Spotify

Soundrop moves fast; expands to Deezer

Tuesday, November 26, 2013 - 12:25pm

Group-listening app Soundrop announced an extension of its platform to Deezer, as a built-in app in the Paris-based music service. Soundrop has been associated with Spotify since 2011, operating within Spotify’s app ecosystem. It also works independently as a mobile app.

Soundrop’s distribution maneuver is timely in two ways. First, Turntable.fm announced last week that it is closing its music listening virtual rooms, which provide a similar experience to Soundrop’s shared listening function. Second, Deezer will expand to the potentially huge U.S. market sometime in 2014. Soundrop is now positioned as the reigning group-listening app in the two leading European music services, and will enjoy the same positioning in the U.S.

Spotify extends its runway with new funding

Monday, November 25, 2013 - 2:00pm

Jumbo jets need longer runways to take off than smaller planes. With reported new funding that nearly doubles its previous capital investment, jukebox service Spotify buys time to continue building momentum. The question is: Whither the destination?

Spotify’s new funding comes from a single source: Technology Crossover Ventures (see RAIN coverage here), which maintains an investment interest in high-growth tech companies. The capital injection brings Spotify’s total investment level to $538-million over the five years of the Swedish company’s life. 

The online music service landscape is changing fast. Jukebox-style streaming, which includes random access of tracks, albums, and user-built playlists, is not new in the scale of Internet app development. But the rate of awareness in the U.S. market, and the supply-side scramble for audience share, is escalating dramatically right now, making the Spotify investment a crucially-timed bet on its ability to withstand tectonic pressures. 

Tellingly, it was Spotify that sparked an acceleration of the streaming business in the U.S. The service expanded into the American market in 2011, and its free-of-charge listening tier attracted new users with a streamlined on-ramp that subscription-only Rhapsody did not offer. David Bakula, SVP of Analytics and Client Development at Nielsen told RAIN: “Spotify actually changed the culture, and started to get streaming on the [U.S.] map.”

Rhapsody and Rdio are Spotify’s most direct U.S. independent competitors -- all three provide the “celestial jukebox” model of music service, as opposed to the lean-back radio-style of listening furnished by Pandora and iTunes Radio. Google All Access and Xbox Music (Microsoft) are ecosystem entrants into the music subscription field. Brand new U.S. competitors are rumored or promised by YouTube, Deezer, and Beats Music.

The distinction between indie and ecosystem is an important one. Providing a music experience is Spotify’s only business. For Google, Microsoft, and even Apple, music is a network feature designed to retain customers in the core businesses of those companies -- software, hardware, and services. If music is a loss leader for an international technology company, the conversation around that quarter’s balance sheet is entirely different from the analysis of red ink for a music-only company.

Spotify’s red ink is mostly accountable to content costs: About 70 percent of company revenue was paid out to music owners in 2012. That single statistic casts a shadow over the entire independent streaming music business, as statutory and direct-negotiated licensing fees make it difficult for less-funded companies hunker down for the long business of scaling audience.

Spotify’s valuation after this funding round surpasses $4-billion, according to the Wall Street Journal. As we recently noted, publicly-traded Pandora is market-valued at over $5-billion. Spotify’s worth could make it an unwieldy acquisition, though not out of the realm of possibility for Google, Microsoft, or Amazon. (Keeping in mind that Microsoft’s acquisition of Nokia brings with it Nokia’s music service, just relaunched as MixRadio.)

The IPO route might be a more likely investment strategy. In whatever direction Spotify tilts at the end of its runway, it will benefit from the extra time spent growing its international footprint and developing its subscription business.

Spotify partners with Vodafone Ireland, another telecom-music hookup

Wednesday, November 20, 2013 - 10:50am

Spotify has partnered with Vodafone Ireland, one of many country-specific branches of the international telecom giant. The deal is another instance of a music service joining a telecom carrier in a synergy that benefits both companies. We are certain it is a trend that will accelerate in 2014.

Vodafone’s global customer base surpasses 400-million, and its Irish subscriber base is 2.35-million users. Billboard notes that Vodafone is committing a $2-million marketing campaign to the alliance. Spotify is now built into some of Vodafone Ireland’s high-data plans.

