The record labels, if they were honest, would say they hate digital music. It’s a marketplace over which they have little control. And it’s a marketplace where they have to compete. Neither of these are they used to doing. So when Rob Wells, the senior vice-president Digital for Universal Music Group International (UMGI) declares that the music service Spotify is making money for them, one has to wonder what’s really going on.
What’s going is this: Spotify operates on two models. The first, in the United Kingdom and Spain, is royalty-based; payment received based on songs sold. The second, Sweden, Norway, Finland and France, is based on subscriptions and advertising revenues, which UMGI gets a cut. You don’t need to be a rocket scientist to figure out which UMGI prefers: “In all its territories bar two, Spotify pays the labels from a mixture of the money it generates from advertising revenues and subscriptions. That to me equates to a sustainable business model,” said Wells. Rather than worry about having to compete for royalties, UMGI wants a sure-bet piece of the action.
Wells’s take makes sense for the music industry. But does it make sense for the delivery of digital music? The big providers of music, Apple and YouTube, don’t pay guarantees but royalties or percentages--they make you work for your money. And iTunes is by far the dominate method of digital music delivery. (Except for Sweden, where it’s number two to Spotify.)
Still, Wells isn’t giving up hope this can’t change. According to Wells a music service needs only convert about 10 to 12 percent of its user base to subscribers, and the economic model becomes viable. The problem of getting that 10 to 12 percent to change is simple: restrict access, which Spotify has reverted back to. (Its returned to an “invitation only” sign-up.) This, however, isn’t so much a new economic model as putting lipstick on the pig that was the old model.
And then there’s the grain of salt: major music labels, including independents, have an equity stake in Spotify. Naturally they’d like to see that pan out. Promoting the superiority of Spotify is a no-brainer.
All this means nothing to us. Spotify isn’t yet available in North America. That’s expected to change sometime this year.