Spotify (SPOT) defeated Pandora handily by way of on-demand listening in their fight for music streaming. People aren’t looking for songs from curated radios anymore, be it stations via airwaves or websites and mobile apps through the internet. However sophisticated Pandora claimed its algorithm for music personalization to be, such curation fell flat when listeners knew exactly what they wanted for themselves. It’s only fitting that Pandora as an internet music radio is now part of Sirius XM (SIRI), a radio company by satellite.
Now dominating music-streaming services, Spotify is itself blurring the line between on-demand and radio-curated listening, a dangerous practice that may antagonize listeners sooner than it may realize. It can easily lose users to another competitor that’s determined to give listeners exactly what they want, not what a streaming provider thinks they may. If Spotify is not willing to commit to delivering a true on-demand listening experience on its mobile free tier, maybe it should quit messing around with that free service outright. It takes only few bad streaming features for Spotify to lose listeners to competitors that don’t stream behind a radio facade.
Setting the Wrong Tune on the Free Tier?
When Spotify first came out, its free service, including on mobile, honored on-demand listening without any inhibition on albums, playlists and everything else in between, including liked songs, starred, etc. Then gradually, on-demand listening on mobile free became less true in different ways. If a playlist is really short, Spotify’s add-songs or extra-songs feature would quickly insert its songs into the user’s playlist for shuffle mode. Even if the added songs were from the same artist, they wouldn’t be exactly what the user’s playlist intended to have, let alone songs from different artists.
For a chosen album, users also can’t play exclusively the songs on it since an album is always short by Spotify’s standards and thus, other songs are added to be shuffle-mode ready. It almost seems that Spotify is unknowingly sabotaging its free streaming by making it increasingly unattractive to listeners looking for on-demand listening. Or maybe the intention really is to see if listeners would hate the free streaming so much that they would want to upgrade to a paid subscription. But that’s not a sound causality, or is it?
Converting Free Users to Subscribers or Causing Them to Defect?
The way Spotify is setting its tune for on-demand listening on its mobile free tier may prove to be a real noise that actually disturbs its plan for gaining premium subscribers. When users become unhappy with their compromised on-demand listening, they may look elsewhere for free, but true, on-demand listening, rather than upgrading to its paid service, conceding to the company’s pressure tactic: subscribe or have less on-demand listening for free. After all, on-demand listening is still the best way to promote premium subscriptions for add-free, non-shuffle listening.
If spotify doesn’t want to give complete on-demand listening for free, it should simply do away with its free service on mobile altogether, but feel free to keep its desktop version whereby people are still allowed the freedom of true on-demand listening. Users who are okay with radio-like listening will never become subscribers, but users who are loathed by less on-demand listening may have already gone somewhere else. Financially, Spotify earns ad revenue that’s only one ninth of its subscription revenue. in the context of keeping its mobile free or not, the minimal financial loss in ad revenue is outweighed by avoiding a reputation of having a spotty on-demand listening experience, which can gradually give a bad rep to Spotify’s overall image.
Competition: Live or Die by Streaming Features
Spotify won the last music streaming battle precisely because of its having the desirable on-demand feature. It can easily lose next time when it fails to design new streaming features to outdo competitors. Spotify is not immune to continued competition, just like Netflix, which has to defend itself against all the emerging, moving pieces in the video streaming world. Deezer, a very Spotify-like music streaming service, may become a serious challenger to Spotify. Having been available in the U.S. since only July 2016, Deezer is still much smaller than Spotify, with 14 million monthly active users and 6 million paying subscribers as of April 2018, compared to Spotify’s respective 191 million and 87 million.
Unlike the failed Pandora earlier, Deezer is on an equal competing platform with Spotify, meaning Spotify doesn’t have that inherent on-demand streaming advantage over Deezer. But Spotify may not be driven out of rhythm just yet, as Deezer seems having even worse on-demand features on its free tier. In reporting its Q3, 2018 earnings, Spotify recognized the need to invest more in R&D and hire more engineers for new music services. In whatever way Spotify chooses to rearrange its features, leave on-demand listening as a settled standard. Music streaming services live or die by streaming features. It’s the user experience that either keeps them hooked or causes them to disengage.
Investor Note
It certainly looks like Spotify and Deezer are heading into a more direct competition than with anyone else in the music streaming field. After the demise of Pandora as an independent music-streaming service, Spotify became the one sure thing for a while. But now investors have to keep an ear out if Deezer keeps tuning up its pitch. When all has been played up and down, subscription numbers sets the right and steady tune. Since no one is like YouTube that can leverage Google’s massive user base to harness real ad revenue, free streaming with restricted on-demand listening from either Spotify or Deezer or anyone else delivers little for both users and the companies.
JW Investments Associates: Research & Management 