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Business News Digital Labels & Publishers
As Spotify passes 20 million paying subscriber milestone, what does that mean for Apple Music?
By Chris Cooke and Andy Malt | Published on Thursday 11 June 2015
Spotify continues to stomp around assuring its position after Apple’s big announcement earlier this week. Having secured a funding round of over half a billion dollars to fuel the next phase of its growth, the streaming service yesterday announced that it now has over 20 million paying subscribers – an increase of ten million since May last year.
And keen to satisfy all fans of big figures, Spotify’s latest stats brag also claimed 75 million active users overall (so 55 million on the free level) while noting that it has now paid out over $3 billion in royalties to the music industry since it launched and confirming reports that $300 million of this came from just the first quarter of this year. And if you like graphs, Spotify had those too, showing how it planned to double its payouts in the next year.
Aside from stealing back the headlines from its new Apple shaped rival, there’s two other reasons why Spotify’s latest figures have an impact on the tech giant’s first big play in streaming music: first, it proves Spotify’s freemium-to-premium model is working and second, it reminds us just how important a revenue stream it has become.
Apple, of course, has no major freemium element to its streaming service. Quite how far the IT firm went in pressuring the majors into curtailing Spotify’s free offer is a matter for federal commissions, European regulators and Attorneys General, but whenever anyone criticises their freemium level, Team Spotify stress that it’s great freemium that sells £10 a month premium subscriptions.
You could argue that such rapidly growing user figures prove that. And while it’s true that Spotify is also having to carry ever growing numbers of free users as well, the premium to freemium ratio has shifted slightly in the former’s favour. Paying subscribers have accounted for 25% of Spotify users for a while now, but that key figure has gone up slightly this year.
Beyond freemium, those premium users are now one hell of a serious revenue stream for the record industry. Which could make the arrival of Apple Music a worry for the labels, if all the hype around the tech giant’s new music platform pulls people away from the current market-leader in streaming.
Though not so much because of the rates Apple is paying long term. The revelation on Digital Music News (via a leaked indie label contract) that Apple Music was offering a 58% revenue share to the independents led some to assume the tech giant was on a much better deal than Spotify, which pays out approximately 70% of its income to the music industry.
But Spotify’s 70% is to all music rights owners, with the labels usually getting a 55-60% cut while the publishers take 10-15%. So, if the DMN figures are right, Apple’s revenue share rate seems pretty standard. There is possibly some confusion because in the US, unlike Europe, the labels sort out the publishing on downloads, rather than the digital services paying the publishers separately. But that’s rarely the case with streams, and there’s nothing in the contract terms published by DMN to suggest this deal is a special case in this regard.
Anyway, for revenue-lite new streaming services the per-play and per-user minimum guarantees are usually more important than the revenue share arrangements, for a time at least. And of most concern to the labels with Apple Music is the proposal that the three month free trial it will offer new users be royalty payment free for the tech giant. This was known to be a sticking point with the majors too, and continues to be an issue with the indies.
Aside from wondering why profit-margin-tight independent record companies should subsidise the mega-rich Apple’s new service, many labels point out that if too many Spotify premium users leap to Apple’s three-month freebie, that could have a big if short-term impact on what – for many smaller labels – is now the biggest overall revenue stream, ie Spotify loot.
Beyond the intricacies of the licensing deal, the real gamble, of course, is on whether or not Apple can make good on its promise that its new streaming service won’t cannibalise existing Spotify users, but instead pull millions of $30 a year downloaders into a $120 a year subscription system. Such an annual spend leap remains a big ask, but optimists hope that it can, meaning Spotify’s impressive regular stat brags can continue to impress while a whole new subscription revenue stream starts to flood in from Apple HQ.
