What We Learned from Spotify's Financials
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What we learned from Spotify’s financials ISSUE 356 | 10 DECEMBER 2014 Contents thereport 06 Beyond music: 2014 review 07 Pinboard: Stats, deals, startups and more 2014 in review 09 Country profile: 2014 by region 2 ISSUE 356 Taylor Swift caused a media tsunami – the precise sort of mainstream act SPOTIFYGATES 10.12.14 COVER FEATURE Spotify needs on its side was actually pulling the rug from under its feet” 2014 both was and wasn’t Spotify’s year. In November, it announced that it had managed to reach 50m users, of which 12.5m are subscribers. Great news. Except that it only published these figures when on the defensive after Taylor Swift pulled all of her music from the service and announced that, because Spotify would not budge on its position that all music has to be available to both free and paying users without windowing, the model was unworkable and untenable. For her. Not necessarily for everyone else. (That said, a number of holdouts – most significantly the Ministry Of Sound label, which was threatening legal action over similarly themed UGC playlists – came on board and licensed its music. So respite of sorts.) The spat last year with Thom Yorke had fruitier language that the Swift dispute (“the last desperate fart of a dying corpse”), but that only made mild media ripples. Taylor Swift caused a media tsunami – the precise sort of mainstream act Spotify needs on its side was actually pulling the rug from under its feet. This caused others to, whispering off the record, accuse Spotify of arrogance and of belligerently refusing to change its stance on anything. in review This year was one of mounting worries for Spotify as Beats Music, which launched The who, what, when, where, how and why at the start of the year in the US but caused the Swedish service to barely blink, suddenly of the past 12 months found itself bought up by Apple as part of a $3bn acquisition of its parent company. Taylor Swift put the boot into Spotify as she didn’t want her music to be reduced to the level of free. The public put the boot into U2 and iTunes for forcing a whole album on 500m users for free – but There will, without their consent. Thom Yorke turned his back on both iTunes and Spotify and gave his album to justifiably, be BitTorrent to test its new payment gates. Meanwhile Google Play Music and others paid handsomely for a lot of dry exclusives. It was, all told, a very confused year but also one in which high-def audio properly marched report mouths in Sweden towards the mainstream, analytics and playlists came of age and streaming got added into more throughout next year” charts, rubberstamping its steady rise. Here, then, is the story of 2014 in digital music. the 3 ISSUE 356 There are suggestions that Beats Music subscriptions (or tri- 10.12.14 COVER FEATURE als) could be bundled into iOS 8 and possibly at a price point that could have its rivals claw at their own faces in anguish” Spotify, still running at a loss and still to IPO, suddenly had to take Beats very, very seriously as it has the backing of the its high-definition service (WiMP HiFi) to the The biggest buy up, of course, was Apple most cash-rich company in the world which UK and US – but under the name Tidal. It spending $3bn to buy Beats. While most of needs to transition itself from downloads to got something of a soft launch at the end of that was for its headphones business, it was subscription streaming. If anyone can start been targeting a niche such as professional the year, putting trial versions in the hands also an investment to fast-track iTunes into a serious price war and fund a loss-making DJs. This year saw an explicit play for a more of music industry professionals and key the subscription space – a place it needs to service for not just years but decades, mainstream user. influences to help build the buzz, a strategy be, and quickly, as the wheels start to fall off it’s Apple, with suggestions it could drive There couldn’t be a ‘more 2014’ story not dissimilar to how Spotify entered the the downloads business that has served it prices down to $5 a month. Spotify perhaps than that of Pono – Neil Young’s new music market in 2008. so well for the past decade. Since the deal in anticipated this at the start of December service: celebrity, classic rock, technology, Also of note were Rdio upping its May, things have been quiet, but there are when it began offering users in the US a audio quality and crowd-funding all wrapped streaming quality to 320kbps, under the suggestions that Beats Music subscriptions three-month trial of its premium service for up in one. It comfortably sailed past its Artists For Quality initiative pushed by Bob (or trials) could be bundled into iOS 8 and just $0.99 a month. Kickstarter target by raising $6.2m in April, Weir of The Grateful Dead. Finally, Technics possibly at a price point that could have its Plus Apple has never had to deal with the making it the third most successful project announced that its 24-bit download service, rivals claw at their own faces in anguish. level of public spats with artists that Spotify on the platform’s (albeit brief) history. It still Technics Tracks, would arrive in early 2015. Other notable acquisitions include has been fielding in recent years. A streaming has to launch commercially, but Music Ally So what was previously considered a niche is Spotify buying The Echo Nest as it looks to service which is now part of a company with was able to test the player and was genuinely now becoming a very busy space. It is unlikely dramatically improve its recommendations huge financial resources that can tap into a enthused by what it heard. the truly mainstream consumer (for now) will to try and give it a serious advantage over powerful mobile OS and which has arguably care that much about such offerings, but the its rivals. In a similar vein, Rdio bought the best artist relationships in the world? heartland is really heavy consumers of music TastemakerX and Deezer acquired Sitcher There will, justifiably, be a lot of dry mouths in with significant disposable income who would (more of which below). Sweden throughout next year. not regard £240 a year as excessive if they believe the pay off in audio quality is there. ONE LOUDER: STREAMING Spotify has yet to make its move here, but will GOES HIGH-DEF be keenly watching its rivals and considering In the streaming space, Deezer finally how it can possibly add a new upsell tier in The BPI reported that UK vinyl sales in 2014 made it to the US – but initially as Deezer the new year. crossed 1m units – the highest sales for Elite, its premium audio incarnation targeted the format since 1996. More ammunition explicitly at the audiophile market (and with THE BIG SELL OFF, BUY-IN for the audiophiles who like to applaud the a monthly price tag to match). The company AND SHUT DOWN “fuller” and “warmer” sound of the format has said it will roll Elite out in other markets compared to the “cold” and “thin” sound of but has no confirmed date for this. It was For a part of the market where services MP3s and streams. interesting that it debuted in the US with a either run at a (mounting) loss or see The digital business, however, began service costing twice as much as its main meagre profits (unless you’re Apple), digital seriously putting audio higher up its agenda rivals each month, but argued that the initial music is a place where huge acquisition While the majors (and indies) all have a – and also using it as a super-premium market it was after was about bringing non- deals are still being done. But equally, stake in Spotify, they are expanding their offering that significantly increases ARPU. streamers across for the first time rather than for those who can’t manage to convince investment portfolios by taking a stake in report Higher audio quality – such as FLAC files on trying to poach users from Spotify, Rdio, VCs or incumbents of their commercial other digital music services and in May, services like Bleep and 7digital – has been Rhapsody and others. potential, a huge amount of road kill also Warner, Universal and Sony bought shares in around for a while but, for the most part, has Norwegian company WiMP also exported piled up this year. Shazam estimated at $3m, with a keen eye the 4 ISSUE 356 Analytics are giving the industry whole new ways 10.12.14 COVER FEATURE to understand what is happening as well as ways to on it heading for an IPO and them receiving a respond to that data and prepare for the future” substantial (and swift) windfall. Sadly, if inevitably, some services hit the Real-Time Charts to expand its existing social Yorke and Moby who wanted to be seen to wall or were offloaded by parent companies media-based charts – a clear and assured be breaking with convention despite their keen to move on. These included budget rubberstamping of analytics as a core part of advancing years. subscription service Bloom.fm that had an the music industry that has a clear consumer- Yorke’s BitTorrent Bundle was the interesting tiered offering but was perhaps facing benefit.