Spotify Pledged Free-To-Paid Conversions, But All-Paid Apple Music Is Growing Faster

Spotify has battled to make all music available on it's free ad-supported music service with the argument that it served as a funnel to paid subscriptions. But a new report puts Apple Music's U.S. monthly growth at 5% more than twice Spotify's 2% growth rate. In this op-ed, Chris Castle explores the implications. 

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Guest post by Chris Castle of Music • Technology • Policy

Spotify was saving us all from piracy by giving the music for free in its ad supported tier. And if you had any doubts about that, just ask any Spotify employee, particularly circa 2011 or so.  They’d tell you in no uncertain terms that not only did you just not get it, you were failing on a cosmological level not to understand that that person you saw in the distance walking on water was not Jesus.  It was you know who.

Some of us who believe that most people have an ambivalent relationship with advertising.  Some tolerate it, and of course you do hear people saying in their best automoton impression how advertising is “useful” which if it’s said just right can send a chill up the spine at the sheer Stepfordness of it all.  Many people, however, loathe advertising, which is why you constantly hear “leave it there” or “don’t move” from some on-air folk before a commercial break.  Some of those advertising loathers are themselves artists, which is why they have restrictions in their contracts about how their music can be used in advertising.

All of which went out the window with Spotify, because Spotify was going to save us all from piracy.  (We’ll leave out the Daniel Ek/U-torrent part today.)

And when Apple launched Apple Music as a subscription only service, Spotify had a meltdown–staring with Daniel Ek himself who Tweeted “Oh ok” which I guess he thought was something of a put down.

But – what about the conversion bit?  Apple is into conversion, too, but a different kind.  As of last year, the iPhone installed base was over 1 billion.  Set aside what’s probably relatively minor overlap (multiple phones on same billing account), one way or another that’s an existing customer base of 1 billion people that already have iTunes installed, already have a billing relationship with Apple and are already predisposed to buy an Apple Music subscription.  What you might call economy of scale.

Spotify on the other hand wants you to believe that they can some how take people who have many, many commercial alternatives to theft – all of which they’ve ignored–and get them to use an advertising supported model.  A larger potential market, but people who don’t know you, don’t pay money for music online (yes, I know there’s an argument that they buy other things, which I don’t buy), and for many of them, people who don’t like us much.  Dedicated followers of Lessig in many cases.

So it should be no surprise that Anne Steele in the Wall Street Journal is reporting that if you include users who have subscribed to free or discounted subscriptions, Apple is actually ahead of Spotify in the US:

Apple Music has already passed Spotify. Including people who are still in free or deeply discounted trial periods leading up to paid subscription, Apple Music has a slight edge on Spotify in the U.S., according to one of the people familiar with the figures.

Apple Music has three to four times the number of such trial users as Spotify, according to this person, in part because it doesn’t offer a free tier. Also, all Apple Music subscribers are entered automatically into a free initial three-month period. Excluding those trial users, Spotify is ahead, but by a small amount—and that gap is closing.

And that’s kind of the point–Apple already has the billing relationship with their users so any resources they spend to convert users to subscribers is money well spent with a much higher likelihood of return.

But Anne Steele is one of the only journalists I’ve ever read who even mentions the possiblity that Spotify’s subscriber numbers are…let’s say exaggerated.   As she notes:

One question lingering in the industry is what metrics Spotify will have to disclose once it becomes a publicly traded company. The service has periodically released global subscriber totals and just last month touted a new high of 70 million.

Pop Quiz–and be honest now–how many times have you thought that Spotify has 70 million payingsubscribers?  Meaning users who are not on their 14th 90 day free trial?  If you look carefully you will see that Spotify itself doesn’t ever say 70 million paid subscribers.  The hoorah Spotify boosters in the press add “paid”.  But when the cold hand of the Sarbanes-Oxley truth in public company reporting law comes into Spotify’s post-IPO life like it does Apple’s, that 70 million number may get clarified–a lot.  And my bet is it will move downward or that there will start to be a greater distinction drawn by Spotify between subscribers and paying subscribers.

And that restatement of subscribers is not the kind of conversion that Spotify wants.