Last week there was a lot of news concerning Spotify resulting from some bogus information that was fed to the industry press. I guess some people in the business don’t want to make things easy for them to launch in the US. But why?

Rumours have abounded that one of the major labels is pushing back, because they have some ridiculous idea that by allowing Spotify to duplicate its model in the US, would be tantamount to giving away their content. Evidently they believe that the Spotify freemium model, that has been quite successful in Europe, won’t work in the US. Frankly, I don’t get the logic behind that. But then again, I haven’t had a major label lobotomy either.

If you look closely at the landscape of US music services that some would consider Spotify competitors, you’re basically looking at Rhapsody, Napster, Rdio and Mog. Both Rhapsody and Napster have in the neighbourhood of 500,000 subscribers each (some say those numbers are slowly dwindling). Rhapsody has been around for about 10 years and Napster for about seven! I would be very surprised if Mog has 30,000 subscribers, and certainly no more than 50,000, but that could change drastically with their new mobile application. Rdio, though the better of the two newbies, seems to be getting even less traction. Spotify, on the other hand, has acquired over 500,000 paid subscribers since last September.

And don’t get me started on MySpace Music. As everyone knows by now, anything MySpace is pretty lame and the service is a total dud.

Now, why is Spotify getting a higher rate of subscribers than services that have either been around for years, or even newer services that are trying to duplicate the Spotify model?

For one thing, people aren’t going to subscribe to a music service after a 3-day trial period. Spotify has gained traction, because once users live with the ad-supported service long enough, they become very attached to it and want to get a premium service. I have many friends in Europe who can’t live without their premium Spotify. They just love it and they’re passionate about it. The ad-supported service level is critical in converting users into buyers.

Another important and highly overlooked reason is that Spotify simply just rocks. It works better than anything out there. The user experience is spot on and the subscribers feel like they’re getting value. I guess that some just think that the US consumers have set the bar so low that they won’t cotton on to a really great quality service. Is the thinking that, whatever Europeans like, Americans won’t? It’s kind of like saying that BMW or Mercedes would never sell in the US because Americans only want Fords and Chevrolets.

The fact is that none of the other services are like Spotify. They try to copy some of the features, but have not put together the whole enchilada. What the obstructionists have to come to grips with is, of the existing US streaming and cloud-based services, Spotify is the only thing close to being a real game changer.

© 2010, Wayne Rosso. All rights reserved.

There was also an interesting story in the NY Times yesterday about how record companies are becomming more “flexible” in their licensing terms. It’s about time. But my guess it that it is still not enough. Record companies have been stuck in their alternate universe for so long that they still don’t understand that the value of their content isn’t what it used to be. And they have to face the reality that now music is basically free. Anyone can get anything anytime. And suing the masses just doesn’t work. In fact, suing anyone just doesn’t work. So they sue a start up and put them out of business. So what?

When I was with Grokster, one of my mandates was to try to talk sense to the record companies and work with them to convert file sharers into music buyers. I would get one of two answers from every record label: 1) we don’t reward pirates; 2) shut down and then we’ll talk. Naturally both answers were utterly ridiculous. Addressing the later first, the labels were so stupid that they all thought that there was some master switch behind a curtain somewhere that we could flip to completely shut down the network. And they refused to believe it when we swore that was not the case. And even if we were able to shut down the network completely, what good would do to cut off millions of potential customers? They just didn’t understand that once you lose them you’ll never get them back. Just ask Napster.

In the first case, let’s dig into the history of the record industry. To say that they don’t reward pirates is utter fallacy. How do you think that they would combat rogue cd plants in Asia that they could not shut down? They made them authorized distributors! They just couldn’t understand that they could and should employ the same strategy with file sharing companies. Now I will admit, when the file sharing companies were winning in the courts before the Grokster case got to the Supreme Court, some of the p2p guys were getting a bit uppity. But that’s no excuse. The goal was to form an alliance that would work for everyone. The guy who tried to break the logjam was Andy Lack when he became CEO of Sony Music. But that’s another story for another time.

A lot of music people, most visibly Paul McGinnis (U2′s manager) want the ISP’s to protect their content. That’s ridiculous. As is the Warner Music proposal to get ISP’s (or colleges and universities) to pass on a “music surcharge” to its customers, just like a tax on your mobile phone. Also ridiculous. It’s just not the ISP’s job, nor in their best interests to do so. Content owners are responsible for their content, no one else. That’s always been the case. ISP’s are not government agencies and thus are not assigned that responsibility. And the bellicose arrogance that the recording industry has historically displayed have not exactly endeared them to anyone, including their own customers.

Jim Killock, executive director of the The Open Rights Group – a UK based group that works on digital rights and freedoms, told the BBC “We need a compelling ‘all you can eat’ music service to reduce illicit file sharing. But [we need] to remember that extreme enforcement measures would probably be very unfair and make people angry.”

So now we’re here in 2009 and something akin to the Sunni Awakening is being suggested by the NY Times article. But just like the Sunnis, record companies have to avoid overreaching. They have already made the investment climate nearly impossible for start-ups to get viable venture capital, as VC’s have learned not to trust them. The major label deals thus far have made it impossible for a start-up to succeed. What they now have to do is much more than is even suggested in the Times article. They have to truly want new companies to succeed and help them do so instead of looking at them as cash cows for big advance payments and high royalty rates in order to bolster their bottom lines. That was and is harmful short term thinking. What they have to learn is that they are all in it together. A-salaamu ‘alaikum.

© 2009, Wayne Rosso. All rights reserved.

Today many of you may have read that Napster has just initiated a new, very aggressive pricing plan. The latest subscription that they’re pushing is $5 a month for unlimited streaming and 5 free MP3 downloads  month. Clearly this is some kind of loss leader to try to breathe some life into the service. According to Gorog, “We’re saying ‘Come for the MP3s and stay for Napster.’” Right.

This may sound like a great deal, but guess what? Best Buy was plugging Napster for years before they bought it and it was, and is, always a loser. It just sucked. And by comparison, services like Spotify deliver the goods for free and are much hipper. If you haven’t tried Spotify see if you can get someone in the UK or Europe to send you a beta invite. They just launched their beta a few months ago and already have well over 2 million users and are signing up new users at a very brisk pace. It’s really funny in that a few short years ago a service had to have mp3 downloads to have a chance to break through. But with a service like Spotify, downloading is becoming more and more irrelevant. You may say “but streaming services are tethered to your computer”. True, but with an iPhone app it just doesn’t make any difference anymore.

So could Napster do the same? Sure. But let’s not forget that the brand has been trashed by Gorog & company over the years and its just too lame. And once you’ve lost the cool factor good luck getting it back. Because the cool factor has passed on to the Spotify’s of the world. Oh, and another thing. Several industry wags and former Napster execs told me today “if anybody can fuck this up, its Chris Gorog. It will never happen”.

Napster CEO Chris Gorog.

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© 2009, Wayne Rosso. All rights reserved.