Music on demand streaming: a viable business model?

spotify-androidThis week the Swedish Spotify announced a deal with Buma/Stemra, the organisation representing music author rights in the Netherlands. It also signed deals with record companies. This means Spotify can now legally offer their on-line music services in the Dutch market following the Scandinavian countries, UK, France and Spain. Similar to French competitor Deezer, Spotify offers streaming music services: music can be streamed to PCs or mobile phones (Symbian, Android, iPhone). Downloads, although not Spotify's main focus, are also possible. Other features include sharing playlists on Facebook, as well as artist radio, a Pandora-like service.

Will Spotify succeed? There have been and still are a number of local and global companies that have tried to offer unlimited music streaming services but none of them have been very succesful so far. Read more...

Surely the real music lover is willing to pay for music, however the real music fan might prefer downloading over streaming. Spotify offers both, but meets stiff competition from iTunes regarding downloads. Most music listeners are passive listeners and are unwilling to pay for listening to music, except for the occassional 'must have' recording. It is in this area that the radio companies dominate. However, radio often targets a very broad user group, and this is where the artist radio service (personal radio) could provide a better way of serving the consumer. Sadly Spotify does not offer the radio service as part of the free model. In the free model, ads should provide the necessary income to cover cost, however targeting these ads to specific listener demographics (more specific than male/female/age/country) can be very difficult.

In the end it is all a matter of numbers. If Spotify is able to quickly gain market reach, the installed base of users paying for the premium services might be large enough to subsidise the music royalties for users opting for the free service.  

The Spotify revenue model is based on advertising (free music streaming limited to 20 hours/month with ads mixed in) as well as monthly subscriptions (4.99 euro/month unlimited streaming to PC without ads, 9.99 euro/month unlimited streaming to PC and mobile without ads and additional off-line listening on mobile phone).

The IFPI, representing the recording industry worldwide can be very happy with the development of premium music streaming services as alternative to premium download services provided by Apple iTunes. In 2009, a quarter of record companies' revenues came from digital channels. The growth of these new online services will not compensate for the revenue loss of traditional music recording media but hopefully it can also give a new impulse to fair revenues for musicians and performers in the end. 

© Johan Looijenga - 2019