Financial details are not public, but the advantage to Spotify is clear-cut. Vodafone (and any telecom company) owns the billing relationship, usage contract, and device. Putting a music service into that ecosystem is powerful in the same way as Apple bundling iTunes Radio into a platform that contains millions of user credit cards. It moves the music service upstream from the device into the pipe which feeds content to the device -- a more unassailable position for Spotify.

For Vodafone, Spotify becomes a key brand attraction, making their smartphones instantly-enabled mobile music machines. Like any ecosystem, telecom companies strategize around retention. Keeping mobile users musically happy is increasingly crucial.

Users win too, especially existing Spotify subscribers. They can cancel their stand-alone subscriptions, possibly save money with the bundled Vodafone version, and simplify their media payments.

In October, Rhapsody joined forces with Telefonica, another international behemoth, in what could be an antidote to that service’s daunting U.S. competitive problems. Deezer, the Paris-based music subscription platform that operates throughout Europe and other continents, has used telecom partnering (e.g. Deutsche Telekom) as a strategic pillar, and rumors say that Deezer is searching for a cell partner to substantiate a U.S. launch in the next few months.

Rdio’s deep cuts and the troubling future

Wednesday, November 20, 2013 - 10:50am

Rdio, competing for audience in a crowded online-music market, made significant workforce reductions to lower costs. Layoffs are reported to have carved out about a third of the company.

The subscription music service competes directly with Spotify, Rhapsody, Google All Access, and Xbox Music in the U.S., and more generally with Pandora, iTunes Radio, Songza, Slacker, and other radio-style streaming platforms.

In the wake of the layoffs, Rdio made confident noises about its future destiny: “Rdio confirms making workforce reductions yesterday to improve its cost structure and ensure a scalable business model for the long-term.” But the road will get rockier in the short term.

Rdio started in 2008, and opened its platform to the public two years later, about one year before Spotify expanded into the American market. Despite the early-mover advantage in the U.S., and without the significant European listenership Spotify built up since its 2008 launch, Rdio lags in audience metrics. The company did not release updated numbers today, but Digital Music News is quoting 250,000 paid members. Spotify boasts six-million paying subscribers.

At least one departing Rdio worker was a contractor, not an employee -- Ian Gilman, a freelance app developer, who documented his exit on Twitter and called Rdio his largest client. It is common for companies trimming costs to look hard at their contracted labor force. But little is known about the “Who?” and “How many?” of today’s action.

Jukebox service Rhapsody, the grand old uncle of subscription music, underwent a layoff sweep in September, and a management shakeup that ushered its CEO out the door. Coincidentally, Rdio’s chief executive had announced his departure, but is still in place while the headhunters look for a successor.

Rdio operates a sister site, Vdio, which rents movies on a one-by-one basis. There has been speculation that Vdio would eventually move into the subscription model, and would somehow integrate with Rdio. The movie/TV subscription business is dominated by Netflix, Amazon Prime, and Hulu.

Speaking of daunting competition, the already crowded music landscape is about to be glutted with three additional major players in the U.S. YouTube is reliably rumored to be building a music service. Beats Music has announced that its “Daisy” listening venture will launch within months. And Deezer, a popular Paris-based international service is reportedly coming to America early in the new year.

So, by the end of Q1, the streaming music industry will be more top-heavy than it already is. The good news for consumers will be the bounty of choices. The bad news on the business side is that, to many consumers, the listening options are indistinguishable. That is a scenario in which the rich get richer, and the others get bought.

The real threat of Google Music on Apple devices

Monday, November 18, 2013 - 11:55am

Last week’s drop of Google’s All Access music subscription app into Apple’s app store was a milestone moment in both the music-service wars and the larger tech-ecosystem land grab. We had fun with our “Google invades Apple” headline, and every media site covering the convergence of music and Internet hit the same note.

