box and Google Drive all peacefully co-exist and all have their own customers, perhaps crossover customers as well.
Whatever the future holds for Spotify will playout in the coming year. Right now it seems that Spotify has nothing to worry about.