Can the music industry change its spots?

Spotify founders Daniel Ek & Martin Lorentzon

Spotify founders Daniel Ek & Martin Lorentzon

While the music industry continues to grapple with online piracy and lower-yield platforms like Apple’s iTunes a new music programme has arrived that could prove to be its new best friend – or foe.

Since October 2008 there has been a growing buzz around Swedish company Spotify and the new business model it is pushing. Founded by Daniel Ek and Martin Lorentzon and head-quartered in London, Spotify offers users access to millions of songs at no cost. The only catch is that they are streaming-only, so cannot be downloaded, and you must listen to a 30 second advert every half hour or so.

If you wish to remove the adverts you can pay a premium monthly subscription, this also gives you access to better quality streams. Unfortunately Irish users still cannot access the service and a loop-hole that gave them access was closed recently, but Spotify’s is gaining attention nonetheless potentially putting iTunes in the shade.

Of course Apple’s music outlet is still the one to beat; leaving HMV, Wal-Mart and Amazon in its wake iTunes is now the biggest music retailer in the world bar none. The service was launched in 2003 as iPod bait and was disregarded by record labels as a niche product but it has proven to be the only real success story in a world of Napsters and Torrent clients and to many the only hope the industry has of surviving.

What made iTunes so successful was the ability it gave users to purchase any single track they wanted for an insignificant amount of money. Where before they may have had to buy a whole album for the one song they liked – or more realistically gotten a copy of it from a friend or copyright-infringing website – they could now get it quickly and at a good quality out of their spare change.

However iTunes is still based on the retail concept of giving each product a unique price. On the contrary Spotify takes more of a “buffet” approach and not only that it is willing to offer the meal for free as long as you let a salesman come to your table every once in a while.

Attempts have been made at subscription-based music services like Spotify’s premium offering before, with little success, but none have dared offer the music for free. Now that Spotify has, other companies like Microsoft are said to be working on a competing service and others are unlikely to be far behind.

However Spotify has not just delighted fans and intrigued rivals – the music industries in most European countries have been happy to back Spotify too as they see it as a potential holy grail for their business. As it gives people access to music for free there is arguably no need for them to pirate but as it locks them out of downloading the songs they still need to make a purchase eventually.

It has long been an argument of piracy advocates that illegal downloads help music sales in the long run – by giving them a sample that they follow up with a purchase – and Spotify may be able to prove or disprove this once and for all. Spotify even makes it easy for people to go from listening to buying, providing users with links to partner sites that lets them purchase the music they want.

The risk, of course, is that people use Spotify to sample new music and then obtain it illegally if they like it thus solidifying the place of piracy and almost legitimising it.

So if people use Spotify to listen to new music and then buy it from a partner shop that is not iTunes, surely it is a massive threat to Apple’s music dominance? Apparently not as recently Apple approved an application for the iPhone which will allow premium users to listen through the massive Spotify catalogue on their phone and on the go – they can even store a handful of songs temporarily to listen to them offline.

This has the clear potential to push Spotify into the stratosphere but it may also undermine Apple’s own iTunes App, which lets people buy songs over their phone. Apple opening the door to it means that they do not see it as a threat – or that they do not care too much about their music sales market share.

While it might be too much to say they do not care it is clear that Apple has been less protective of its music business in recent months. Its decision to remove its digital rights management software from its songs, for example, was a major step and one that allowed people to buy songs from Apple and play them on a rival’s device.

Or it may just be that Apple see the writing on the wall and are preparing something similar themselves for the near future. While the company will remain tight-lipped on that front it is a good bet to say they are watching how Spotify does closely.

So too, it seems, as the Irish divisions of the record labels and IRMA which all seem hesitant to talk about Spotify and have yet to open its arms to the service here. There is an argument to be had for sitting back and waiting to see if the service works or fails in countries like the UK before allowing it to operate here. Of course if this is their stance it does deprive Irish users and does little to coax them away from piracy.

Ireland was the last country in the Eurozone to gain access to the iTunes Store in 2005 and few music-lovers relish the thought of watching while the rest of the world plays with its newest toy. Spotify is less than a year old and it already boasts a membership somewhere in the region of 2 million, though, so it is not a force that can be ignored indefinitely.

An edited version of this article was published in Business & Finance magazine on the 24th September 2009.

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