The invasion metaphor is apt, more than just for its imagery of two tech/media giants engaged in business warfare. Google’s Play Music All Access, awkwardly-named thought it might be, offers a more complete music platform than Apple does -- and likewise for Spotify, Rhapsody, Pandora, and Rdio. The competitive thrust is more feature-specific than merely inserting the Google brand into the music choices of iPhone and iPod users. Its features connect with the three major ways that people connect with Internet-delivered music as a 21st-century type of radio.

Three Types of Listening

There are three types of app listening. By “app listening” we mean listening that happens through a desktop program, a web browser, or a mobile app. There are three cornerstones of app listening:

  • Radio: Broadcasters understandably bristle at the re-definition of “radio,” which used to denote a technology, not a behavior. Now, “radio” commonly means lean-back app listening that simulates the traditional passive radio experience. Pandora is the poster child for “Internet radio,” but Pandora is more interactive than thousands of Internet pureplay stations which don’t offer any customization.
  • Jukebox: The “celestial jukebox” is lean-forward listening in which access to music replaces ownership of music. Spotify, Rhapsody, and Radio are leading examples of app services that provide access to huge song catalogs on demand, with suites of features that personalize the jukebox around the user’s taste.
  • Cloud storage: Even with the rise of Internet radio and the celestial jukebox, people own personal music collections in digital file formats. Amazon, Apple, and others provide apps that allow uploading those files to the cloud, from which they can be accessed from any connected device.

Integrating these three modes of listening is not easy, or common. How do personal collections (the ownership model) fit into subscription services (the access model), and how do those users integrate the existing value of their collections with the new value of music access?

It’s Called “All Access” for a Reason

That is the key issue addressed by Google Play Music All Access, and a key selling point of its subscription service. All Access provides the usual access features -- jukeboxing, playlisting, favoriting, downloading for offline listening. At the same time, All Access (living up to its name) is a cloud storage service which invites users to upload 20,000 tracks. Those collections are integrated into the jukebox service, and intelligence derived from scanning the owned music helps personalize the music Google suggests to the user.

Apple has a cloud service, too, and of course iTunes is the world’s biggest music store, still a champion of the ownership model, widely predicted to be waning. The two-month-old iTunes Radio service provides lean-back radio-style listening, a second rung of the app-listening ladder. But Apple does not have a celestial jukebox function for random access and full listening of songs and albums.

That missing piece is the opening through which Google has driven its All Access platform, and why the invasion is meaningful. Google provides both models -- access to an owned collection on the same platform which accesses the celestial jukebox, and plays radio-style streams.

Google craftily makes it easy to convert an iTunes collection to Google’s cloud. Doing so gives Apple users a full, three-point app-listening experience on iPhones and iPods. Google provides the purchasing dimension too, through Google Play song-buying, which emulates the synergy of Apple’s iTunes Radio and iTunes Store linkage.

It’s not only iTunes that could be hurt by Google. Spotify, Rdio, and Rhapsody lack cloud integration of personal collections. Google sits in the iOS store as the complete problem-solver -- in that light, the awkward “All Access” name is justified. The extra value it brings signifies why Google invaded Apple. Time will tell how disruptive the invasion will be.

Beck issues complaint against Spotify number … we’ve lost track

Friday, November 15, 2013 - 12:05pm

Not to trivialize business issues for musicians, but the “Spotify debate” rages on which increasing repetition. Some of the publicized outbursts against Spotify result from musicians being asked about it by journalists.

The latest high-profile musician to take a club to the music service’s business model is Beck, who was granting an interview to an Argentinian publication during a tour of South America. “Streaming is inevitable,” Beck stipulates, and regards the royalty payouts unsustainable. As with other musicians who have issued objections of streaming as a music-consumption model, Beck views Spotify in snapshot mode. He does not consider a level of global scaling across many platforms that might raise musician revenues to higher levels, despite acknowledging that streaming is moving into the scene unstoppably.

Interestingly, Beck is distressed by the audio quality of Spotify streams, and presumably most other platforms. It’s not the first time we’ve heard that complaint, but audiophiles generally fight a losing battle in this regard. (Starting with similar complaints about CDs.) Access and convenience are core consumer values. When millions of people are satisfied with listening to compressed music through cheap earbuds attached to a phone, the audiophile’s burden is heavy.

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