GastaTech News: Spotify thinks big on music as a utility

By Robert Andrews
twitter @robertandrews

You can’t say Daniel Ek doesn’t think big. “We can increase the number of transactions that happen on the internet to trillions,” the CEO of the most talked-about digital media startup said in a London keynote on Wednesday.
Ek communicated his desire to “package” music with mobile tariffs, ISP bundles, cable plans and with devices including TVs - a broad long-term vision that’s often overlooked amid the current Spotify hype.
“The key for us is getting music in to people’s existing billing habits,” he told Screen Digest’s Future of Online Media Distribution seminar.


“If we can transcend it so that, maybe you don’t actually have to pay for the music, it’s included in your data plan with your carrier or ISP or cable operator; it might be when you buy a new product, a TV screen, that you get one year of music included ... devices like new Samsung TV screens, where they’ve got Linux built in, which allows you to do software on it - they’ve got YouTube built in, they might have Spotify built in.”
Spotify has inked one such deal - announced last week with Sweden’s Telia broadband, mobile and TV operator - and another looks likely with phone carrier 3 by virtue of parent owner Li Ka-Ching’s investment in the music service. Spotify’s business development staff will need to strike more such partnerships to give it the kind of industry-changing breadth Ek envisages.
The U.S. roll-out targeted for Q3 or Q4 is now scheduled for Q4 or Q1 2010, however, Ek later told paidContent:UK.
“If we can go to trillions, just think about the easy math,” he told the crowd. “What about one percent of those converting in to paid subscription, or becomes a paid download, or decides to buy a concert ticket? That’s how we grow the music industry to a $40 or $50 billion industry, by getting it to work on people’s favourite devices.
“We want to create a platform where the (Spotify) brand stands for ease of use and people actually build their library using Spotify and feel this is an experience - and, through their carrier, can access that experience.
“That’s the key for Spotify to make this model work. It’s not about ad-supported music, it’s not about subscription music, it’s not about downloads - it’s about all of those models in one.”
A one-percent premium conversion rate sounds awfully small (Chris Anderson’s Free book postulates an ideal freemium conversion of five percent; Ek told a recent event Spotify’s premium ratio is “not double digits yet, but we think we can get there”). Speaking from Screen Digest’s stage on Wednesday, Ek clarified that he meant one percent of “transactions”, which seems to mean plays or impressions across devices…
“Any freemium service should be very satisfied with around a 10 percent conversion rate,” he said. “Spotify aims to be on the higher end of that, higher than most other freemium services.
“Already today, we are proving we are at the higher end of that scale. We think we can actually accelerate that even further. Ultimately, we have a much better position that most other freemium services - the content that we offer is so much better.
“Looking at other freemium services like Flickr and Skype and so on, the differentiation (with Skype) is merely whether you make a paid phone call (Skype-Out) - you could argue that the experience you get talking to someone on a computer (Skype-to-Skype) is better. With Spotify, the portability aspect really separates the two services. You’ll see stuff on the social end as well that will lend itself to more paid users.”
Stats...
—Users are averaging 72 minutes a day listening to music - that’s massive consumption.
—Ek said Spotify today has six million users.
—It’s adding 30,000 to 50,000 new users each day.
—“We could’ve grown it much quicker” - on the day it opened to users without invites, the service added 180,000.
—The iPhone app has been “an enormous success”, growing premium subs “by a big number”.
—Ek said Nokia (NYSE: NOK) and Samsung are the world’s largest MP3 device makers - “yet no-one actually uses them to play music on” - transferring his library to his Nokia took him 35, Ek said.
“The key now,” Ek said, “is ... offering even better reasons for people to become a subscriber.
“The truth is, if we only have ad-supported users, the model won’t be sustainable - if we only had paid users, the model won’t be sustainable either - f you look at the history of paid services, none of them really caught on. The key here is the balance of both.”