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Summary:

Asked why it’s downsizing its free service, Spotify tells paidContent:UK: “It’s not due to bandwidth issues and it’s not a premium conversio…

Asked why it’s downsizing its free service, Spotify tells paidContent:UK: “It’s not due to bandwidth issues and it’s not a premium conversion strategy – we want to make that extremely clear. It’s not related to the U.S. launch.”

So what is the reason? Spotify won’t say. “Labels encouraged Spotify down this route by presenting data that suggested its business model would not hold up if it did not cut back its free service,” FT reports.

Spotify’s spokesperson just tells us: “What is driving users to paid is the free service. That gets users engaged with the service like no other. Spotify has captured a youth demographic that’s been very hard for the music industry to monetise – but their perception of the value of music completely changes as they get invested in the experience. So the ‘free’ experience, in fact, pays big dividends. That’s why it is so vital we continue to make the free service available.”

But, if free is so valuable at converting users to paid (one million customers amongst six million active users or 10 million total users), then why cut free allowance in half? On that, Spotify is staying as quiet as it does when it’s asked to confirm that labels own equity in it – a fact that, as the FT suggests, may not be unrelated to today’s move.

For one, the new limit suggests Spotify’s advertising business, which was pulling “millions”, is of reduced importance – after all, there will now be fewer free users listening to the ad-supported service.

In Scandinavia, Spotify is credited with swelling digital music revenue and helping reduce unauthorised downloading. Snap Twitter reaction to its announcement reckons many users will now go “back towards piracy“…

Really? It would be a brutal and stark indictment of the extent to which people really value music if, for the sake of 10 fewer hours, converts return to the black market rather than simply start paying again…

That’s why we, Spotify and the music business may be approaching a proving moment. The Swedes have created the most easily accessible, best-loved streaming service to date, with more songs than you could listen to in a lifetime… if that isn’t worth paying for, what is… ?

Not much, according to consumers, notes Forrester research director Mark Mulligan: “Many record label execs will argue that they don’t want to have legal free as a permanent component of the digital music landscape. Tough. The consumer demand dial cannot be turned back.

“Illegal downloading and YouTube (NSDQ: GOOG) forever changed many consumers’ perceptions of music as a paid-for commodity. These consumers expect music to be free. Free needs fighting with free. That doesn’t necessarily mean it has to be free, but it certainly needs to feel like free.”

Spotify will hope, instead, that its software experience and catalogue will prove enticing enough to sign up. And it’s not as if Spotify’s free service, which was already capped at 20 hours, is going away entirely.

“(Services must find) third parties who will shoulder some or all of the cost to the consumer in return for bundling the service with their products,” Mulligan says. “Imagine how tiny a fraction of a three-year Spotify premium subscription would be as part of a new car sale?”

Informa Telecoms & Media analyst Giles Cottle says: “(The five-song limit) is more significant than capping the monthly play time, as it ensures that users will not be able to use Spotify as a free replacement for album buying. This is what has always concerned labels the most about Spotify.

“A few users will return to Rapidshare, BitTorrent et al, but essentially, Spotify provides a better service and experience than these services do,” Cottle says. “For many people, this is a greater priority than unlimited, free music. And it is for this reason that Spotify has decided to act as it has done.”

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  1. Matthew Green Thursday, April 14, 2011

    The free legal alternatives (of which there aren’t a huge number but one of the biggest and best is We7) may do well out of this.

  2. The turn-off for Spotify is nothing to do with commercial issues, it is to do with audio quality. Spotify has poor fidelity, and low bandwidth, and a consequent audio quality much poorer than CDs.

    I would never sign up for a service which downgrades an artists work so much, and which does not offer me even iTunes quality.

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