The music industry shifts towards a new business model

When it comes to music, Spotify and iTunes are among the most used and, as a result, most well known platforms.  However, no one has yet drawn the parallels between their business model and the metered access model ubiquitous in the publishing industry.

Where’s the link, you might ask? Let’s start with Spotify, which acts like a metered porous paywall. Its first feature is determined by the 10 hours/month limit you are allowed as a freemium trial user, during which time adverts will also play every 3-4 songs. Only by becoming an unlimited subscriber, will you be allowed to listen to music without being interrupted by ads and even better, have access to your playlist offline.

SpotifySpotify’s second feature is its permeation of social media networks. On Facebook, for example, Spotify allows your friends to see what you’ve been listening to and even follow your playlists. This social media interaction increases Spotify’s coverage, growing its user base, while increasing the rate of customer conversion.

The Spotify team have perfected the freemium model: if you listen to music sporadically or just don’t want to pay for a monthly subscription, Spotify allows metered access to music while still providing the temptation to subscribe whenever you want to get the better user experience.

iTunes, the second platform we are going to talk about, also acts as a metered, but less porous, paywall solution. The meter is given by the first 90 free seconds of each song. Yet, when compared to Spotify, iTunes is much less porous. Although iTunes gives you the possibility to make your listening activity visible on social networks, this feature is not as evident as Spotify, thus being less of a key feature and less engaging.

The subscription examples in the music industry don’t end here. Pandora and Google’s next music subscriptions are continuing this list. But what does this mean for the future of the music industry?

Pay for music = business fiasco?

Shall we pay or not pay for the music we consume? A metered monetisation strategy for the music industry? Looking at eMedia’s case, you can see it has already been tried, albeit unsuccessfully. But eMedia is actually the key reason why the music industry needs to trial new business models. We live in the age of discovery where no one has a definite answer. As it has been said, the metered approach is not a one-size-fits-all strategy. The music industry, like the publishing industry, needs to experiment, test and adapt existing or new solutions to fit its own business culture.

Spotify is an example of a thriving music monetization model: in December 2012 they reached a total of 20 million users of which 6 million pay a monthly subscription fee. Some money is better than none, right?

Even the more rigid iTunes have done really well. Thanks to its efforts, digital albums have grown 13% in 2010 to 86.3 million.

But what makes one music subscription better than the other? Why did eMusic have to lower their paywall while Spotify is still doing so well; and what is Google’s trump card in the unveiling of their own music subscription model ?

NB: More information about the role of digital technologies in the music industry can be found in the  IFPI DIGITAL MUSIC REPORT 2013.

 

Ana-Maria Leonte, Marketing Executive

Ana-Maria Leonte