Spotify is a hit – but it may be a disposable one

Whether it floats or is acquired, change lies ahead for the music streaming service

'Do you want to keep the music with you in the shower or climbing Kilimanjaro?" asks Spotify man. He wants me to upgrade from the free tablet version of the service to the €9.99 a month option. Spotify man doesn't know that I am about as likely to sign up to Spotify Premium as I am to climb Kilimanjaro.

Pay the money and Spotify man goes away, as do the advertisers, though on the tablet version in Ireland there never really seems to be that many ads anyway. The Road Safety Authority eventually follows up my millionth play of Sexothèque by La Roux with its altogether less joyous information campaign for the introduction of novice driver plates. And there's SuperValu interrupting my stream of the experimental new Imogen Heap album to tell me about its "getaway break" B&B offer.

The mobile version – or the "mobill" version, as Spotify man pronounces it – is more ad-heavy, with everyone from AIB to "Hailo for cleaners" start-up Hassle. com popping up between songs.

People who subscribe don’t just do it to avoid such ads, but to avail of better functionality, including the ability to “download” (sync) up to 3,333 songs to their devices and listen to them when they’re having one of those offline showers or tedious connection problems on Kilimanjaro.


The “free” users, on the other hand, can be divided into three broad categories: light listeners of music, light-to-average consumers of new music, and average-to- heavy music consumers who reserve their cash for other music vendors. For some, Spotify will not be their primary listening platform but just one of many places where tracks can be sampled before being purchased the old-fashioned way (iTunes download) or the archaic way (in the form of a physical record).

If you like owning music, and consider streaming to be more of a radio substitute than anything else, then Spotify Premium will hardly cut it, especially as the "downloads" are not obviously transferable out of Spotify. Happily for the company, most people couldn't care less about such long- term issues as music collection maintenance. This isn't High Fidelity – most people just want to listen to that Sexothèque song, or the bands they liked when they were 16.

And so Spotify is a hit. Six years on from its launch, the Swedish company now has more than 40 million active users. Of these, 10 million are paying subscribers – an astonishingly high 25 per cent conversion rate. In getting to the point it is at now it has already climbed the music industry equivalent of Kilimanjaro and sung Thank You for the Music in the faces of those artists who lament their pitiful rate of royalties from streaming.

But Spotify is not quite coining it. With 70 per cent of its revenues going on royalties, it hasn’t got much left for its other costs, and the company was indeed loss-making at the last count. The most recent account filings, for 2012, show it more than doubled its revenue that year to €435 million, yet made a net loss of €58.7 million. Two years is a long time in technology, of course, and the company has expanded its user base since 2012, which should have led to an increase in its twin sources of revenue. In popularising streaming at the expense of downloads it has changed the tune.

Still, this doesn't give Spotify an automatic claim to longevity. With tech giants such as Apple (proud new owner of Beats Music), Google and Amazon closing in, Spotify's future is muddy in a market where the ground is constantly shifting.

Google, which operates Google Play Music All Access, was said to have been interested in buying Spotify last year, but is now preparing to launch a new service called YouTube Music Key. Facebook and Twitter cannot be discounted as future owners, nor can any number of super-rich telecoms companies. For every rumour of a suitor, meanwhile, there is twice as much speculation that Spotify is destined for stock market flotation.

History suggests a change in ownership status will mean a change in the quality of the service on offer. A Spotify answerable to shareholders would have to map out how it would maximise both advertising and subscription revenues while minimising its costs. For the former it depends upon the tolerance of spoilt-for-choice consumers; and for the latter it needs the co-operation of the music industry.

Right now, even Spotify Premium seems like a cheap way to compile amazing playlists. It’s best not to get too attached: this kind of streaming is still about renting, not buying. And this business model has not been proven. Like all the best pop songs, Spotify has made a mark, but it’s not necessarily a permanent one.